----

----

**SECURITIES        AND EXCHANGE COMMISSION**

**FORM        10-Q**

**For        the quarterly period ended **
**September        30, 2006**

| **Commission**                   |   | **Name                  of Registrants, State of Incorporation,** |   | **I.R.S.                  Employer**    |
|----------------------------------|--------|-------------------------------------------------------------------|--------|-----------------------------------------|
| **File                  Number** |   | **Address                  and Telephone Number**                 |   | **Identification                  No.** |
| 001-32462                        |   | PNM                  Resources, Inc.                              |   | 85-0468296                              |
|                             |   | (A                  New Mexico Corporation)                       |   |                                    |
|                             |   | Alvarado                  Square                                  |   |                                    |
|                             |   | Albuquerque,                  New Mexico 87158                    |   |                                    |
|                             |   | (505)                  241-2700                                   |   |                                    |
|                             |   |                                                              |   |                                    |
| 001-06986                        |   | Public                  Service Company of New Mexico             |   | 85-0019030                              |
|                             |   | (A                  New Mexico Corporation)                       |   |                                    |
|                             |   | Alvarado                  Square                                  |   |                                    |
|                             |   | Albuquerque,                  New Mexico 87158                    |   |                                    |
|                             |   | (505)                  241-2700                                   |   |                                    |
|                             |   |                                                              |   |                                    |
| 002-97230                        |   | Texas-New                  Mexico Power Company                   |   | 75-0204070                              |
|                             |   | (A                  Texas Corporation)                            |   |                                    |
|                             |   | 4100                  International Plaza,                        |   |                                    |
|                             |   | P.O.                  Box 2943                                    |   |                                    |
|                             |   | Fort                  Worth, Texas 76113                          |   |                                    |
|                             |   | (817)                  731-0099                                   |   |                                    |

----

| Large                  accelerated filer ü | Accelerated                  filer                        | Non-accelerated                  filer                        |
|-------------------------------------------------|-------------------------------------------------------------------------------|-----------------------------------------------------------------------------------|

| Large                  accelerated filer                        | Accelerated                  filer     | Non-accelerated                  filer ü |
|-------------------------------------------------------------------------------------|-------------------------------------------------------|-----------------------------------------------|

**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).**

----

**PNM        RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC        SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW        MEXICO POWER COMPANY AND SUBSIDIARIES**

**INDEX**

|                                                                                                                                     |                         Page No. |
|------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------|
| GLOSSARY                                                                                                                                 | 1                                                    |
| **PART                    1. FINANCIAL INFORMATION**                                                                                     |                                                 |
| ITEM                    1. FINANCIAL STATEMENTS (Unaudited)                                                                              |                                                 |
| PNM                    RESOURCES, INC. AND SUBSIDIARIES                                                                                  |                                                 |
| CONDENSED                    CONSOLIDATED STATEMENTS OF EARNINGS                                                                         | 3                                                    |
| Three                    and Nine Months Ended September 30, 2006 and 2005                                                               |                                                 |
| CONDENSED                    CONSOLIDATED BALANCE SHEETS                                                                                 | 4                                                    |
| September                    30, 2006 and December 31, 2005                                                                              |                                                 |
| CONDENSED                    CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                       | 6                                                    |
| Nine                    Months Ended September 30, 2006 and 2005                                                                         |                                                 |
| CONDENSED                    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                                                             | 8                                                    |
| Three                    and Nine Months Ended September 30, 2006 and 2005                                                               |                                                 |
| PUBLIC                    SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY                                                                   |                                                 |
| CONDENSED                    CONSOLIDATED STATEMENTS OF EARNINGS                                                                         | 9                                                    |
| Three                    and Nine Months Ended September 30, 2006 and 2005                                                               |                                                 |
| CONDENSED                    CONSOLIDATED BALANCE SHEETS                                                                                 | 10                                                   |
| September                    30, 2006 and December 31, 2005                                                                              |                                                 |
| CONDENSED                    CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                       | 12                                                   |
| Nine                    Months Ended September 30, 2006 and 2005                                                                         |                                                 |
| CONDENSED                    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                                                             | 14                                                   |
| Three                    and Nine Months Ended September 30, 2006 and 2005                                                               |                                                 |
| TEXAS-NEW                    MEXICO POWER COMPANY AND SUBSIDIARIES                                                                       |                                                 |
| CONDENSED                    CONSOLIDATED STATEMENTS OF EARNINGS                                                                         | 15                                                   |
| Three                    and Nine Months Ended September 30, 2006 and 2005                                                               |                                                 |
| CONDENSED                    CONSOLIDATED BALANCE SHEETS                                                                                 | 17                                                   |
| September                    30, 2006 and December 31, 2005                                                                              |                                                 |
| CONDENSED                    CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                       | 19                                                   |
| Nine                    Months Ended September 30, 2006 and 2005                                                                         |                                                 |
| CONDENSED                    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                                                             | 21                                                   |
| Three                    and Nine Months Ended September 30, 2006 and 2005                                                               |                                                 |
| NOTES                    TO                    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                               | 23                                                   |
| ITEM                    2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION                    AND RESULTS OF OPERATIONS | 72                                                   |
| ITEM                    3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET                    RISK                                  | 111                                                  |
| ITEM                    4 CONTROLS AND PROCEDURES                                                                                        | 117                                                  |
| **PART                    II. OTHER INFORMATION:**                                                                                       |                                                 |
| ITEM                    1. LEGAL PROCEEDINGS                                                                                             | 119                                                  |
| ITEM                    1A. RISK FACTORS                                                                                                 | 119                                                  |
| ITEM                    5. OTHER EVENTS                                                                                                  | 119                                                  |
| ITEM                    6. EXHIBITS                                                                                                      | 120                                                  |
| SIGNATURE                                                                                                                                | 121                                                  |

----

**GLOSSARY**

| Afton                               | Afton                  Generating Station                                                          |
|-------------------------------------|----------------------------------------------------------------------------------------------------|
| ALJ                                 | Administrative                  Law Judge                                                          |
| Altura                              | Altura                  Power L.P.                                                                 |
| APB                                 | Accounting                  Principles Board                                                       |
| APS                                 | Arizona                  Public Service Company                                                    |
| Avistar                             | Avistar,                  Inc.                                                                     |
| Board                               | Board                  of Directors                                                                |
| BTU                                 | British                  Thermal Unit                                                              |
| Cal                  PX             | California                  Power Exchange                                                         |
| Cal                  ISO            | California                  Independent System Operator                                            |
| Cascade                             | Cascade                  Invesetment, L.L.C.                                                       |
| Company                             | PNM                  Resources, Inc. and Subsidiaries                                              |
| Constellation                       | Constellation                  Energy Commodities Group, Inc.                                      |
| CTC                                 | Competition                  Transition Charge                                                     |
| Decatherm                           | 1,000,000                  BTUs                                                                    |
| Delta                               | Delta-Person                  Limited Partnership                                                  |
| EaR                                 | Earnings                  at Risk                                                                  |
| EEI                                 | Edison                  Electric Institute                                                         |
| EIP                                 | Eastern                  Interconnection Project                                                   |
| EITF                                | Emerging                  Issues Task Force                                                        |
| EnergyCo                            | Energy                  Co, L.L.C.                                                                 |
| EPA                                 | United                  States Environmental Protection Agency                                     |
| EPE                                 | El                  Paso Electric Company                                                          |
| ERCOT                               | Electric                  Reliability Council of Texas                                             |
| ESPP                                | Employee                  Stock Purchase Plan                                                      |
| FASB                                | Financial                  Accounting Standards Board                                              |
| FCPSP                               | First                  Choice Power Special Purpose, L.P.                                          |
| Federal                  Funds Rate | Overnight                  Rate on Federal funds transactions with members of the                  |
|                                | Federal                  Reserve System, as published by the Federal Reserve                  Bank |
| FERC                                | Federal                  Energy Regulatory Commission                                              |
| First                  Choice       | First                  Choice Power, L. P. and Subsidiaries                                        |
| Four                  Corners       | Four                  Corners Power Plant                                                          |
| GAAP                                | Generally                  Accepted Accounting Principles in the United                            |
|                                | States                  of America                                                                 |
| LIBOR                               | London                  Interbank Offered Rate                                                     |
| Lordsburg                           | Lordsburg                  Generating Station                                                      |
| Luna                                | Luna                  Energy Facility                                                              |
| MMBTUs                              | Million                  British Thermal Units                                                     |
| Moody’s                       | Moody’s                  Investor Services, Inc.                                             |
| MW                                  | Megawatt                                                                                           |
| MWh                                 | Megawatt                  Hour                                                                     |
| NMED                                | New                  Mexico Environment Department                                                 |
| NMPRC                               | New                  Mexico Public Regulation Commission                                           |
| NOPR                                | Notice                  of Proposed Rulemaking                                                     |
| NRC                                 | Nuclear                  Regulatory Commission                                                     |
| NSPS                                | New                  Source Performance Standards                                                  |
| NSR                                 | New                  Source Review                                                                 |
| NYMEX                               | New                  York Mercantile Exchange                                                      |
| OASIS                               | Open                  Access Same Time Information System                                          |
| OATT                                | Open                  Access Transmission Tariff                                                   |
| OMOI                                | Office                  of Market Oversight and Investigation                                      |
| O&M                             | Operations                  and Maintenance                                                        |

----

| PEP                        | PNMR                  Omnibus Performance Equity Plan                          |
|----------------------------|--------------------------------------------------------------------------------|
| PGAC                       | Purchased                  Gas Adjustment Clause                               |
| PNM                        | Public                  Service Company of New Mexico and Subsidiary           |
| PNMR                       | PNM                  Resources, Inc. and Subsidiaries                          |
| PPA                        | Power                  Purchase Agreement                                      |
| PUCT                       | Public                  Utility Commission of Texas                            |
| PVNGS                      | Palo                  Verde Nuclear Generating Station                         |
| Reeves                     | Reeves                  Generating Station                                     |
| REP                        | Retail                  Electricity Provider                                   |
| RMC                        | Risk                  Management Committee                                     |
| RTO                        | Regional                  Transmission Organization                            |
| SDG&E                  | San                  Diego Gas and Electric Company                            |
| SEC                        | United                  States Securities and Exchange Commission              |
| Sempra                     | Sempra                  Generation, a subsidiary of Sempra Energy              |
| SESCO                      | San                  Angelo Electric Service Company                           |
| SFAS                       | Statement                  of Financial Accounting Standards                   |
| SJCC                       | San                  Juan Coal Company                                         |
| SJGS                       | San                  Juan Generating Station                                   |
| SOAH                       | State                  Office of Administrative Hearings                       |
| SPS                        | Southwestern                  Public Service Company                           |
| S&P                    | Standard                  and Poors Ratings Services                           |
| TCEQ                       | Texas                  Commission on Environmental Quality                     |
| TECA                       | Texas                  Electric Choice Act                                     |
| TNMP                       | Texas-New                  Mexico Power Company and Subsidiaries               |
| TNP                        | TNP                  Enterprises, Inc. and Subsidiaries                        |
| Throughput                 | Volumes                  of gas delivered, whether or not owned by the Company |
| Twin                  Oaks | Assets                  of Twin Oaks Power, L.P. and Twin Oaks Power III, L.P. |
| VaR                        | Value                  at Risk                                                 |
| WSPP                       | Western                  Systems Power Pool                                    |

----

**ITEM        1. FINANCIAL STATEMENTS**

**PNM        RESOURCES, INC. AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF EARNINGS**

|                                                               |   | **Three                    Months Ended** |    | **Nine                    Months Ended**                      |   |
|--------------------------------------------------------------------|--------|-------------------------------------------|---------|---------------------------------------------------------------|--------|
|                                                               |   | **September                    30,**      |    | **September                    30,**                          |   |
|                                                               |   | **2006**                                  |    | **2005**                                                      |   | **2006** |   | **2005** |   |
|                                                               |   |                                      |    | (In                      thousands, except per share amounts) |   |   |   |
| **Operating                    Revenues:**                         |   |                                      |    |                                                          |   |   |   |   |   |   |   |   |   |
| Electric                                                           |   | $                                         | 580,967 |                                                          | $      | 518,529 |   | $ | 1,506,786 |   | $ | 1,103,648 |   |
| Gas                                                                |   |                                      | 69,001  |                                                          |   | 78,258 |   |   | 345,346 |   |   | 325,752 |   |
| Other                                                              |   |                                      | 197     |                                                          |   | 330 |   |   | 503 |   |   | 884 |   |
| Total                    operating revenues                        |   |                                      | 650,165 |                                                          |   | 597,117 |   |   | 1,852,635 |   |   | 1,430,284 |   |
|                                                               |   |                                      |    |                                                          |   |   |   |   |   |   |   |   |   |
| **Operating                    Expenses:**                         |   |                                      |    |                                                          |   |   |   |   |   |   |   |   |   |
| Cost                    of energy sold                             |   |                                      | 366,688 |                                                          |   | 362,863 |   |   | 1,099,160 |   |   | 848,532 |   |
| Administrative                    and general                      |   |                                      | 69,599  |                                                          |   | 60,589 |   |   | 201,215 |   |   | 154,684 |   |
| Energy                    production costs                         |   |                                      | 38,489  |                                                          |   | 36,526 |   |   | 119,790 |   |   | 112,364 |   |
| Depreciation                    and amortization                   |   |                                      | 39,899  |                                                          |   | 36,847 |   |   | 112,182 |   |   | 101,311 |   |
| Transmission                    and distribution costs             |   |                                      | 19,723  |                                                          |   | 21,179 |   |   | 60,087 |   |   | 50,292 |   |
| Taxes,                    other than income taxes                  |   |                                      | 18,382  |                                                          |   | 17,184 |   |   | 53,607 |   |   | 36,626 |   |
| Income                    taxes                                    |   |                                      | 20,847  |                                                          |   | 11,771 |   |   | 37,284 |   |   | 21,795 |   |
| Total                    operating expenses                        |   |                                      | 573,627 |                                                          |   | 546,959 |   |   | 1,683,325 |   |   | 1,325,604 |   |
| Operating                    income                                |   |                                      | 76,538  |                                                          |   | 50,158 |   |   | 169,310 |   |   | 104,680 |   |
|                                                               |   |                                      |    |                                                          |   |   |   |   |   |   |   |   |   |
| **Other                    Income and Deductions:**                |   |                                      |    |                                                          |   |   |   |   |   |   |   |   |   |
| Interest                    income                                 |   |                                      | 9,902   |                                                          |   | 10,760 |   |   | 28,969 |   |   | 31,682 |   |
| Other                    income                                    |   |                                      | 1,167   |                                                          |   | 5,433 |   |   | 6,256 |   |   | 11,777 |   |
| Carrying                    charges on regulatory assets           |   |                                      | 2,038   |                                                          |   | 1,910 |   |   | 6,015 |   |   | 2,435 |   |
| Other                    deductions                                |   |                                      | (1,519  | )                                                             |   | (6,360 | ) |   | (5,532 | ) |   | (10,038 | ) |
| Other                    income taxes                              |   |                                      | (3,979  | )                                                             |   | (4,168 | ) |   | (12,914 | ) |   | (12,729 | ) |
| Net                    other income and deductions                 |   |                                      | 7,609   |                                                          |   | 7,575 |   |   | 22,794 |   |   | 23,127 |   |
|                                                               |   |                                      |    |                                                          |   |   |   |   |   |   |   |   |   |
| **Interest                    Charges**                       |   |                                      | 40,171  |                                                          |   | 28,714 |   |   | 105,232 |   |   | 64,538 |   |
|                                                               |   |                                      |    |                                                          |   |   |   |   |   |   |   |   |   |
| **Preferred                    Stock Dividend Requirements**       |   |                                      |    |                                                          |   |   |   |   |   |   |   |   |   |
| **of                    Subsidiary**                               |   |                                      | 132     |                                                          |   | 536 |   |   | 396 |   |   | 2,736 |   |
| **Net                    Earnings**                                |   | $                                         | 43,844  |                                                          | $      | 28,483 |   | $ | 86,476 |   | $ | 60,533 |   |
|                                                               |   |                                      |    |                                                          |   |   |   |   |   |   |   |   |   |
| **Net                    Earnings per Common Share (see Note 5):** |   |                                      |    |                                                          |   |   |   |   |   |   |   |   |   |
| **Basic**                                                          |   | $                                         | 0.63    |                                                          | $      | 0.41 |   | $ | 1.25 |   | $ | 0.93 |   |
| **Diluted**                                                        |   | $                                         | 0.62    |                                                          | $      | 0.41 |   | $ | 1.24 |   | $ | 0.92 |   |
| **Dividends                    Declared per Common Share**         |   | $                                         | 0.22    |                                                          | $      | 0.40 |   | $ | 0.66 |   | $ | 0.59 |   |
|                                                               |   |                                      |    |                                                          |   |   |   |   |   |   |   |   |   |

----

**PNM        RESOURCES, INC. AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

|                                                                                                                                           |   | **September                    30,** |      | **December                    31,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-----------|-------------------------------------|--------|
|                                                                                                                                           |   | **2006**                             |      | **2005**                            |   |
|                                                                                                                                           |   | (In                    thousands)    |      |
|                                                                                                                                           |   |                                 |      |                                |   |
| **ASSETS**                                                                                                                                     |   |                                 |      |                                |   |
| **Utility                    Plant:**                                                                                                          |   |                                 |      |                                |   |
| Electric                    plant in service                                                                                                   |   | $                                    | 4,060,501 |                                | $      | 3,315,642 |   |
| Gas                    plant in service                                                                                                        |   |                                 | 724,129   |                                |   | 711,823 |   |
| Common                    plant in service and plant held for future use                                                                       |   |                                 | 158,847   |                                |   | 135,849 |   |
|                                                                                                                                           |   |                                 | 4,943,477 |                                |   | 4,163,314 |   |
| Less                    accumulated depreciation and amortization                                                                              |   |                                 | 1,457,779 |                                |   | 1,374,599 |   |
|                                                                                                                                           |   |                                 | 3,485,698 |                                |   | 2,788,715 |   |
| Construction                    work in progress                                                                                               |   |                                 | 152,528   |                                |   | 168,195 |   |
| Nuclear                    fuel, net of accumulated amortization of $16,714 and                    $14,679                                     |   |                                 | 27,240    |                                |   | 27,182 |   |
|                                                                                                                                           |   |                                 |      |                                |   |   |   |
| Net                    utility plant                                                                                                           |   |                                 | 3,665,466 |                                |   | 2,984,092 |   |
|                                                                                                                                           |   |                                 |      |                                |   |   |   |
| **Other                    Property and Investments:**                                                                                         |   |                                 |      |                                |   |   |   |
| Investment                    in lessor notes                                                                                                  |   |                                 | 259,360   |                                |   | 286,678 |   |
| Other                    investments                                                                                                           |   |                                 | 138,435   |                                |   | 180,013 |   |
| Non-utility                    property, net of accumulated depreciation of $2,368 and                    $22                                  |   |                                 | 7,676     |                                |   | 4,214 |   |
|                                                                                                                                           |   |                                 |      |                                |   |   |   |
| Total                    other property and investments                                                                                        |   |                                 | 405,471   |                                |   | 470,905 |   |
|                                                                                                                                           |   |                                 |      |                                |   |   |   |
| **Current                    Assets:**                                                                                                         |   |                                 |      |                                |   |   |   |
| Cash                    and cash equivalents                                                                                                   |   |                                 | 100,866   |                                |   | 68,199 |   |
| Special                    deposits                                                                                                            |   |                                 | 5,171     |                                |   | 534 |   |
| Accounts                    receivable, net of allowance for uncollectible accounts of $6,445                    and                    $3,653 |   |                                 | 129,605   |                                |   | 128,834 |   |
| Unbilled                    revenues                                                                                                           |   |                                 | 98,733    |                                |   | 151,773 |   |
| Other                    receivables                                                                                                           |   |                                 | 67,596    |                                |   | 64,285 |   |
| Inventories                                                                                                                                    |   |                                 | 58,479    |                                |   | 52,037 |   |
| Regulatory                    assets                                                                                                           |   |                                 | 18,455    |                                |   | 28,058 |   |
| Other                    current assets                                                                                                        |   |                                 | 125,523   |                                |   | 102,577 |   |
|                                                                                                                                           |   |                                 |      |                                |   |   |   |
| Total                    current assets                                                                                                        |   |                                 | 604,428   |                                |   | 596,297 |   |
|                                                                                                                                           |   |                                 |      |                                |   |   |   |
| **Deferred                    Charges:**                                                                                                       |   |                                 |      |                                |   |   |   |
| Regulatory                    assets                                                                                                           |   |                                 | 360,581   |                                |   | 347,279 |   |
| Prepaid                    pension cost                                                                                                        |   |                                 | 94,485    |                                |   | 91,444 |   |
| Goodwill                                                                                                                                       |   |                                 | 495,441   |                                |   | 499,155 |   |
| Other                    intangible assets, net of accumulated amortization of $1,725                    and                    $742           |   |                                 | 102,529   |                                |   | 78,512 |   |
| Other                    deferred charges                                                                                                      |   |                                 | 114,985   |                                |   | 57,025 |   |
|                                                                                                                                           |   |                                 |      |                                |   |   |   |
| Total                    deferred charges                                                                                                      |   |                                 | 1,168,021 |                                |   | 1,073,415 |   |
|                                                                                                                                           |   | $                                    | 5,843,386 |                                | $      | 5,124,709 |   |
|                                                                                                                                           |   |                                 |      |                                |   |   |   |

----

**PNM        RESOURCES, INC. AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

|                                                                                                                       |   | **September                    30,** |      | **December                    31,** |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-----------|-------------------------------------|--------|
|                                                                                                                       |   | **2006**                             |      | **2005**                            |   |
|                                                                                                                       |   | (In                    thousands)    |      |
|                                                                                                                       |   |                                 |      |                                |   |
| **CAPITALIZATION                    AND LIABILITIES**                                                                      |   |                                 |      |                                |   |
| **Capitalization:**                                                                                                        |   |                                 |      |                                |   |
| Common                    Stockholders' equity:                                                                            |   |                                 |      |                                |   |
| Common                    stock outstanding (no par value, 120,000,000 shares authorized:                    issued        |   |                                 |      |                                |   |
| 70,362,922                    and 68,786,286 at September 30, 2006 and December 31, 2005,                    respectively) |   | $                                    | 856,089   |                                | $      | 813,425 |   |
| Accumulated                    other comprehensive loss, net of tax                                                        |   |                                 | (78,755   | )                                   |   | (91,589 | ) |
| Retained                    earnings                                                                                       |   |                                 | 605,175   |                                |   | 564,623 |   |
| Total                    common stockholders' equity                                                                       |   |                                 | 1,382,509 |                                |   | 1,286,459 |   |
| Cumulative                    preferred stock of subsidiary without mandatory redemption                                   |   |                                 |      |                                |   |   |   |
| ($100                    stated value, 10,000,000 shares authorized: issued 115,293                    at                  |   |                                 |      |                                |   |   |   |
| September                    30, 2006 and December 31, 2005)                                                               |   |                                 | 11,529    |                                |   | 11,529 |   |
| Long-term                    debt                                                                                          |   |                                 | 1,745,845 |                                |   | 1,746,395 |   |
|                                                                                                                       |   |                                 |      |                                |   |   |   |
| Total                    capitalization                                                                                    |   |                                 | 3,139,883 |                                |   | 3,044,383 |   |
|                                                                                                                       |   |                                 |      |                                |   |   |   |
| **Current                    Liabilities:**                                                                                |   |                                 |      |                                |   |   |   |
| Short-term                    debt                                                                                         |   |                                 | 839,100   |                                |   | 332,200 |   |
| Accounts                    payable                                                                                        |   |                                 | 125,174   |                                |   | 206,648 |   |
| Accrued                    interest and taxes                                                                              |   |                                 | 80,782    |                                |   | 27,815 |   |
| Regulatory                    liabilities                                                                                  |   |                                 | 3,988     |                                |   | 7,085 |   |
| Other                    current liabilities                                                                               |   |                                 | 307,745   |                                |   | 149,748 |   |
|                                                                                                                       |   |                                 |      |                                |   |   |   |
| Total                    current liabilities                                                                               |   |                                 | 1,356,789 |                                |   | 723,496 |   |
|                                                                                                                       |   |                                 |      |                                |   |   |   |
| **Long-Term                    Liabilities:**                                                                              |   |                                 |      |                                |   |   |   |
| Accumulated                    deferred income taxes                                                                       |   |                                 | 456,270   |                                |   | 451,263 |   |
| Accumulated                    deferred investment tax credits                                                             |   |                                 | 31,080    |                                |   | 33,806 |   |
| Regulatory                    liabilities                                                                                  |   |                                 | 400,011   |                                |   | 402,253 |   |
| Asset                    retirement obligations                                                                            |   |                                 | 59,456    |                                |   | 55,646 |   |
| Accrued                    pension liability and postretirement benefit cost                                               |   |                                 | 221,767   |                                |   | 227,202 |   |
| Other                    deferred credits                                                                                  |   |                                 | 178,130   |                                |   | 186,660 |   |
|                                                                                                                       |   |                                 |      |                                |   |   |   |
| Total                    long-term liabilties                                                                              |   |                                 | 1,346,714 |                                |   | 1,356,830 |   |
|                                                                                                                       |   |                                 |      |                                |   |   |   |
| Commitments                    and Contingencies (see Note 9)                                                              |   |                                 |      |                                |   |   |   |
|                                                                                                                       |   | $                                    | 5,843,386 |                                | $      | 5,124,709 |   |
|                                                                                                                       |   |                                 |      |                                |   |   |   |

----

**PNM        RESOURCES, INC. AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

|                                                                                                                     |   | **Nine                    Months Ended** |     |
|--------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|----------|
|                                                                                                                     |   | **September                    30,**     |     |
|                                                                                                                     |   | **2006**                                 |     | **2005** |   |
|                                                                                                                     |   | (In                    thousands)        |     |
| **Cash                    Flows From Operating Activities:**                                                             |   |                                     |     |   |   |
| Net                    earnings                                                                                          |   | $                                        | 86,476   |   | $ | 60,533 |   |
| Adjustments                    to reconcile net earnings to net cash flows from operating                    activities: |   |                                     |     |   |   |   |   |
| Depreciation                    and amortization                                                                         |   |                                     | 127,107  |   |   | 112,000 |   |
| Allowance                    for equity funds used during construction                                                   |   |                                     | (499     | ) |   | (1,784 | ) |
| Accumulated                    deferred income tax (benefit)                                                             |   |                                     | (624     | ) |   | 17,826 |   |
| Net                    unrealized (gains)/losses on trading and investment                    securities                 |   |                                     | 4,485    |   |   | (419 | ) |
| Realized                    gains on investment securities                                                               |   |                                     | (1,846   | ) |   | (3,466 | ) |
| Carrying                    charges on deferred stranded costs                                                           |   |                                     | (6,015   | ) |   | (2,435 | ) |
| Interest                    on retail competition transition obligation                                                  |   |                                     | 1,345    |   |   | 318 |   |
| Carrying                    charges on other regulatory assets and liabilities                                           |   |                                     | (2,597   | ) |   | (2,104 | ) |
| Amortization                    of fair value of acquired Twin Oaks sales contract                                       |   |                                     | (48,720  | ) |   | - |   |
| Amortization                    of emissions allowances                                                                  |   |                                     | 1,808    |   |   | - |   |
| Amortization                    of fair value of acquired First Choice contracts                                         |   |                                     | 1,982    |   |   | 829 |   |
| Stock                    based compensation expense                                                                      |   |                                     | 6,648    |   |   | - |   |
| Excess                    tax benefit from stock-based payment arrangements                                              |   |                                     | (2,050   | ) |   | - |   |
| Other,                    net                                                                                            |   |                                     | 2,792    |   |   | 1,495 |   |
| Changes                    in certain assets and liabilities:                                                            |   |                                     |     |   |   |   |   |
| Customer                    accounts receivable                                                                          |   |                                     | 21,845   |   |   | 9,099 |   |
| Other                    accounts receivable                                                                             |   |                                     | (3,311   | ) |   | (4,128 | ) |
| Unbilled                    revenues                                                                                     |   |                                     | 49,114   |   |   | 27,499 |   |
| Regulatory                    assets                                                                                     |   |                                     | 25,652   |   |   | (10,678 | ) |
| Other                    assets                                                                                          |   |                                     | 8,726    |   |   | (15,589 | ) |
| Accrued                    postretirement benefit costs                                                                  |   |                                     | (8,476   | ) |   | (2,574 | ) |
| Accounts                    payable                                                                                      |   |                                     | (102,956 | ) |   | (3,724 | ) |
| Accrued                    interest and taxes                                                                            |   |                                     | 55,006   |   |   | 40,042 |   |
| PVNGS                    lease accrual                                                                                   |   |                                     | (16,573  | ) |   | (16,573 | ) |
| Deferred                    credits                                                                                      |   |                                     | (13,364  | ) |   | (20,222 | ) |
| Other                    liabilities                                                                                     |   |                                     | (220     | ) |   | (18,803 | ) |
| Net                    cash flows provided by operating activities                                                       |   |                                     | 185,735  |   |   | 167,142 |   |
|                                                                                                                     |   |                                     |     |   |   |   |   |
| **Cash                    Flows From Investing Activities:**                                                             |   |                                     |     |   |   |   |   |
| Utility                    plant additions                                                                               |   |                                     | (188,102 | ) |   | (130,754 | ) |
| Nuclear                    fuel additions                                                                                |   |                                     | (7,391   | ) |   | (10,349 | ) |
| Proceeds                    from sales of securities                                                                     |   |                                     | 65,713   |   |   | 65,720 |   |
| Purchases                    of securities                                                                               |   |                                     | (66,578  | ) |   | (66,930 | ) |
| Return                    of principal PVNGS lessor notes                                                                |   |                                     | 22,937   |   |   | 21,091 |   |
| Cash                    acquired from purchase of TNP, net of cash paid                                                  |   |                                     | -        |   |   | 34,531 |   |
| Twin                    Oaks business acquisition                                                                        |   |                                     | (481,058 | ) |   | - |   |
| Other,                    net                                                                                            |   |                                     | 2,926    |   |   | 5,715 |   |
| Net                    cash flows used for investing activities                                                          |   |                                     | (651,553 | ) |   | (80,976 | ) |
|                                                                                                                     |   |                                     |     |   |   |   |   |

----

**PNM        RESOURCES, INC. AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

|                                                                               |   | **Nine                    Months Ended** |    |
|------------------------------------------------------------------------------------|--------|------------------------------------------|---------|
|                                                                               |   | **September                    30,**     |    |
|                                                                               |   | **2006**                                 |    | **2005** |   |
|                                                                               |   | (In                    thousands)        |    |
| **Cash                    Flows From Financing Activities:**                       |   |                                     |    |   |   |
| Short-term                    borrowings (repayments), net                         |   |                                     | 26,900  |   |   | 380,000 |   |
| Short-term                    bridge loan for Twin Oaks acquisition                |   |                                     | 480,000 |   |   | - |   |
| Long-term                    debt borrowings                                       |   |                                     | -       |   |   | 239,832 |   |
| Long-term                    debt repayments                                       |   |                                     | -       |   |   | (399,626 | ) |
| Issuance                    of common stock                                        |   |                                     | 39,214  |   |   | 101,231 |   |
| Redemption                    of TNP preferred stock                               |   |                                     | -       |   |   | (224,564 | ) |
| Repurchase                    of common stock for stock-based payment arrangements |   |                                     | (4,352  | ) |   | (16,064 | ) |
| Excess                    tax benefits from stock-based payment arrangements       |   |                                     | 2,050   |   |   | - |   |
| Dividends                    paid                                                  |   |                                     | (44,472 | ) |   | (39,583 | ) |
| Other,                    net                                                      |   |                                     | (855    | ) |   | 212 |   |
| Net                    cash flows provided by financing activities                 |   |                                     | 498,485 |   |   | 41,438 |   |
|                                                                               |   |                                     |    |   |   |   |   |
| Increase                    in Cash and Cash Equivalents                           |   |                                     | 32,667  |   |   | 127,604 |   |
| Beginning                    of Period                                             |   |                                     | 68,199  |   |   | 17,195 |   |
| End                    of Period                                                   |   | $                                        | 100,866 |   | $ | 144,799 |   |
|                                                                               |   |                                     |    |   |   |   |   |
| **Supplemental                    Cash Flow Disclosures:**                         |   |                                     |    |   |   |   |   |
| Interest                    paid, net of capitalized interest                      |   | $                                        | 103,642 |   | $ | 55,396 |   |
| Income                    taxes paid (refunded), net                               |   | $                                        | (620    | ) | $ | (16,176 | ) |
|                                                                               |   |                                     |    |   |   |   |   |

----

**PNM        RESOURCES, INC. AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**

|                                                                                                                                 |   | **Three                    Months Ended** |   | **Nine                    Months Ended** |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|------------------------------------------|--------|
|                                                                                                                                 |   | **September                    30,**      |   | **September                    30,**     |   |
|                                                                                                                                 |   | **2006**                                  |   | **2005**                                 |   | **2006** |   | **2005** |   |
|                                                                                                                                 |   |                                      |   | (In                    thousands)        |   |   |   |
|                                                                                                                                 |   |                                      |   |                                     |   |   |   |   |   |
| **Net                    Earnings**                                                                                                  |   | $                                         | 43,844 |                                     | $      | 28,483 |   | $ | 86,476 |   | $ | 60,533 |   |
| Other                    Comprehensive Income:                                                                                       |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
|                                                                                                                                 |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
| **Unrealized                    gain (loss) on securities**:                                                                         |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
| Unrealized                    holding gains (losses) arising during the period,                                                      |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
| net                    of tax (expense) benefit of $(586), $(297), $(7,567) and                    $(1,792)                          |   |                                      | 894    |                                     |   | 452 |   |   | 11,546 |   |   | 2,733 |   |
| Reclassification                    adjustment for (gains) included in net                                                           |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
| income,                    net of tax expense of $48, $64, $503 and                    $1,819                                   |   |                                      | (73    | )                                        |   | (97 | ) |   | (767 | ) |   | (2,775 | ) |
|                                                                                                                                 |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
| **Fair                    value adjustment for certain derivative                    transactions:**                                 |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
| Change                    in fair market value of designated cash flow hedges,                                                       |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
| net                    of tax (expense) benefit of $(8,425), $(9,116), $(4,874) and                    $(12,189)                     |   |                                      | 12,589 |                                     |   | 17,162 |   |   | 7,076 |   |   | 22,004 |   |
| Reclassification                    adjustment for (gains) losses included in                                                        |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
| net                    income, net of tax expense (benefit) of $(3,822), $669, $3,442                    and                    $682 |   |                                      | 7,003  |                                     |   | (1,021 | ) |   | (5,021 | ) |   | (1,041 | ) |
|                                                                                                                                 |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
| **Total                    Other Comprehensive Income**                                                                              |   |                                      | 20,413 |                                     |   | 16,496 |   |   | 12,834 |   |   | 20,921 |   |
|                                                                                                                                 |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
| **Total                    Comprehensive Income**                                                                                    |   | $                                         | 64,257 |                                     | $      | 44,979 |   | $ | 99,310 |   | $ | 81,454 |   |
|                                                                                                                                 |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |

----

**PUBLIC        SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**A        WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.**

**CONDENSED        CONSOLIDATED STATEMENTS OF EARNINGS**

|                                                           |   | **Three                    Months Ended** |    | **Nine                    Months Ended** |   |
|----------------------------------------------------------------|--------|-------------------------------------------|---------|------------------------------------------|--------|
|                                                           |   | **September                    30,**      |    | **September                    30,**     |   |
|                                                           |   | **2006**                                  |    | **2005**                                 |   | **2006** |   | **2005** |   |
|                                                           |   |                                      |    |  (In                    thousands)  |   |   |   |
| **Operating                    Revenues:**                     |   |                                      |    |                                     |   |   |   |   |   |
| Electric                                                       |   | $                                         | 302,900 |                                     | $      | 325,274 |   | $ | 873,665 |   | $ | 857,722 |   |
| Gas                                                            |   |                                      | 69,001  |                                     |   | 78,258 |   |   | 345,346 |   |   | 325,752 |   |
| Total                    operating revenues                    |   |                                      | 371,901 |                                     |   | 403,532 |   |   | 1,219,011 |   |   | 1,183,474 |   |
|                                                           |   |                                      |    |                                     |   |   |   |   |   |   |   |   |   |
| **Operating                    Expenses:**                     |   |                                      |    |                                     |   |   |   |   |   |   |   |   |   |
| Cost                    of energy sold                         |   |                                      | 208,968 |                                     |   | 249,566 |   |   | 733,640 |   |   | 703,776 |   |
| Administrative                    and general                  |   |                                      | 43,750  |                                     |   | 46,320 |   |   | 125,398 |   |   | 129,296 |   |
| Energy                    production costs                     |   |                                      | 35,990  |                                     |   | 36,526 |   |   | 115,657 |   |   | 112,364 |   |
| Depreciation                    and amortization               |   |                                      | 25,373  |                                     |   | 27,406 |   |   | 74,517 |   |   | 87,768 |   |
| Transmission                    and distribution costs         |   |                                      | 14,858  |                                     |   | 15,585 |   |   | 45,081 |   |   | 43,546 |   |
| Taxes,                    other than income taxes              |   |                                      | 7,763   |                                     |   | 7,913 |   |   | 25,490 |   |   | 23,664 |   |
| Income                    taxes                                |   |                                      | 7,744   |                                     |   | 2,177 |   |   | 21,452 |   |   | 15,143 |   |
| Total                    operating expenses                    |   |                                      | 344,446 |                                     |   | 385,493 |   |   | 1,141,235 |   |   | 1,115,557 |   |
| Operating                    income                            |   |                                      | 27,455  |                                     |   | 18,039 |   |   | 77,776 |   |   | 67,917 |   |
|                                                           |   |                                      |    |                                     |   |   |   |   |   |   |   |   |   |
| **Other                    Income and Deductions:**            |   |                                      |    |                                     |   |   |   |   |   |   |   |   |   |
| Interest                    income                             |   |                                      | 8,562   |                                     |   | 9,697 |   |   | 26,585 |   |   | 28,000 |   |
| Other                    income                                |   |                                      | 863     |                                     |   | 3,963 |   |   | 4,396 |   |   | 9,222 |   |
| Other                    deductions                            |   |                                      | (667    | )                                        |   | (2,031 | ) |   | (3,022 | ) |   | (3,857 | ) |
| Other                    income taxes                          |   |                                      | (3,216  | )                                        |   | (4,243 | ) |   | (10,671 | ) |   | (12,304 | ) |
| Net                    other income and deductions             |   |                                      | 5,542   |                                     |   | 7,386 |   |   | 17,288 |   |   | 21,061 |   |
|                                                           |   |                                      |    |                                     |   |   |   |   |   |   |   |   |   |
| **Interest                    Charges**                   |   |                                      | 15,025  |                                     |   | 14,159 |   |   | 43,344 |   |   | 41,096 |   |
|                                                           |   |                                      |    |                                     |   |   |   |   |   |   |   |   |   |
| **Net                    Earnings**                            |   |                                      | 17,972  |                                     |   | 11,266 |   |   | 51,720 |   |   | 47,882 |   |
|                                                           |   |                                      |    |                                     |   |   |   |   |   |   |   |   |   |
| **Preferred                    Stock Dividend Requirements**   |   |                                      | 132     |                                     |   | 132 |   |   | 396 |   |   | 396 |   |
|                                                           |   |                                      |    |                                     |   |   |   |   |   |   |   |   |   |
| **Net                    Earnings Available for Common Stock** |   | $                                         | 17,840  |                                     | $      | 11,134 |   | $ | 51,324 |   | $ | 47,486 |   |
|                                                           |   |                                      |    |                                     |   |   |   |   |   |   |   |   |   |

----

**PUBLIC        SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**A        WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

|                                                                                                                                           |   | **September                    30,** |      | **December                    31,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-----------|-------------------------------------|--------|
|                                                                                                                                           |   | **2006**                             |      | **2005**                            |   |
|                                                                                                                                           |   | (In                    thousands)    |      |
|                                                                                                                                           |   |                                 |      |                                |   |
| **ASSETS**                                                                                                                                     |   |                                 |      |                                |   |
| **Utility                    Plant:**                                                                                                          |   |                                 |      |                                |   |
| Electric                    plant in service                                                                                                   |   | $                                    | 2,707,546 |                                | $      | 2,576,182 |   |
| Gas                    plant in service                                                                                                        |   |                                 | 724,129   |                                |   | 711,823 |   |
| Common                    plant in service and plant held for future use                                                                       |   |                                 | 74,952    |                                |   | 74,857 |   |
|                                                                                                                                           |   |                                 | 3,506,627 |                                |   | 3,362,862 |   |
| Less                    accumulated depreciation and amortization                                                                              |   |                                 | 1,259,589 |                                |   | 1,205,386 |   |
|                                                                                                                                           |   |                                 | 2,247,038 |                                |   | 2,157,476 |   |
| Construction                    work in progress                                                                                               |   |                                 | 129,319   |                                |   | 137,663 |   |
| Nuclear                    fuel, net of accumulated amortization of $16,714 and                    $14,679                                     |   |                                 | 27,240    |                                |   | 27,182 |   |
|                                                                                                                                           |   |                                 |      |                                |   |   |   |
| Net                    utility plant                                                                                                           |   |                                 | 2,403,597 |                                |   | 2,322,321 |   |
|                                                                                                                                           |   |                                 |      |                                |   |   |   |
| **Other                    Property and Investments:**                                                                                         |   |                                 |      |                                |   |   |   |
| Investment                    in PVNGS lessor notes                                                                                            |   |                                 | 259,360   |                                |   | 286,678 |   |
| Other                    investments                                                                                                           |   |                                 | 128,517   |                                |   | 170,422 |   |
| Non-utility                    property                                                                                                        |   |                                 | 966       |                                |   | 966 |   |
|                                                                                                                                           |   |                                 |      |                                |   |   |   |
| Total                    other property and investments                                                                                        |   |                                 | 388,843   |                                |   | 458,066 |   |
|                                                                                                                                           |   |                                 |      |                                |   |   |   |
| **Current                    Assets:**                                                                                                         |   |                                 |      |                                |   |   |   |
| Cash                    and cash equivalents                                                                                                   |   |                                 | 2,652     |                                |   | 12,690 |   |
| Special                    deposits                                                                                                            |   |                                 | 401       |                                |   | 263 |   |
| Accounts                    receivable, net of allowance for uncollectible accounts of $1,633                    and                    $1,435 |   |                                 | 59,767    |                                |   | 108,569 |   |
| Unbilled                    revenues                                                                                                           |   |                                 | 60,539    |                                |   | 121,453 |   |
| Other                    receivables                                                                                                           |   |                                 | 54,039    |                                |   | 53,546 |   |
| Affiliate                    accounts receivable                                                                                               |   |                                 | 18,437    |                                |   | - |   |
| Inventories                                                                                                                                    |   |                                 | 46,912    |                                |   | 50,411 |   |
| Regulatory                    assets                                                                                                           |   |                                 | 18,455    |                                |   | 28,058 |   |
| Other                    current assets                                                                                                        |   |                                 | 76,563    |                                |   | 75,885 |   |
|                                                                                                                                           |   |                                 |      |                                |   |   |   |
| Total                    current assets                                                                                                        |   |                                 | 337,765   |                                |   | 450,875 |   |
|                                                                                                                                           |   |                                 |      |                                |   |   |   |
| **Deferred                    Charges:**                                                                                                       |   |                                 |      |                                |   |   |   |
| Regulatory                    assets                                                                                                           |   |                                 | 227,516   |                                |   | 223,325 |   |
| Prepaid                    pension cost                                                                                                        |   |                                 | 94,485    |                                |   | 91,444 |   |
| Other                    deferred charges                                                                                                      |   |                                 | 42,537    |                                |   | 41,720 |   |
|                                                                                                                                           |   |                                 |      |                                |   |   |   |
| Total                    deferred charges                                                                                                      |   |                                 | 364,538   |                                |   | 356,489 |   |
|                                                                                                                                           |   | $                                    | 3,494,743 |                                | $      | 3,587,751 |   |
|                                                                                                                                           |   |                                 |      |                                |   |   |   |

----

**PUBLIC        SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**A        WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

|                                                                                                               |   | **September                    30,** |      | **December                    31,** |   |
|--------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-----------|-------------------------------------|--------|
|                                                                                                               |   | **2006**                             |      | **2005**                            |   |
|                                                                                                               |   | (In                    thousands)    |      |
|                                                                                                               |   |                                 |      |                                |   |
| **CAPITALIZATION                    AND LIABILITIES**                                                              |   |                                 |      |                                |   |
| **Capitalization:**                                                                                                |   |                                 |      |                                |   |
| Common                    Stockholder's equity:                                                                    |   |                                 |      |                                |   |
| Common                    stock outstanding (no par value, 40,000,000 shares authorized:                    issued |   |                                 |      |                                |   |
| 39,117,799                    at September 30, 2006 and December 31, 2005)                                         |   | $                                    | 765,500   |                                | $      | 765,500 |   |
| Accumulated                    other comprehensive loss, net of tax                                                |   |                                 | (95,503   | )                                   |   | (90,515 | ) |
| Retained                    earnings                                                                               |   |                                 | 383,866   |                                |   | 332,542 |   |
|                                                                                                               |   |                                 |      |                                |   |   |   |
| Total                    common stockholder's equity                                                               |   |                                 | 1,053,863 |                                |   | 1,007,527 |   |
| Cumulative                    preferred stock without mandatory redemption                                         |   |                                 |      |                                |   |   |   |
| ($100                    stated value, 10,000,000 shares authorized: issued 115,293                    at          |   |                                 |      |                                |   |   |   |
| September                    30, 2006 and December 31, 2005)                                                       |   |                                 | 11,529    |                                |   | 11,529 |   |
| Long-term                    debt                                                                                  |   |                                 | 986,244   |                                |   | 987,068 |   |
|                                                                                                               |   |                                 |      |                                |   |   |   |
| Total                    capitalization                                                                            |   |                                 | 2,051,636 |                                |   | 2,006,124 |   |
|                                                                                                               |   |                                 |      |                                |   |   |   |
| **Current                    Liabilities:**                                                                        |   |                                 |      |                                |   |   |   |
| Short-term                    debt                                                                                 |   |                                 | 96,274    |                                |   | 128,200 |   |
| Accounts                    payable                                                                                |   |                                 | 68,211    |                                |   | 170,517 |   |
| Affiliate                    accounts payable                                                                      |   |                                 | 63,123    |                                |   | 50,070 |   |
| Accrued                    interest and taxes                                                                      |   |                                 | 60,632    |                                |   | 15,951 |   |
| Regulatory                    liabilities                                                                          |   |                                 | 3,988     |                                |   | 7,085 |   |
| Other                    current liabilities                                                                       |   |                                 | 98,097    |                                |   | 91,668 |   |
|                                                                                                               |   |                                 |      |                                |   |   |   |
| Total                    current liabilities                                                                       |   |                                 | 390,325   |                                |   | 463,491 |   |
|                                                                                                               |   |                                 |      |                                |   |   |   |
| **Long-Term                    Liabilities:**                                                                      |   |                                 |      |                                |   |   |   |
| Accumulated                    deferred income taxes                                                               |   |                                 | 278,341   |                                |   | 300,752 |   |
| Accumulated                    deferred investment tax credits                                                     |   |                                 | 30,130    |                                |   | 32,266 |   |
| Regulatory                    liabilities                                                                          |   |                                 | 342,194   |                                |   | 346,007 |   |
| Asset                    retirement obligations                                                                    |   |                                 | 58,621    |                                |   | 54,940 |   |
| Accrued                    pension liability and postretirement benefit cost                                       |   |                                 | 213,553   |                                |   | 217,092 |   |
| Other                    deferred credits                                                                          |   |                                 | 129,943   |                                |   | 167,079 |   |
|                                                                                                               |   |                                 |      |                                |   |   |   |
| Total                    long-term liabilities                                                                     |   |                                 | 1,052,782 |                                |   | 1,118,136 |   |
|                                                                                                               |   |                                 |      |                                |   |   |   |
| Commitments                    and Contingencies (see Note 9)                                                      |   |                                 |      |                                |   |   |   |
|                                                                                                               |   | $                                    | 3,494,743 |                                | $      | 3,587,751 |   |
|                                                                                                               |   |                                 |      |                                |   |   |   |

----

**PUBLIC        SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**A        WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

|                                                                                                  |   | **Nine                    Months Ended** |     |
|-------------------------------------------------------------------------------------------------------|--------|------------------------------------------|----------|
|                                                                                                  |   | **September                    30,**     |     |
|                                                                                                  |   | **2006**                                 |     | **2005** |   |
|                                                                                                  |   | (In                    thousands)        |     |   |   |
| **Cash                    Flows From Operating Activities:**                                          |   |                                     |     |   |   |
| Net                    earnings                                                                       |   | $                                        | 51,720   |   | $ | 47,882 |   |
| Adjustments                    to reconcile net earnings to net cash flows from operating activities: |   |                                     |     |   |   |   |   |
| Depreciation                    and amortization                                                      |   |                                     | 88,281   |   |   | 99,155 |   |
| Allowance                    for equity funds used during construction                                |   |                                     | (348     | ) |   | (1,701 | ) |
| Accumulated                    deferred income tax                                                    |   |                                     | (15,760  | ) |   | 3,433 |   |
| Net                    unrealized losses on trading securities                                        |   |                                     | 1,305    |   |   | 380 |   |
| Realized                    gains on investment securities                                            |   |                                     | (1,842   | ) |   | (3,466 | ) |
| Carrying                    charges on other regulatory assets and liabilities                        |   |                                     | (2,597   | ) |   | (2,104 | ) |
| Changes                    in certain assets and liabilities:                                         |   |                                     |     |   |   |   |   |
| Customer                    accounts receivable                                                       |   |                                     | 48,802   |   |   | 17,703 |   |
| Other                    accounts receivable                                                          |   |                                     | (493     | ) |   | (407 | ) |
| Unbilled                    revenues                                                                  |   |                                     | 60,915   |   |   | 30,179 |   |
| Regulatory                    assets                                                                  |   |                                     | 25,543   |   |   | (9,807 | ) |
| Other                    assets                                                                       |   |                                     | (4,075   | ) |   | (9,062 | ) |
| Accrued                    postretirement benefit costs                                               |   |                                     | (6,580   | ) |   | (5,173 | ) |
| Accounts                    payable                                                                   |   |                                     | (102,307 | ) |   | (43,709 | ) |
| Accrued                    interest and taxes                                                         |   |                                     | 44,147   |   |   | 17,603 |   |
| PVNGS                    lease accrual                                                                |   |                                     | (16,573  | ) |   | (16,573 | ) |
| Deferred                    credits                                                                   |   |                                     | (7,866   | ) |   | (14,358 | ) |
| Other                    liabilities                                                                  |   |                                     | (18,066  | ) |   | (18,432 | ) |
| Net                    cash flows provided by operating activities                                    |   |                                     | 144,206  |   |   | 91,543 |   |
|                                                                                                  |   |                                     |     |   |   |   |   |
| **Cash                    Flows From Investing Activities:**                                          |   |                                     |     |   |   |   |   |
| Utility                    plant additions                                                            |   |                                     | (143,505 | ) |   | (79,983 | ) |
| Nuclear                    fuel additions                                                             |   |                                     | (7,391   | ) |   | (10,349 | ) |
| Proceeds                    from sales of securities                                                  |   |                                     | 65,713   |   |   | 65,720 |   |
| Purchases                    of securities                                                            |   |                                     | (66,578  | ) |   | (66,930 | ) |
| Return                    of principal PVNGS lessor notes                                             |   |                                     | 22,937   |   |   | 21,091 |   |
| Other,                    net                                                                         |   |                                     | 6,815    |   |   | 2,833 |   |
| Net                    cash flows used for investing activities                                       |   |                                     | (122,009 | ) |   | (67,618 | ) |
|                                                                                                  |   |                                     |     |   |   |   |   |

----

**PUBLIC        SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**A        WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

|                                                            |   | **Nine                    Months Ended** |    |
|-----------------------------------------------------------------|--------|------------------------------------------|---------|
|                                                            |   | **September                    30,**     |    |
|                                                            |   | **2006**                                 |    | **2005** |   |
|                                                            |   | (In                    thousands)        |    |
| **Cash                    Flows From Financing Activities:**    |   |                                     |    |   |   |
| Short-term                    borrowings (repayments), net      |   |                                     | (31,926 | ) |   | 53,600 |   |
| Long-term                    debt repayments                    |   |                                     | (447    | ) |   | - |   |
| Dividends                    paid                               |   |                                     | (396    | ) |   | (80,396 | ) |
| Change                    in affiliate borrowings               |   |                                     | -       |   |   | (300 | ) |
| Other,                    net                                   |   |                                     | 534     |   |   | (422 | ) |
| Net                    cash flows used for financing activities |   |                                     | (32,235 | ) |   | (27,518 | ) |
|                                                            |   |                                     |    |   |   |   |   |
| Decrease                    in Cash and Cash Equivalents        |   |                                     | (10,038 | ) |   | (3,593 | ) |
| Beginning                    of Period                          |   |                                     | 12,690  |   |   | 16,448 |   |
| End                    of Period                                |   | $                                        | 2,652   |   | $ | 12,855 |   |
|                                                            |   |                                     |    |   |   |   |   |
| **Supplemental                    Cash Flow Disclosures:**      |   |                                     |    |   |   |   |   |
| Interest                    paid, net of capitalized interest   |   | $                                        | 47,307  |   | $ | 45,519 |   |
|                                                            |   |                                     |    |   |   |   |   |
| Income                    taxes paid, net                       |   | $                                        | 455     |   | $ | 3 |   |
|                                                            |   |                                     |    |   |   |   |   |

----

**PUBLIC        SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**A        WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.**

**CONDENSED        CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**

|                                                                                                                |   | **Three                    Months Ended** |   | **Nine                    Months Ended** |   |
|---------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|------------------------------------------|--------|
|                                                                                                                |   | **September                    30,**      |   | **September                    30,**     |   |
|                                                                                                                |   | **2006**                                  |   | **2005**                                 |   | **2006** |   | **2005** |   |
|                                                                                                                |   |                                      |   | (In                    thousands)        |   |   |   |
|                                                                                                                |   |                                      |   |                                     |   |   |   |   |   |
| **Net                    Earnings Available for Common Stock**                                                      |   | $                                         | 17,840 |                                     | $      | 11,134 |   | $ | 51,324 |   | $ | 47,486 |   |
| Other                    Comprehensive Income (Loss):                                                               |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
|                                                                                                                |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
| **Unrealized                    gain (loss) on securities**:                                                        |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
| Unrealized                    holding gains (losses) arising during the                                             |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
| period,                    net of tax (expense) benefit of $(586), $(297), $(7,567) and                    $(1,792) |   |                                      | 894    |                                     |   | 452 |   |   | 11,546 |   |   | 2,733 |   |
| Reclassification                    adjustment for (gains) included in                                              |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
| net                    income, net of tax expense of $48, $64, $503 and $1,819                                      |   |                                      | (73    | )                                        |   | (97 | ) |   | (767 | ) |   | (2,775 | ) |
|                                                                                                                |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
| **Fair                    value adjustment for certain derivative                    transactions:**                |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
| Change                    in fair market value of designated cash flow                                              |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
| hedges,                    net of tax (expense) benefit of $566, $841, $6,195 and                    $(1,771)       |   |                                      | (864   | )                                        |   | (1,283 | ) |   | (9,453 | ) |   | 2,703 |   |
| Reclassification                    adjustment for (gains) included in                                              |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
| net                    income, net of tax expense (benefits) of $334, $669, $4,138 and                    $682      |   |                                      | (510   | )                                        |   | (1,021 | ) |   | (6,314 | ) |   | (1,041 | ) |
|                                                                                                                |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
| **Total                    Other Comprehensive Income (Loss)**                                                      |   |                                      | (553   | )                                        |   | (1,949 | ) |   | (4,988 | ) |   | 1,620 |   |
|                                                                                                                |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
| **Total                    Comprehensive Income**                                                                   |   | $                                         | 17,287 |                                     | $      | 9,185 |   | $ | 46,336 |   | $ | 49,106 |   |
|                                                                                                                |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |

----

**TEXAS-NEW        MEXICO POWER COMPANY AND SUBSIDIARIES**

**A        WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.**

**CONDENSED        CONSOLIDATED STATEMENTS OF EARNINGS**

|                                                     |   | **Three                    Months Ended** |   |
|----------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                     |   | **September                    30,**      |   |
|                                                     |   | **2006**                                  |   | **2005** |   |
|                                                     |   | (In                    thousands)         |   |
| **Operating                    Revenues:**               |   |                                      |   |   |   |
| Electric                                                 |   | $                                         | 70,241 |   | $ | 71,441 |   |
| Total                    operating revenues              |   |                                      | 70,241 |   |   | 71,441 |   |
|                                                     |   |                                      |   |   |   |   |   |
| **Operating                    Expenses:**               |   |                                      |   |   |   |   |   |
| Cost                    of energy sold                   |   |                                      | 27,987 |   |   | 25,764 |   |
| Administrative                    and general            |   |                                      | 9,191  |   |   | 5,970 |   |
| Depreciation                    and amortization         |   |                                      | 7,899  |   |   | 7,814 |   |
| Transmission                    and distribution costs   |   |                                      | 4,864  |   |   | 5,670 |   |
| Taxes,                    other than income taxes        |   |                                      | 6,822  |   |   | 6,597 |   |
| Income                    taxes                          |   |                                      | 1,974  |   |   | 4,412 |   |
| Total                    operating expenses              |   |                                      | 58,737 |   |   | 56,227 |   |
| Operating                    income                      |   |                                      | 11,504 |   |   | 15,214 |   |
|                                                     |   |                                      |   |   |   |   |   |
| **Other                    Income and Deductions:**      |   |                                      |   |   |   |   |   |
| Interest                    income                       |   |                                      | 296    |   |   | 660 |   |
| Other                    income                          |   |                                      | 404    |   |   | 202 |   |
| Carrying                    charges on regulatory assets |   |                                      | 2,038  |   |   | 1,910 |   |
| Other                    deductions                      |   |                                      | (37    | ) |   | (43 | ) |
| Other                    income taxes                    |   |                                      | (921   | ) |   | (1,050 | ) |
| Net                    other income and deductions       |   |                                      | 1,780  |   |   | 1,679 |   |
|                                                     |   |                                      |   |   |   |   |   |
| **Interest                    Charges**             |   |                                      | 7,294  |   |   | 7,250 |   |
|                                                     |   |                                      |   |   |   |   |   |
| **Net                    Earnings**                      |   | $                                         | 5,990  |   | $ | 9,643 |   |
|                                                     |   |                                      |   |   |   |   |   |

----

**TEXAS-NEW        MEXICO POWER COMPANY AND SUBSIDIARIES**

**A        WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.**

**CONDENSED        CONSOLIDATED STATEMENTS OF EARNINGS**

|                                                     |   |                                      |    | **Post-Acquisition**                      |   |   | **Pre-Acquisition**                   |   |
|----------------------------------------------------------|--------|-------------------------------------------|---------|-------------------------------------------|--------|--------|---------------------------------------|--------|
|                                                     |   | **Post-Acquisition**                      |    | **For                    the Period**     |   |   | **For                    the Period** |   |
|                                                     |   | **Nine                    Months Ended**  |    | **June                    6-**            |   |   | **January                    1 -**    |   |
|                                                     |   | **September                    30, 2006** |    | **September                    30, 2005** |   |   | **June                    6, 2005**   |   |
|                                                     |   |                                      |    | (In                    thousands)         |   |   |                                  |   |
| **Operating                    Revenues:**               |   |                                      |    |                                      |   |   |                                  |   |
| Electric                                                 |   | $                                         | 194,382 |                                      | $      | 90,676 |                                  |   | $ | 112,820 |   |
| Total                    operating revenues              |   |                                      | 194,382 |                                      |   | 90,676 |                                  |   |   | 112,820 |   |
|                                                     |   |                                      |         |                                      |   |   |                                  |   |   |   |   |
| **Operating                    Expenses:**               |   |                                      |    |                                      |   |   |                                  |   |   |   |   |
| Cost                    of energy sold                   |   |                                      | 77,810  |                                      |   | 32,466 |                                  |   |   | 43,885 |   |
| Administrative                    and general            |   |                                      | 30,110  |                                      |   | 8,153  |                                  |   |   | 11,048 |   |
| Depreciation                    and amortization         |   |                                      | 23,462  |                                      |   | 9,899  |                                  |   |   | 12,954 |   |
| Transmission                    and distribution costs   |   |                                      | 14,976  |                                      |   | 6,820  |                                  |   |   | 9,111 |   |
| Taxes,                    other than income taxes        |   |                                      | 18,301  |                                      |   | 8,482  |                                  |   |   | 9,228 |   |
| Income                    taxes                          |   |                                      | 2,532   |                                      |   | 5,537  |                                  |   |   | 5,055 |   |
| Total                    operating expenses              |   |                                      | 167,191 |                                      |   | 71,357 |                                  |   |   | 91,281 |   |
| Operating                    income                      |   |                                      | 27,191  |                                      |   | 19,319 |                                  |   |   | 21,539 |   |
|                                                     |   |                                      |    |                                      |   |   |                                  |   |   |   |   |
|                                                     |   |                                      |    |                                      |   |   |                                  |   |   |   |   |
| **Other                    Income and Deductions:**      |   |                                      |    |                                      |   |   |                                  |   |   |   |   |
| Interest                    income                       |   |                                      | 632     |                                      |   | 747    |                                  |   |   | 650 |   |
| Other                    income                          |   |                                      | 715     |                                      |   | 313    |                                  |   |   | 523 |   |
| Carrying                    charges on regulatory assets |   |                                      | 6,015   |                                      |   | 2,435  |                                  |   |   | (1,407 | ) |
| Other                    deductions                      |   |                                      | (99     | )                                         |   | (54    | )                                     |   |   | (79 | ) |
| Other                    income taxes                    |   |                                      | (2,680  | )                                         |   | (1,364 | )                                     |   |   | 154 |   |
| Net                    other income and deductions       |   |                                      | 4,583   |                                      |   | 2,077  |                                  |   |   | (159 | ) |
|                                                     |   |                                      |    |                                      |   |   |                                  |   |   |   |   |
| **Interest                    Charges**             |   |                                      | 21,792  |                                      |   | 9,206  |                                  |   |   | 12,120 |   |
|                                                     |   |                                      |    |                                      |   |   |                                  |   |   |   |   |
| **Net                    Earnings**                      |   | $                                         | 9,982   |                                      | $      | 12,190 |                                  |   | $ | 9,260 |   |
|                                                     |   |                                      |    |                                      |   |   |                                  |   |   |   |   |

----

**TEXAS-NEW        MEXICO POWER COMPANY AND SUBSIDIARIES**

**A        WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

|                                                                                                                                      |   | **September                    30,** |      | **December                    31,** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-----------|-------------------------------------|--------|
|                                                                                                                                      |   | **2006**                             |      | **2005**                            |   |
|                                                                                                                                      |   | (In                    thousands)    |      |
|                                                                                                                                      |   |                                 |      |                                |   |
| **ASSETS**                                                                                                                                |   |                                 |      |                                |   |
| **Utility                    Plant:**                                                                                                     |   |                                 |      |                                |   |
| Electric                    plant in service                                                                                              |   | $                                    | 900,476   |                                | $      | 877,893 |   |
| Construction                    work in progress                                                                                          |   |                                 | 7,607     |                                |   | 7,138 |   |
| Common                    plant in service and plant held for future use                                                                  |   |                                 | 589       |                                |   | 589 |   |
|                                                                                                                                      |   |                                 | 908,672   |                                |   | 885,620 |   |
| Less                    accumulated depreciation and amortization                                                                         |   |                                 | 313,407   |                                |   | 296,611 |   |
| Net                    utility plant                                                                                                      |   |                                 | 595,265   |                                |   | 589,009 |   |
|                                                                                                                                      |   |                                 |      |                                |   |   |   |
| **Other                    Property and Investments:**                                                                                    |   |                                 |      |                                |   |   |   |
| Other                    investments                                                                                                      |   |                                 | 548       |                                |   | 548 |   |
| Non-utility                    property, net of accumulated depreciation of $3 and $3                                                     |   |                                 | 2,120     |                                |   | 2,120 |   |
| Total                    other property and investments                                                                                   |   |                                 | 2,668     |                                |   | 2,668 |   |
|                                                                                                                                      |   |                                 |      |                                |   |   |   |
| **Current                    Assets:**                                                                                                    |   |                                 |      |                                |   |   |   |
| Cash                    and cash equivalents                                                                                              |   |                                 | 34,123    |                                |   | 16,228 |   |
| Accounts                    receivable, net of allowance for uncollectible accounts of $53                    and                    $100 |   |                                 | 11,619    |                                |   | 13,191 |   |
| Federal                    income tax refund                                                                                              |   |                                 | 36,392    |                                |   | 36,392 |   |
| Unbilled                    revenues                                                                                                      |   |                                 | 4,565     |                                |   | 6,679 |   |
| Affiliate                    accounts receivable                                                                                          |   |                                 | 14,118    |                                |   | - |   |
| Other                    receivables                                                                                                      |   |                                 | 1,223     |                                |   | 6,087 |   |
| Inventories                                                                                                                               |   |                                 | 1,595     |                                |   | 1,478 |   |
| Other                    current assets                                                                                                   |   |                                 | 430       |                                |   | 1,211 |   |
| Total                    current assets                                                                                                   |   |                                 | 104,065   |                                |   | 81,266 |   |
|                                                                                                                                      |   |                                 |      |                                |   |   |   |
| **Deferred                    Charges:**                                                                                                  |   |                                 |      |                                |   |   |   |
| Stranded                    costs                                                                                                         |   |                                 | 87,316    |                                |   | 87,316 |   |
| Carrying                    charges on stranded costs                                                                                     |   |                                 | 39,933    |                                |   | 33,918 |   |
| Other                    regulatory assets                                                                                                |   |                                 | 5,816     |                                |   | 2,720 |   |
| Goodwill                                                                                                                                  |   |                                 | 363,763   |                                |   | 367,245 |   |
| Other                    deferred charges                                                                                                 |   |                                 | 2,825     |                                |   | 4,948 |   |
| Total                    deferred charges                                                                                                 |   |                                 | 499,653   |                                |   | 496,147 |   |
|                                                                                                                                      |   | $                                    | 1,201,651 |                                | $      | 1,169,090 |   |
|                                                                                                                                      |   |                                 |      |                                |   |   |   |

----

**TEXAS-NEW        MEXICO POWER COMPANY AND SUBSIDIARIES**

**A        WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

|                                                                                      |   | **September                    30,** |      | **December                    31,** |   |
|-------------------------------------------------------------------------------------------|--------|--------------------------------------|-----------|-------------------------------------|--------|
|                                                                                      |   | **2006**                             |      | **2005**                            |   |
|                                                                                      |   | (In                    thousands)    |      |
|                                                                                      |   |                                 |      |                                |   |
| **CAPITALIZATION                    AND LIABILITIES**                                     |   |                                 |      |                                |   |
| **Capitalization:**                                                                       |   |                                 |      |                                |   |
| Common                    stockholder’s equity:                                     |   |                                 |      |                                |   |
| Common                    stock outstanding ($10 par value, 12,000,000 shares authorized: |   |                                 |      |                                |   |
| issued                    9,615 at September 30, 2006 and December 31, 2005)              |   | $                                    | 96        |                                | $      | 96 |   |
| Paid-in-capital                                                                           |   |                                 | 492,812   |                                |   | 494,287 |   |
| Accumulated                    other comprehensive loss, net of tax                       |   |                                 | (29       | )                                   |   | (29 | ) |
| Retained                    earnings                                                      |   |                                 | 15,432    |                                |   | 5,450 |   |
|                                                                                      |   |                                 |      |                                |   |   |   |
| Total                    common stockholder’s equity                                |   |                                 | 508,311   |                                |   | 499,804 |   |
| Long-term                    debt                                                         |   |                                 | 416,085   |                                |   | 415,864 |   |
|                                                                                      |   |                                 |      |                                |   |   |   |
| Total                    capitalization                                                   |   |                                 | 924,396   |                                |   | 915,668 |   |
|                                                                                      |   |                                 |      |                                |   |   |   |
| **Current                    Liabilities:**                                               |   |                                 |      |                                |   |   |   |
| Accounts                    payable                                                       |   |                                 | 5,243     |                                |   | 11,913 |   |
| Affiliate                    accounts payable                                             |   |                                 | 26,239    |                                |   | - |   |
| Accrued                    interest and taxes                                             |   |                                 | 30,551    |                                |   | 24,250 |   |
| Other                    current liabilities                                              |   |                                 | 6,532     |                                |   | 8,784 |   |
|                                                                                      |   |                                 |      |                                |   |   |   |
| Total                    current liabilities                                              |   |                                 | 68,565    |                                |   | 44,947 |   |
|                                                                                      |   |                                 |      |                                |   |   |   |
| **Long-Term                    Liabilities:**                                             |   |                                 |      |                                |   |   |   |
| Accumulated                    deferred income taxes                                      |   |                                 | 139,767   |                                |   | 139,405 |   |
| Accumulated                    deferred investment tax credits                            |   |                                 | 950       |                                |   | 1,540 |   |
| Regulatory                    liabilities                                                 |   |                                 | 57,817    |                                |   | 56,246 |   |
| Accrued                    pension liability                                              |   |                                 | 1,492     |                                |   | 3,585 |   |
| Accrued                    postretirement benefit cost                                    |   |                                 | 6,722     |                                |   | 6,525 |   |
| Other                    deferred credits                                                 |   |                                 | 1,942     |                                |   | 1,174 |   |
|                                                                                      |   |                                 |      |                                |   |   |   |
| Total                    long-term liabilities                                            |   |                                 | 208,690   |                                |   | 208,475 |   |
|                                                                                      |   |                                 |      |                                |   |   |   |
| Commitments                    and Contingencies (see Note 9)                             |   |                                 |      |                                |   |   |   |
|                                                                                      |   | $                                    | 1,201,651 |                                | $      | 1,169,090 |   |
|                                                                                      |   |                                 |      |                                |   |   |   |

----

**TEXAS-NEW        MEXICO POWER COMPANY**

**A        WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

|                                                                    |   | **Post-Acquisition****Nine                    Months Ended September 30,****2006** |    | **Post-Acquisition****For                    the Period****June                    6-****September                    30,****2005** |   |    | **Pre-Acquisition****For                    the Period January 1- June 6,****2005** |   |
|-------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|---------|-------------------------------------------------------------------------------------------------------------------------------------|--------|---------|-------------------------------------------------------------------------------------|--------|
|                                                                    |   |                                                                               |    | (In                    thousands)                                                                                                   |   |    |                                                                                |   |
| **Cash                    Flows From Operating Activities:**            |   |                                                                               |    |                                                                                                                                |   |    |                                                                                |   |
| Net                    earnings                                         |   | $                                                                                  | 9,982   |                                                                                                                                | $      | 12,190  |                                                                                |   | $ | 9,260 |   |
| Adjustments                    to reconcile net earnings to             |   |                                                                               |    |                                                                                                                                |   |    |                                                                                |   |   |   |   |
| net                    cash flows from operating activities:            |   |                                                                               |    |                                                                                                                                |   |    |                                                                                |   |   |   |   |
| Depreciation                    and amortization                        |   |                                                                               | 24,733  |                                                                                                                                |   | 10,498  |                                                                                |   |   | 14,042 |   |
| Allowance                    for equity funds used during construction  |   |                                                                               | (151    | )                                                                                                                                   |   | (59     | )                                                                                   |   |   | (60 | ) |
| Accumulated                    deferred income tax                      |   |                                                                               | (536    | )                                                                                                                                   |   | 18,447  |                                                                                |   |   | (1,267 | ) |
| Carrying                    charges on deferred stranded costs          |   |                                                                               | (6,015  | )                                                                                                                                   |   | (2,435  | )                                                                                   |   |   | 1,407 |   |
| Interest                    on retail competition transition obligation |   |                                                                               | 1,345   |                                                                                                                                |   | 318     |                                                                                |   |   | - |   |
| Other,                    net                                           |   |                                                                               | (47     | )                                                                                                                                   |   | -       |                                                                                |   |   | (120 | ) |
| Changes                    in certain assets and liabilities:           |   |                                                                               |    |                                                                                                                                |   |    |                                                                                |   |   |   |   |
| Accounts                    receivable                                  |   |                                                                               | 1,619   |                                                                                                                                |   | (4,289  | )                                                                                   |   |   | 149 |   |
| Unbilled                    revenues                                    |   |                                                                               | (1,100  | )                                                                                                                                   |   | 549     |                                                                                |   |   | (106 | ) |
| Other                    assets                                         |   |                                                                               | 1,665   |                                                                                                                                |   | 289     |                                                                                |   |   | (3,800 | ) |
| Accrued                    postretirement benefit costs                 |   |                                                                               | (1,896  | )                                                                                                                                   |   | (2,876  | )                                                                                   |   |   | 495 |   |
| Accounts                    payable                                     |   |                                                                               | (1,765  | )                                                                                                                                   |   | (1,263  | )                                                                                   |   |   | (5,379 | ) |
| Accrued                    interest and taxes                           |   |                                                                               | 6,259   |                                                                                                                                |   | (5,732  | )                                                                                   |   |   | (4,134 | ) |
| Change                    in affiliate accounts                         |   |                                                                               | 14,513  |                                                                                                                                |   | 17,730  |                                                                                |   |   | 47 |   |
| Other                    liabilities                                    |   |                                                                               | (1,591  | )                                                                                                                                   |   | 1,016   |                                                                                |   |   | 4,946 |   |
| Net                    cash flows provided by operating activities      |   |                                                                               | 47,015  |                                                                                                                                |   | 44,383  |                                                                                |   |   | 15,480 |   |
|                                                                    |   |                                                                               |    |                                                                                                                                |   |    |                                                                                |   |   |   |   |
| **Cash                    Flows From Investing Activities:**            |   |                                                                               |    |                                                                                                                                |   |    |                                                                                |   |   |   |   |
| Utility                    plant additions                              |   |                                                                               | (29,301 | )                                                                                                                                   |   | (12,671 | )                                                                                   |   |   | (17,895 | ) |
| Other,                    net                                           |   |                                                                               | 66      |                                                                                                                                |   | 882     |                                                                                |   |   | (169 | ) |
| Acquisition                    costs                                    |   |                                                                               | -       |                                                                                                                                |   | (3,742  | )                                                                                   |   |   | - |   |
| Net                    cash flows used for investing activities         |   |                                                                               | (29,235 | )                                                                                                                                   |   | (15,531 | )                                                                                   |   |   | (18,064 | ) |
|                                                                    |   |                                                                               |    |                                                                                                                                |   |    |                                                                                |   |   |   |   |

----

**TEXAS-NEW        MEXICO POWER COMPANY**

**A        WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

|                                                                |   | **Post-Acquisition****Nine                    Months Ended September 30,****2006** |   | **Post-Acquisition****For                    the Period****June                    6-****September                    30,****2005** |   |    | **Pre-Acquisition****For                    the Period January 1- June 6,****2005** |   |
|---------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------|--------|---------|-------------------------------------------------------------------------------------|--------|
|                                                                |   |                                                                               |   | (In                    thousands)                                                                                                   |   |    |                                                                                |   |
| **Cash                    Flows From Financing Activities:**        |   |                                                                               |   |                                                                                                                                |   |    |                                                                                |   |
| Redemption                    of common stock                       |   |                                                                               | -      |                                                                                                                                |   | (62,000 | )                                                                                   |   |   | - |   |
| Other,                    net                                       |   |                                                                               | 115    |                                                                                                                                |   | -       |                                                                                |   |   | - |   |
| Net                    cash flows provided by (used for)            |   |                                                                               |   |                                                                                                                                |   |    |                                                                                |   |   |   |   |
| financing                    activities                             |   |                                                                               | 115    |                                                                                                                                |   | (62,000 | )                                                                                   |   |   | - |   |
|                                                                |   |                                                                               |   |                                                                                                                                |   |    |                                                                                |   |   |   |   |
| Increase                    (Decrease) in Cash and Cash Equivalents |   |                                                                               | 17,895 |                                                                                                                                |   | (33,148 | )                                                                                   |   |   | (2,584 | ) |
| Beginning                    of Period                              |   |                                                                               | 16,228 |                                                                                                                                |   | 63,175  |                                                                                |   |   | 65,759 |   |
| End                    of Period                                    |   | $                                                                                  | 34,123 |                                                                                                                                | $      | 30,027  |                                                                                |   | $ | 63,175 |   |
|                                                                |   |                                                                               |   |                                                                                                                                |   |    |                                                                                |   |   |   |   |
| **Supplemental                    Cash Flow Disclosures:**          |   |                                                                               |   |                                                                                                                                |   |    |                                                                                |   |   |   |   |
| Interest                    paid, net of capitalized interest       |   | $                                                                                  | 19,153 |                                                                                                                                | $      | 5,681   |                                                                                |   | $ | 12,868 |   |
|                                                                |   |                                                                               |   |                                                                                                                                |   |    |                                                                                |   |   |   |   |
| Income                    taxes paid, net                           |   | $                                                                                  | -      |                                                                                                                                | $      | 3,241   |                                                                                |   | $ | 2,456 |   |
|                                                                |   |                                                                               |   |                                                                                                                                |   |    |                                                                                |   |   |   |   |

----

**TEXAS-NEW        MEXICO POWER COMPANY**

**A        WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.**

**CONDENSED        CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**

|                                                    |   | **Post-Acquisition****Three                    Months Ended September 30,****2006** |   | **Post-Acquisition****Three                    Months Ended September 30,****2005** |   |
|---------------------------------------------------------|--------|-------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------|--------|
|                                                    |   | (In                    thousands)                                                   |   |
|                                                    |   |                                                                                |   |                                                                                |   |
| **Net                    Earnings**                     |   | $                                                                                   | 5,990  |                                                                                | $      | 9,643 |   |
| Other                    Comprehensive Income:          |   |                                                                                |   |                                                                                |   |   |   |
|                                                    |   |                                                                                |   |                                                                                |   |   |   |
| Other                    comprehensive income           |   |                                                                                | -      |                                                                                |   | - |   |
|                                                    |   |                                                                                |   |                                                                                |   |   |   |
| **Total                    Other Comprehensive Income** |   | $                                                                                   | -      |                                                                                | $      | - |   |
|                                                    |   |                                                                                |   |                                                                                |   |   |   |
| **Total                    Comprehensive Income**       |   | $                                                                                   | 5,990  |                                                                                | $      | 9,643 |   |
|                                                    |   |                                                                                |   |                                                                                |   |   |   |

----

**TEXAS-NEW        MEXICO POWER COMPANY**

**A        WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.**

**CONDENSED        CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**

|                                                                       |   | **Post-Acquisiton****Nine                    Months Ended September 30,****2006** |   | **Post-Acquisition****For                    the Period****June                    6-****September                    30,****2005** |   |   | **Pre-Acquistion****For                    the Period January 1-June 6****2005** |   |
|----------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------------|--------|
|                                                                       |   |                                                                              |   | (In                    thousands)                                                                                                   |   |   |                                                                             |   |
|                                                                       |   |                                                                              |   |                                                                                                                                |   |   |                                                                             |   |
| **Net                    Earnings**                                        |   | $                                                                                 | 9,982  |                                                                                                                                | $      | 12,190 |                                                                             |   | $ | 9,260 |   |
| Other                    Comprehensive Income:                             |   |                                                                              |   |                                                                                                                                |   |   |                                                                             |   |   |   |   |
|                                                                       |   |                                                                              |   |                                                                                                                                |   |   |                                                                             |   |   |   |   |
| Interest                    rate hedge net of reclassification adjustment, |   |                                                                              |   |                                                                                                                                |   |   |                                                                             |   |   |   |   |
| net                    of tax (expense) benefit of $0, $0, and $1,084      |   |                                                                              | -      |                                                                                                                                |   | -      |                                                                             |   |   | 1,761 |   |
|                                                                       |   |                                                                              |   |                                                                                                                                |   |   |                                                                             |   |   |   |   |
| **Total                    Other Comprehensive Income**                    |   |                                                                              | -      |                                                                                                                                |   | -      |                                                                             |   |   | 1,761 |   |
|                                                                       |   |                                                                              |   |                                                                                                                                |   |   |                                                                             |   |   |   |   |
| **Total                    Comprehensive Income**                          |   | $                                                                                 | 9,982  |                                                                                                                                | $      | 12,190 |                                                                             |   | $ | 11,021 |   |
|                                                                       |   |                                                                              |   |                                                                                                                                |   |   |                                                                             |   |   |   |   |

----

**PNM        RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC        SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW        MEXICO POWER COMPANY**
**AND        SUBSIDIARIES**

**NOTES        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(1)             **
**Significant        Accounting Policies and Responsibility for Financial        Statements**

*Overview*

*TNP        Acquisition*

*Presentation*

*Change        in Presentation*

*Principles        of Consolidation*

----

**PNM                RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC                SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW                MEXICO POWER COMPANY**
**AND                SUBSIDIARIES**

**NOTES                TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

*Financial        Statement Preparation*

*Goodwill        and Other Intangible Assets*

*“Goodwill        and Other Intangible Assets”*
*“Accounting        for the Impairment or Disposal of Long-Lived Assets”*

*Decommissioning        Costs*

*"Accounting        for Asset Retirement Obligations”*

*Stock-Based        Compensation *

----

**PNM            RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC            SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW            MEXICO POWER COMPANY**
**AND            SUBSIDIARIES**

**NOTES            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

*Carrying        Charges on Stranded Costs*

| **(2)** | **Acquisitions** |
|---------|------------------|

*Twin        Oaks*

| **At                  April 18, 2006**     |   |
|--------------------------------------------|--------|
| (In                  thousands)            |   |
| Net                  utility plant         |   | $ | 594,653 |   |
| Other                  current assets      |   |   | 10,341 |   |
| Other                  intangible assets   |   |   | 25,000 |   |
| Other                  deferred charges    |   |   | 99,598 |   |
| Total                  assets acquired     |   |   | 729,592 |   |
|                                       |   |   |   |   |
| Other                  current liabilities |   |   | 95,758 |   |
| Other                  deferred credits    |   |   | 152,776 |   |
| Total                  liabilities assumed |   |   | 248,534 |   |
|                                       |   |   |   |   |
| Net                  assets acquired       |   | $ | 481,058 |   |

----

**PNM            RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC            SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW            MEXICO POWER COMPANY**
**AND            SUBSIDIARIES**

**NOTES            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

*“Business        Combinations”*

|                                                |   | **For                  the Three****Months                  Ended** |    | **For                  the Nine****Months                  Ended** |   |
|-----------------------------------------------------|--------|---------------------------------------------------------------------|---------|--------------------------------------------------------------------|--------|
|                                                |   | **September                  30,**                                  |    | **September                  30,**                                 |   |
|                                                |   | **2006**                                                            |    | **2005**                                                           |   | **2006** |   | **2005** |   |
|                                                |   | (In                  thousands, except per share amounts)           |    |
| Operating                  revenues                 |   | $                                                                   | 650,165 |                                                               | $      | 641,112 |   | $ | 1,912,343 |   | $ | 1,569,883 |   |
| Operating                  expenses                 |   | $                                                                   | 573,627 |                                                               | $      | 576,044 |   | $ | 1,720,402 |   | $ | 1,412,938 |   |
| Earnings                  before extraordinary item |   | $                                                                   | 43,844  |                                                               | $      | 36,606 |   | $ | 101,356 |   | $ | 92,432 |   |
| Net                  earnings                       |   | $                                                                   | 43,844  |                                                               | $      | 36,606 |   | $ | 101,356 |   | $ | 92,432 |   |
| Net                  earnings per common share:     |   |                                                                |    |                                                               |   |   |   |   |   |   |   |   |   |
| Basic                                               |   | $                                                                   | 0.63    |                                                               | $      | 0.53 |   | $ | 1.47 |   | $ | 1.42 |   |
| Diluted                                             |   | $                                                                   | 0.62    |                                                               | $      | 0.53 |   | $ | 1.45 |   | $ | 1.41 |   |

*TNP*

----

**PNM            RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC            SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW            MEXICO POWER COMPANY**
**AND            SUBSIDIARIES**

**NOTES            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

| **(3)** | **Segment                  Information** |
|---------|------------------------------------------|

**REGULATED        OPERATIONS**

**PNM        Electric **

**TNMP        Electric**

----

**PNM            RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC            SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW            MEXICO POWER COMPANY**
**AND            SUBSIDIARIES**

**NOTES            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**PNM        Gas**

**UNREGULATED        OPERATIONS **

**Wholesale**

*Reporting        Realized Gains and Losses on Derivative Instruments that are Subject to FASB        Statement No. 133 and Not Held for Trading Purposes*

**First        Choice**

**CORPORATE        AND OTHER**

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**PNMR        Segment Information**

|                                               |   |                                |      | **Regulated**                        |   |      |   | **Unregulated** |    |                                |   |                                                  |   |   |    |
|----------------------------------------------------|--------|-------------------------------------|-----------|--------------------------------------|--------|-----------|--------|-----------------|---------|-------------------------------------|--------|-------------------------------------------------------|--------|--------|---------|
| Segments                    of Business       |   | **PNM                    Electric** |      | **TNMP                    Electric** |   | **Gas**   |   | **Wholesale**   |    | **First                    Choice** |   | **Corporate**** &                    Other** |   |   |    | **Consolidated** |   |
| **2006:**                                          |   |                                |      |                                 |   |      |   |            |    |                                |   |                                                  |   |   |    |   |   |
| Operating                    revenues              |   | $                                   | 159,301   |                                 | $      | 50,961    |   | $               | 69,001  |                                | $      | 193,150                                               |   | $      | 186,972 |   | $ | (9,220 | ) |   | (a) |   | $ | 650,165 |   |
| Intersegment                    revenues           |   |                                | 2,414     |                                 |   | 19,280    |   |            | 245     |                                |   | 11,551                                                |   |   | -       |   |   | (33,490 | ) |   |   |   |   | - |   |
| **Total                    revenues**              |   |                                | 161,715   |                                 |   | 70,241    |   |            | 69,246  |                                |   | 204,701                                               |   |   | 186,972 |   |   | (42,710 | ) |   |   |   |   | 650,165 |   |
| Less:                    Cost of energy            |   |                                | 55,271    |                                 |   | 27,987    |   |            | 43,889  |                                |   | 135,986                                               |   |   | 146,337 |   |   | (42,782 | ) |   | (a) |   |   | 366,688 |   |
| Intersegment                    energy transfer    |   |                                | (5,861    | )                                    |   | -         |   |            | -       |                                |   | 5,861                                                 |   |   | -       |   |   | - |   |   |   |   |   | - |   |
| **Gross                    margin**                |   |                                | 112,305   |                                 |   | 42,254    |   |            | 25,357  |                                |   | 62,854                                                |   |   | 40,635  |   |   | 72 |   |   |   |   |   | 283,477 |   |
| Operating                    expenses              |   |                                | 66,483    |                                 |   | 20,877    |   |            | 25,546  |                                |   | 15,150                                                |   |   | 17,307  |   |   | 830 |   |   | (b) |   |   | 146,193 |   |
| Depreciation                    and amortization   |   |                                | 15,241    |                                 |   | 7,899     |   |            | 6,007   |                                |   | 7,894                                                 |   |   | 510     |   |   | 2,348 |   |   |   |   |   | 39,899 |   |
| Income                    taxes                    |   |                                | 8,529     |                                 |   | 1,974     |   |            | (3,686  | )                                   |   | 10,920                                                |   |   | 8,065   |   |   | (4,955 | ) |   | (b) |   |   | 20,847 |   |
| **Operating                    income**            |   |                                | 22,052    |                                 |   | 11,504    |   |            | (2,510  | )                                   |   | 28,890                                                |   |   | 14,753  |   |   | 1,849 |   |   |   |   |   | 76,538 |   |
|                                               |   |                                |      |                                 |   |      |   |            |    |                                |   |                                                  |   |   |    |   |   |   |   |   |   |   |   |   |   |
| Interest                    income                 |   |                                | 6,380     |                                 |   | 296       |   |            | 668     |                                |   | 1,346                                                 |   |   | 877     |   |   | 335 |   |   |   |   |   | 9,902 |   |
| Other                    income/(deductions)       |   |                                | 223       |                                 |   | 2,406     |   |            | 79      |                                |   | (45                                                   | )      |   | (57     | ) |   | (1,052 | ) |   |   |   |   | 1,554 |   |
| Other                    income taxes              |   |                                | (2,614    | )                                    |   | (922      | )      |            | (295    | )                                   |   | (516                                                  | )      |   | (293    | ) |   | 661 |   |   |   |   |   | (3,979 | ) |
| Interest                    charges                |   |                                | (9,037    | )                                    |   | (7,294    | )      |            | (3,115  | )                                   |   | (12,226                                               | )      |   | (166    | ) |   | (8,333 | ) |   |   |   |   | (40,171 | ) |
|                                               |   |                                |      |                                 |   |      |   |            |    |                                |   |                                                  |   |   |    |   |   |   |   |   |   |   |   |   |   |
| **Segment                    net earnings (loss)** |   | $                                   | 17,004    |                                 | $      | 5,990     |   | $               | (5,173  | )                                   | $      | 17,449                                                |   | $      | 15,114  |   | $ | (6,540 | ) |   |   |   | $ | 43,844 |   |
|                                               |   |                                |      |                                 |   |      |   |            |    |                                |   |                                                  |   |   |    |   |   |   |   |   |   |   |   |   |   |
| **Gross                    property additions**    |   | $                                   | 23,767    |                                 | $      | 11,149    |   | $               | 9,413   |                                | $      | 17,740                                                |   | $      | -       |   | $ | 4,856 |   |   |   |   | $ | 66,925 |   |
|                                               |   |                                |      |                                 |   |      |   |            |    |                                |   |                                                  |   |   |    |   |   |   |   |   |   |   |   |   |   |
| **At                    September 30, 2006:**      |   |                                |      |                                 |   |      |   |            |    |                                |   |                                                  |   |   |    |   |   |   |   |   |   |   |   |   |   |
| **Total                    Assets**                |   | $                                   | 1,992,550 |                                 | $      | 1,151,141 |   | $               | 631,729 |                                | $      | 1,086,354                                             |   | $      | 405,997 |   | $ | 575,615 |   |   |   |   | $ | 5,843,386 |   |
| **Goodwill**                                       |   | $                                   | -         |                                 | $      | 363,763   |   | $               | -       |                                | $      | -                                                     |   | $      | 131,678 |   | $ | - |   |   |   |   | $ | 495,441 |   |
|                                               |   |                                |      |                                 |   |      |   |            |    |                                |   |                                                  |   |   |    |   |   |   |   |   |   |   |   |   |   |

| (a)   | Reflects                EITF 03-11 impact, under which wholesale revenues and the associated                cost                of energy of $9.4 million are reclassified to a net margin basis                in                accordance with GAAP. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)   | Includes                TNP and Twin Oaks acquisition integration costs of $0.9 million and                an                income tax benefit of $0.3 million in income                taxes. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

|                                               |   |                                |      | **Regulated**                        |   |      |   | **Unregulated** |    |                                |   |                                            |   |   |    |
|----------------------------------------------------|--------|-------------------------------------|-----------|--------------------------------------|--------|-----------|--------|-----------------|---------|-------------------------------------|--------|-------------------------------------------------|--------|--------|---------|
| Segments                    of Business       |   | **PNM                    Electric** |      | **TNMP                    Electric** |   | **Gas**   |   | **Wholesale**   |    | **First                    Choice** |   | **Corporate****&                    Other** |   |   |    | **Consolidated** |   |
| **2005:**                                          |   |                                |      |                                 |   |      |   |            |    |                                |   |                                            |   |   |    |   |   |
| Operating                    revenues              |   | $                                   | 161,258   |                                 | $      | 49,373    |   | $               | 78,258  |                                | $      | 168,384                                         |   | $      | 155,479 |   | $ | (15,635 | ) |   | (a) |   | $ | 597,117 |   |
| Intersegment                    revenues           |   |                                | 1,687     |                                 |   | 22,068    |   |            | 429     |                                |   | 11,471                                          |   |   | -       |   |   | (35,655 | ) |   |   |   |   | - |   |
| **Total                    revenues**              |   |                                | 162,945   |                                 |   | 71,441    |   |            | 78,687  |                                |   | 179,855                                         |   |   | 155,479 |   |   | (51,290 | ) |   |   |   |   | 597,117 |   |
| Less:                    Cost of energy            |   |                                | 57,958    |                                 |   | 25,764    |   |            | 53,512  |                                |   | 156,024                                         |   |   | 120,751 |   |   | (51,146 | ) |   | (a) |   |   | 362,863 |   |
| Intersegment                    energy transfer    |   |                                | (7,205    | )                                    |   | -         |   |            | -       |                                |   | 7,205                                           |   |   | -       |   |   | - |   |   |   |   |   | - |   |
| **Gross                    margin**                |   |                                | 112,192   |                                 |   | 45,677    |   |            | 25,175  |                                |   | 16,626                                          |   |   | 34,728  |   |   | (144 | ) |   |   |   |   | 234,254 |   |
| Operating                    expenses              |   |                                | 66,950    |                                 |   | 17,958    |   |            | 25,878  |                                |   | 11,598                                          |   |   | 11,799  |   |   | 1,295 |   |   | (b) |   |   | 135,478 |   |
| Depreciation                    and amortization   |   |                                | 17,276    |                                 |   | 7,814     |   |            | 5,630   |                                |   | 3,667                                           |   |   | 480     |   |   | 1,980 |   |   |   |   |   | 36,847 |   |
| Income                    taxes                    |   |                                | 7,796     |                                 |   | 4,519     |   |            | (3,635  | )                                   |   | (1,034                                          | )      |   | 7,826   |   |   | (3,701 | ) |   | (b,d | ) |   | 11,771 |   |
| **Operating                    income**            |   |                                | 20,170    |                                 |   | 15,386    |   |            | (2,698  | )                                   |   | 2,395                                           |   |   | 14,623  |   |   | 282 |   |   |   |   |   | 50,158 |   |
|                                               |   |                                |      |                                 |   |      |   |            |    |                                |   |                                            |   |   |    |   |   |   |   |   |   |   |   |   |   |
| Interest                    income                 |   |                                | 7,102     |                                 |   | 660       |   |            | 938     |                                |   | 1,322                                           |   |   | 612     |   |   | 126 |   |   |   |   |   | 10,760 |   |
| Other                    income/(deductions)       |   |                                | 1,620     |                                 |   | 2,070     |   |            | (30     | )                                   |   | 393                                             |   |   | (36     | ) |   | (3,570 | ) |   | (c) |   |   | 447 |   |
| Other                    income taxes              |   |                                | (3,453    | )                                    |   | (1,050    | )      |            | (360    | )                                   |   | (678                                            | )      |   | (209    | ) |   | 1,582 |   |   |   |   |   | (4,168 | ) |
| Interest                    charges                |   |                                | (8,273    | )                                    |   | (7,250    | )      |            | (2,848  | )                                   |   | (3,972                                          | )      |   | (434    | ) |   | (5,937 | ) |   | (d) |   |   | (28,714 | ) |
|                                               |   |                                |      |                                 |   |      |   |            |    |                                |   |                                            |   |   |    |   |   |   |   |   |   |   |   |   |   |
| **Segment                    net earnings (loss)** |   | $                                   | 17,166    |                                 | $      | 9,816     |   | $               | (4,998  | )                                   | $      | (540                                            | )      | $      | 14,556  |   | $ | (7,517 | ) |   |   |   | $ | 28,483 |   |
|                                               |   |                                |      |                                 |   |      |   |            |    |                                |   |                                            |   |   |    |   |   |   |   |   |   |   |   |   |   |
| **Gross                    property additions**    |   | $                                   | 22,627    |                                 | $      | 10,986    |   | $               | 9,422   |                                | $      | 2,909                                           |   | $      | 98      |   | $ | 15,112 |   |   |   |   | $ | 61,154 |   |
|                                               |   |                                |      |                                 |   |      |   |            |    |                                |   |                                            |   |   |    |   |   |   |   |   |   |   |   |   |   |
| **At                    December 31, 2005:**       |   |                                |      |                                 |   |      |   |            |    |                                |   |                                            |   |   |    |   |   |   |   |   |   |   |   |   |   |
| **Total                    Assets**                |   | $                                   | 1,937,811 |                                 | $      | 1,169,090 |   | $               | 721,021 |                                | $      | 421,377                                         |   | $      | 318,820 |   | $ | 556,590 |   |   |   |   | $ | 5,124,709 |   |
| **Goodwill**                                       |   | $                                   | -         |                                 | $      | 367,245   |   | $               | -       |                                | $      | -                                               |   | $      | 131,910 |   | $ | - |   |   |   |   | $ | 499,155 |   |
|                                               |   |                                |      |                                 |   |      |   |            |    |                                |   |                                            |   |   |    |   |   |   |   |   |   |   |   |   |   |

| (a)   | Reflects                EITF 03-11 impact, under which wholesale revenues and the associated                cost                of energy of $16.0 million are reclassified to a net margin basis                in                accordance with GAAP. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)   | Includes                TNP acquisition related costs of $4.6 million in operating expenses                and an                income tax benefit of $1.8 million in income                taxes. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (c)   | Includes                TNP debt refinancing costs of $0.4 million in other                income/(deductions). |
|-----------------|-----------------------------------------------------------------------------------------------------------------|
| (d)   | Includes                TNP debt refinancing costs of $0.4 million in interest charges and                an                income tax benefit of $0.1 million in income                taxes. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

|                                               |   |                                |      | **Regulated**                        |   |      |   | **Unregulated** |    |                                |   |                                            |   |   |    |
|----------------------------------------------------|--------|-------------------------------------|-----------|--------------------------------------|--------|-----------|--------|-----------------|---------|-------------------------------------|--------|-------------------------------------------------|--------|--------|---------|
| Segments                    of Business       |   | **PNM                    Electric** |      | **TNMP                    Electric** |   | **Gas**   |   | **Wholesale**   |    | **First                    Choice** |   | **Corporate****&                    Other** |   |   |    | **Consolidated** |   |
| **2006:**                                          |   |                                |      |                                 |   |      |   |            |    |                                |   |                                            |   |   |    |   |   |
| Operating                    revenues              |   | $                                   | 439,977   |                                 | $      | 141,367   |   | $               | 345,346 |                                | $      | 499,281                                         |   | $      | 446,962 |   | $ | (20,298 | ) |   | (a) |   | $ | 1,852,635 |   |
| Intersegment                    revenues           |   |                                | 6,852     |                                 |   | 53,015    |   |            | 386     |                                |   | 39,402                                          |   |   | -       |   |   | (99,655 | ) |   |   |   |   | - |   |
| **Total                    revenues**              |   |                                | 446,829   |                                 |   | 194,382   |   |            | 345,732 |                                |   | 538,683                                         |   |   | 446,962 |   |   | (119,953 | ) |   |   |   |   | 1,852,635 |   |
| Less:                    Cost of energy            |   |                                | 144,053   |                                 |   | 77,810    |   |            | 243,748 |                                |   | 398,732                                         |   |   | 354,745 |   |   | (119,928 | ) |   | (a) |   |   | 1,099,160 |   |
| Intersegment                    energy transfer    |   |                                | (2,515    | )                                    |   | -         |   |            | -       |                                |   | 2,515                                           |   |   | -       |   |   | - |   |   |   |   |   | - |   |
| **Gross                    margin**                |   |                                | 305,291   |                                 |   | 116,572   |   |            | 101,984 |                                |   | 137,436                                         |   |   | 92,217  |   |   | (25 | ) |   |   |   |   | 753,475 |   |
| Operating                    expenses              |   |                                | 200,201   |                                 |   | 63,366    |   |            | 76,517  |                                |   | 45,315                                          |   |   | 45,852  |   |   | 3,448 |   |   | (b) |   |   | 434,699 |   |
| Depreciation                    and amortization   |   |                                | 44,529    |                                 |   | 23,462    |   |            | 17,921  |                                |   | 18,210                                          |   |   | 1,518   |   |   | 6,542 |   |   |   |   |   | 112,182 |   |
| Income                    taxes                    |   |                                | 13,453    |                                 |   | 2,540     |   |            | (656    | )                                   |   | 19,153                                          |   |   | 15,728  |   |   | (12,934 | ) |   | (b) |   |   | 37,284 |   |
| **Operating                    income**            |   |                                | 47,108    |                                 |   | 27,204    |   |            | 8,202   |                                |   | 54,758                                          |   |   | 29,119  |   |   | 2,919 |   |   |   |   |   | 169,310 |   |
|                                               |   |                                |      |                                 |   |      |   |            |    |                                |   |                                            |   |   |    |   |   |   |   |   |   |   |   |   |   |
| Interest                    income                 |   |                                | 19,517    |                                 |   | 632       |   |            | 2,401   |                                |   | 3,948                                           |   |   | 1,385   |   |   | 1,086 |   |   |   |   |   | 28,969 |   |
| Other                    income/(deductions)       |   |                                | 637       |                                 |   | 6,632     |   |            | 169     |                                |   | 991                                             |   |   | (292    | ) |   | (1,794 | ) |   |   |   |   | 6,343 |   |
| Other                    income taxes              |   |                                | (7,979    | )                                    |   | (2,681    | )      |            | (1,017  | )                                   |   | (1,956                                          | )      |   | (390    | ) |   | 1,109 |   |   |   |   |   | (12,914 | ) |
| Interest                    charges                |   |                                | (26,580   | )                                    |   | (21,792   | )      |            | (9,203  | )                                   |   | (25,559                                         | )      |   | (638    | ) |   | (21,460 | ) |   |   |   |   | (105,232 | ) |
|                                               |   |                                |      |                                 |   |      |   |            |    |                                |   |                                            |   |   |    |   |   |   |   |   |   |   |   |   |   |
| **Segment                    net earnings (loss)** |   | $                                   | 32,703    |                                 | $      | 9,995     |   | $               | 552     |                                | $      | 32,182                                          |   | $      | 29,184  |   | $ | (18,140 | ) |   |   |   | $ | 86,476 |   |
|                                               |   |                                |      |                                 |   |      |   |            |    |                                |   |                                            |   |   |    |   |   |   |   |   |   |   |   |   |   |
| **Gross                    property additions**    |   | $                                   | 100,197   |                                 | $      | 29,301    |   | $               | 23,411  |                                | $      | 27,288                                          |   | $      | 297     |   | $ | 14,999 |   |   |   |   | $ | 195,493 |   |
|                                               |   |                                |      |                                 |   |      |   |            |    |                                |   |                                            |   |   |    |   |   |   |   |   |   |   |   |   |   |
| **At                    September 30, 2006:**      |   |                                |      |                                 |   |      |   |            |    |                                |   |                                            |   |   |    |   |   |   |   |   |   |   |   |   |   |
| **Total                    Assets**                |   | $                                   | 1,992,550 |                                 | $      | 1,151,141 |   | $               | 631,729 |                                | $      | 1,086,354                                       |   | $      | 405,997 |   | $ | 575,615 |   |   |   |   | $ | 5,843,386 |   |
| **Goodwill**                                       |   | $                                   | -         |                                 | $      | 363,763   |   | $               | -       |                                | $      | -                                               |   | $      | 131,678 |   | $ | - |   |   |   |   | $ | 495,441 |   |
|                                               |   |                                |      |                                 |   |      |   |            |    |                                |   |                                            |   |   |    |   |   |   |   |   |   |   |   |   |   |

| (a)   | Reflects                EITF 03-11 impact, under which wholesale revenues and the associated                cost                of energy of $20.8 million are reclassified to a net margin basis                in                accordance with GAAP. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)   | Includes                TNP and Twin Oaks acquisition integration costs of $3.7 million and                an                income tax benefit of $1.4 million in income                taxes. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

|                                               |   |                                |      | **Regulated**                         |   |      |   | **Unregulated** |    |                                 |   |                                            |   |   |    |
|----------------------------------------------------|--------|-------------------------------------|-----------|---------------------------------------|--------|-----------|--------|-----------------|---------|--------------------------------------|--------|-------------------------------------------------|--------|--------|---------|
| Segments                    of Business       |   | **PNM                    Electric** |      | **TNMP                    Electric*** |   | **Gas**   |   | **Wholesale**   |    | **First                    Choice*** |   | **Corporate****&                    Other** |   |   |    | **Consolidated** |   |
| **2005:**                                          |   |                                |      |                                  |   |      |   |            |    |                                 |   |                                            |   |   |    |   |   |
| Operating                    revenues              |   | $                                   | 431,063   |                                  | $      | 62,057    |   | $               | 325,752 |                                 | $      | 439,661                                         |   | $      | 198,510 |   | $ | (26,759 | ) |   | (a) |   | $ | 1,430,284 |   |
| Intersegment                    revenues           |   |                                | 4,845     |                                  |   | 28,619    |   |            | 605     |                                 |   | 14,480                                          |   |   | -       |   |   | (48,549 | ) |   |   |   |   | - |   |
| **Total                    revenues**              |   |                                | 435,908   |                                  |   | 90,676    |   |            | 326,357 |                                 |   | 454,141                                         |   |   | 198,510 |   |   | (75,308 | ) |   |   |   |   | 1,430,284 |   |
| Less:                    Cost of energy            |   |                                | 150,359   |                                  |   | 32,466    |   |            | 221,239 |                                 |   | 364,989                                         |   |   | 154,834 |   |   | (75,355 | ) |   | (a) |   |   | 848,532 |   |
| Intersegment                    energy transfer    |   |                                | (24,740   | )                                     |   | -         |   |            | -       |                                 |   | 24,740                                          |   |   | -       |   |   | - |   |   |   |   |   | - |   |
| **Gross                    margin**                |   |                                | 310,289   |                                  |   | 58,210    |   |            | 105,118 |                                 |   | 64,412                                          |   |   | 43,676  |   |   | 47 |   |   |   |   |   | 581,752 |   |
| Operating                    expenses              |   |                                | 196,073   |                                  |   | 23,044    |   |            | 74,203  |                                 |   | 33,566                                          |   |   | 14,996  |   |   | 12,084 |   |   | (b) |   |   | 353,966 |   |
| Depreciation                    and amortization   |   |                                | 52,329    |                                  |   | 9,899     |   |            | 16,802  |                                 |   | 11,695                                          |   |   | 585     |   |   | 10,001 |   |   | (e) |   |   | 101,311 |   |
| Income                    taxes                    |   |                                | 14,450    |                                  |   | 5,694     |   |            | 2,152   |                                 |   | 2,841                                           |   |   | 9,846   |   |   | (13,188 | ) |   | (b,d,e | ) |   | 21,795 |   |
| **Operating                    income**            |   |                                | 47,437    |                                  |   | 19,573    |   |            | 11,961  |                                 |   | 16,310                                          |   |   | 18,249  |   |   | (8,850 | ) |   |   |   |   | 104,680 |   |
|                                               |   |                                |      |                                  |   |      |   |            |    |                                 |   |                                            |   |   |    |   |   |   |   |   |   |   |   |   |   |
| Interest                    income                 |   |                                | 20,791    |                                  |   | 747       |   |            | 2,181   |                                 |   | 3,969                                           |   |   | 773     |   |   | 3,221 |   |   |   |   |   | 31,682 |   |
| Other                    income/(deductions)       |   |                                | 3,197     |                                  |   | 2,695     |   |            | 455     |                                 |   | 1,731                                           |   |   | (51     | ) |   | (6,589 | ) |   | (c) |   |   | 1,438 |   |
| Other                    income taxes              |   |                                | (9,497    | )                                     |   | (1,364    | )      |            | (1,044  | )                                    |   | (2,256                                          | )      |   | (260    | ) |   | 1,692 |   |   |   |   |   | (12,729 | ) |
| Interest                    charges                |   |                                | (25,387   | )                                     |   | (9,206    | )      |            | (8,677  | )                                    |   | (11,975                                         | )      |   | (462    | ) |   | (8,831 | ) |   | (d) |   |   | (64,538 | ) |
|                                               |   |                                |      |                                  |   |      |   |            |    |                                 |   |                                            |   |   |    |   |   |   |   |   |   |   |   |   |   |
| **Segment                    net earnings (loss)** |   | $                                   | 36,541    |                                  | $      | 12,445    |   | $               | 4,876   |                                 | $      | 7,779                                           |   | $      | 18,249  |   | $ | (19,357 | ) |   |   |   | $ | 60,533 |   |
|                                               |   |                                |      |                                  |   |      |   |            |    |                                 |   |                                            |   |   |    |   |   |   |   |   |   |   |   |   |   |
| **Gross                    property additions**    |   | $                                   | 63,342    |                                  | $      | 12,671    |   | $               | 28,143  |                                 | $      | 7,078                                           |   | $      | 144     |   | $ | 29,725 |   |   |   |   | $ | 141,103 |   |
|                                               |   |                                |      |                                  |   |      |   |            |    |                                 |   |                                            |   |   |    |   |   |   |   |   |   |   |   |   |   |
| **At                    December 31, 2005:**       |   |                                |      |                                  |   |      |   |            |    |                                 |   |                                            |   |   |    |   |   |   |   |   |   |   |   |   |   |
| **Total                    Assets**                |   | $                                   | 1,937,811 |                                  | $      | 1,169,090 |   | $               | 721,021 |                                 | $      | 421,377                                         |   | $      | 318,820 |   | $ | 556,590 |   |   |   |   | $ | 5,124,709 |   |
| **Goodwill**                                       |   | $                                   | -         |                                  | $      | 367,245   |   | $               | -       |                                 | $      | -                                               |   | $      | 131,910 |   | $ | - |   |   |   |   | $ | 499,155 |   |
|                                               |   |                                |      |                                  |   |      |   |            |    |                                 |   |                                            |   |   |    |   |   |   |   |   |   |   |   |   |   |

| (a)   | Reflects                EITF 03-11 impact, under which wholesale revenues and the associated                cost                of energy of $27.6 million are reclassified to a net margin basis                in                accordance with GAAP. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)   | Includes                TNP acquisition related costs of $9.1 million and regulatory costs                associated with the NMPRC’s approval of the acquisition of $2.3 million in                operating expenses and an income tax benefit of $4.5 million in income                taxes. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (c)   | Includes                TNP debt refinancing costs of $2.4 million in other                income/(deductions). |
|-----------------|-----------------------------------------------------------------------------------------------------------------|
| (d)   | Includes                TNP debt refinancing costs of $4.5 million in interest charges and                an                income tax benefit of $2.0 million in income                taxes. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (e)   | Includes                a write-off of software costs of $4.5 million in depreciation and                amortization, and an income tax benefit of $1.8 million in income                taxes. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

|                                               |   | **Regulated** |      | **Unregulated** |   |          |   |      |    |   |   |
|----------------------------------------------------|--------|---------------|-----------|-----------------|--------|---------------|--------|-----------|---------|--------|--------|
| Segments                    of Business            |   | **PNM**       |      | **PNM**         |   | **PNM**       |   |      |    |   |   |   |   |
|                                               |   | **Electric**  |      | **Gas**         |   | **Wholesale** |   | **Other** |    |   |   | **Consolidated** |   |
| **2006:**                                          |   |          |      |            |   |          |   |      |    |   |   |   |   |
| Operating                    revenues              |   | $             | 159,301   |            | $      | 69,001        |   | $         | 141,340 |   | $      | (9,418 | ) |   | (a) |   | $ | 360,224 |   |
| Intersegment                    revenues           |   |          | 2,414     |            |   | 245           |   |      | 11,551  |   |   | (2,533 | ) |   |   |   |   | 11,677 |   |
| **Total                    revenues**              |   |          | 161,715   |            |   | 69,246        |   |      | 152,891 |   |   | (11,951 | ) |   |   |   |   | 371,901 |   |
| Less:                    Cost of energy            |   |          | 55,271    |            |   | 43,889        |   |      | 121,729 |   |   | (11,921 | ) |   | (a) |   |   | 208,968 |   |
| Intersegment                    energy transfer    |   |          | (5,861    | )               |   | -             |   |      | 5,861   |   |   | - |   |   |   |   |   | - |   |
| **Gross                    margin**                |   |          | 112,305   |            |   | 25,357        |   |      | 25,301  |   |   | (30 | ) |   |   |   |   | 162,933 |   |
| Operating                    expenses              |   |          | 66,483    |            |   | 25,546        |   |      | 10,573  |   |   | (241 | ) |   |   |   |   | 102,361 |   |
| Depreciation                    and amortization   |   |          | 15,241    |            |   | 6,007         |   |      | 3,408   |   |   | 717 |   |   |   |   |   | 25,373 |   |
| Income                    taxes                    |   |          | 8,529     |            |   | (3,686        | )      |      | 2,890   |   |   | 11 |   |   |   |   |   | 7,744 |   |
| **Operating                    income**            |   |          | 22,052    |            |   | (2,510        | )      |      | 8,430   |   |   | (517 | ) |   |   |   |   | 27,455 |   |
|                                               |   |          |      |            |   |          |   |      |    |   |   |   |   |   |   |   |   |   |   |
| Interest                    income                 |   |          | 6,380     |            |   | 668           |   |      | 1,268   |   |   | 246 |   |   |   |   |   | 8,562 |   |
| Other                    income/(deductions)       |   |          | 223       |            |   | 79            |   |      | (45     | )      |   | (193 | ) |   |   |   |   | 64 |   |
| Other                    income taxes              |   |          | (2,614    | )               |   | (295          | )      |      | (483    | )      |   | 176 |   |   |   |   |   | (3,216 | ) |
| Interest                    charges                |   |          | (9,037    | )               |   | (3,115        | )      |      | (4,020  | )      |   | 1,147 |   |   |   |   |   | (15,025 | ) |
|                                               |   |          |      |            |   |          |   |      |    |   |   |   |   |   |   |   |   |   |   |
| **Segment                    net earnings (loss)** |   | $             | 17,004    |            | $      | (5,173        | )      | $         | 5,150   |   | $      | 859 |   |   |   |   | $ | 17,840 |   |
|                                               |   |          |      |            |   |          |   |      |    |   |   |   |   |   |   |   |   |   |   |
| **Gross                    property additions**    |   | $             | 23,767    |            | $      | 9,413         |   | $         | 17,740  |   | $      | (32 | ) |   |   |   | $ | 50,888 |   |
|                                               |   |          |      |            |   |          |   |      |    |   |   |   |   |   |   |   |   |   |   |
| **At                    September 30, 2006:**      |   |          |      |            |   |          |   |      |    |   |   |   |   |   |   |   |   |   |   |
| **Total                    Assets**                |   | $             | 2,008,424 |            | $      | 631,729       |   | $         | 392,788 |   | $      | 461,802 |   |   |   |   | $ | 3,494,743 |   |
|                                               |   |          |      |            |   |          |   |      |    |   |   |   |   |   |   |   |   |   |   |

| (a)   | Reflects                EITF 03-11 impact, under which wholesale revenues and the associated                cost                of energy of $9.4 million are reclassified to a net margin basis                in                accordance with GAAP. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

|                                               |   | **Regulated** |      | **Unregulated** |    |          |   |      |    |   |    |
|----------------------------------------------------|--------|---------------|-----------|-----------------|---------|---------------|--------|-----------|---------|--------|---------|
| Segments                    of Business            |   | **PNM**       |      | **PNM**         |    | **PNM**       |   |      |    |   |    |   |   |
|                                               |   | **Electric**  |      | **Gas**         |    | **Wholesale** |   | **Other** |    |   |    | **Consolidated** |   |
| **2005:**                                          |   |          |      |            |    |          |   |      |    |   |    |   |   |
| Operating                    revenues              |   | $             | 161,258   |            | $       | 78,258        |   | $         | 168,384 |   | $       | (15,965 | ) |   | (a) |   | $ | 391,935 |   |
| Intersegment                    revenues           |   |          | 1,687     |            |    | 429           |   |      | 11,471  |   |    | (1,990 | ) |   |   |   |   | 11,597 |   |
| **Total                    revenues**              |   |          | 162,945   |            |    | 78,687        |   |      | 179,855 |   |    | (17,955 | ) |   |   |   |   | 403,532 |   |
| Less:                    Cost of energy            |   |          | 57,958    |            |    | 53,512        |   |      | 156,024 |   |    | (17,928 | ) |   | (a) |   |   | 249,566 |   |
| Intersegment                    energy transfer    |   |          | (7,205    | )               |    | -             |   |      | 7,205   |   |    | - |   |   |   |   |   | - |   |
| **Gross                    margin**                |   |          | 112,192   |            |    | 25,175        |   |      | 16,626  |   |    | (27 | ) |   |   |   |   | 153,966 |   |
| Operating                    expenses              |   |          | 66,950    |            |    | 25,878        |   |      | 11,598  |   |    | 1,918 |   |   | (b) |   |   | 106,344 |   |
| Depreciation                    and amortization   |   |          | 17,276    |            |    | 5,630         |   |      | 3,667   |   |    | 833 |   |   |   |   |   | 27,406 |   |
| Income                    taxes                    |   |          | 7,796     |            |    | (3,635        | )      |      | (1,034  | )      |    | (950 | ) |   | (b) |   |   | 2,177 |   |
| **Operating                    income**            |   |          | 20,170    |            |    | (2,698        | )      |      | 2,395   |   |    | (1,828 | ) |   |   |   |   | 18,039 |   |
|                                               |   |          |      |            |    |          |   |      |    |   |    |   |   |   |   |   |   |   |   |
| Interest                    income                 |   |          | 7,102     |            |    | 938           |   |      | 1,322   |   |    | 335 |   |   |   |   |   | 9,697 |   |
| Other                    income/(deductions)       |   |          | 1,620     |            |    | (30           | )      |      | 393     |   |    | (183 | ) |   |   |   |   | 1,800 |   |
| Other                    income taxes              |   |          | (3,453    | )               |    | (360          | )      |      | (679    | )      |    | 249 |   |   |   |   |   | (4,243 | ) |
| Interest                    charges                |   |          | (8,273    | )               |    | (2,848        | )      |      | (3,971  | )      |    | 933 |   |   |   |   |   | (14,159 | ) |
|                                               |   |          |      |            |    |          |   |      |    |   |    |   |   |   |   |   |   |   |   |
| **Segment                    net earnings (loss)** |   | $             | 17,166    |            | $  | (4,998        | )      | $    | (540    | )      | $  | (494 | ) |   |   |   | $ | 11,134 |   |
|                                               |   |          |      |            |    |          |   |      |    |   |    |   |   |   |   |   |   |   |   |
| **Gross                    property additions**    |   | $             | 22,627    |            | $       | 9,422         |   | $         | 2,909   |   | $       | (4,514 | ) |   |   |   | $ | 30,444 |   |
|                                               |   |          |      |            |    |          |   |      |    |   |    |   |   |   |   |   |   |   |   |
| **At                    December 31, 2005:**       |   |          |      |            |    |          |   |      |    |   |    |   |   |   |   |   |   |   |   |
| **Total                    Assets**                |   | $             | 1,937,811 |            | $       | 721,021       |   | $         | 421,377 |   | $       | 507,542 |   |   |   |   | $ | 3,587,751 |   |
|                                               |   |          |      |            |    |          |   |      |    |   |    |   |   |   |   |   |   |   |   |

| (a)   | Reflects                EITF 03-11 impact, under which wholesale revenues and the associated                cost                of energy of $16.0 million are reclassified to a net margin basis                in                accordance with GAAP. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)   | Includes                TNP acquisition related costs of $2.5 million in operating expenses                and an                income tax benefit of $1.0 million in income                taxes. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**PNM            RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC            SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW            MEXICO POWER COMPANY**
**AND            SUBSIDIARIES**

**NOTES            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

|                                             |   | **Regulated** |      | **Unregulated** |   |          |   |      |    |   |   |
|--------------------------------------------------|--------|---------------|-----------|-----------------|--------|---------------|--------|-----------|---------|--------|--------|
| Segments                    of Business          |   | **PNM**       |      | **PNM**         |   | **PNM**       |   |      |    |   |   |   |   |
|                                             |   | **Electric**  |      | **Gas**         |   | **Wholesale** |   | **Other** |    |   |   | **Consolidated** |   |
| **2006:**                                        |   |          |      |            |   |          |   |      |    |   |   |   |   |
| Operating                    revenues            |   | $             | 439,977   |            | $      | 345,346       |   | $         | 414,714 |   | $      | (20,801 | ) |   | (a) |   | $ | 1,179,236 |   |
| Intersegment                    revenues         |   |          | 6,852     |            |   | 386           |   |      | 39,402  |   |   | (6,865 | ) |   |   |   |   | 39,775 |   |
| **Total                    revenues**            |   |          | 446,829   |            |   | 345,732       |   |      | 454,116 |   |   | (27,666 | ) |   |   |   |   | 1,219,011 |   |
| Less:                    Cost of energy          |   |          | 144,053   |            |   | 243,748       |   |      | 373,362 |   |   | (27,523 | ) |   | (a) |   |   | 733,640 |   |
| Intersegment                    energy transfer  |   |          | (2,515    | )               |   | -             |   |      | 2,515   |   |   | - |   |   |   |  |   | - |   |
| **Gross                    margin**              |   |          | 305,291   |            |   | 101,984       |   |      | 78,239  |   |   | (143 | ) |   |   |   |   | 485,371 |   |
| Operating                    expenses            |   |          | 200,201   |            |   | 76,517        |   |      | 37,286  |   |   | (2,378 | ) |   |   |   |   | 311,626 |   |
| Depreciation                    and amortization |   |          | 44,529    |            |   | 17,921        |   |      | 9,760   |   |   | 2,307 |   |   |   |   |   | 74,517 |   |
| Income                    taxes                  |   |          | 13,453    |            |   | (656          | )      |      | 7,724   |   |   | 931 |   |   |   |   |   | 21,452 |   |
| **Operating                    income**          |   |          | 47,108    |            |   | 8,202         |   |      | 23,469  |   |   | (1,003 | ) |   |   |   |   | 77,776 |   |
|                                             |   |          |      |            |   |          |   |      |    |   |   |   |   |   |   |   |   |   |   |
| Interest                    income               |   |          | 19,517    |            |   | 2,401         |   |      | 3,823   |   |   | 844 |   |   |   |   |   | 26,585 |   |
| Other                    income/(deductions)     |   |          | 637       |            |   | 169           |   |      | 976     |   |   | (804 | ) |   |   |   |   | 978 |   |
| Other                    income taxes            |   |          | (7,979    | )               |   | (1,017        | )      |      | (1,899  | )      |   | 224 |   |   |   |   |   | (10,671 | ) |
| Interest                    charges              |   |          | (26,580   | )               |   | (9,203        | )      |      | (11,683 | )      |   | 4,122 |   |   |   |   |   | (43,344 | ) |
|                                             |   |          |      |            |   |          |   |      |    |   |   |   |   |   |   |   |   |   |   |
| **Segment                    net earnings**      |   | $             | 32,703    |            | $      | 552           |   | $         | 14,686  |   | $      | 3,383 |   |   |   |   | $ | 51,324 |   |
|                                             |   |          |      |            |   |          |   |      |    |   |   |   |   |   |   |   |   |   |   |
| **Gross                    property additions**  |   | $             | 100,197   |            | $      | 23,411        |   | $         | 27,288  |   | $      | - |   |   |   |   | $ | 150,896 |   |
|                                             |   |          |      |            |   |          |   |      |    |   |   |   |   |   |   |   |   |   |   |
| **At                    September 30, 2006:**    |   |          |      |            |   |          |   |      |    |   |   |   |   |   |   |   |   |   |   |
| **Total                    Assets**              |   | $             | 2,008,424 |            | $      | 631,729       |   | $         | 392,788 |   | $      | 461,802 |   |   |   |   | $ | 3,494,743 |   |
|                                             |   |          |      |            |   |          |   |      |    |   |   |   |   |   |   |   |   |   |   |

| (a)   | Reflects                EITF 03-11 impact, under which wholesale revenues and the associated                cost                of energy of $20.8 million are reclassified to a net margin basis                in                accordance with GAAP. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

|                                               |   | **Regulated** |      | **Unregulated** |   |          |   |      |    |   |   |
|----------------------------------------------------|--------|---------------|-----------|-----------------|--------|---------------|--------|-----------|---------|--------|--------|
| Segments                    of Business            |   | **PNM**       |      | **PNM**         |   | **PNM**       |   |      |    |   |   |   |   |
|                                               |   | **Electric**  |      | **Gas**         |   | **Wholesale** |   | **Other** |    |   |   | **Consolidated** |   |
| **2005:**                                          |   |          |      |            |   |          |   |      |    |   |   |   |   |
| Operating                    revenues              |   | $             | 431,063   |            | $      | 325,752       |   | $         | 439,661 |   | $      | (27,644 | ) |   | (a) |   | $ | 1,168,832 |   |
| Intersegment                    revenues           |   |          | 4,845     |            |   | 605           |   |      | 14,480  |   |   | (5,288 | ) |   |   |   |   | 14,642 |   |
| **Total                    revenues**              |   |          | 435,908   |            |   | 326,357       |   |      | 454,141 |   |   | (32,932 | ) |   |   |   |   | 1,183,474 |   |
| Less:                    Cost of energy            |   |          | 150,359   |            |   | 221,239       |   |      | 364,989 |   |   | (32,811 | ) |   | (a) |   |   | 703,776 |   |
| Intersegment                    energy transfer    |   |          | (24,740   | )               |   | -             |   |      | 24,740  |   |   | - |   |   |   |   |   | - |   |
| **Gross                    margin**                |   |          | 310,289   |            |   | 105,118       |   |      | 64,412  |   |   | (121 | ) |   |   |   |   | 479,698 |   |
| Operating                    expenses              |   |          | 196,073   |            |   | 74,203        |   |      | 33,566  |   |   | 5,028 |   |   | (b) |   |   | 308,870 |   |
| Depreciation                    and amortization   |   |          | 52,329    |            |   | 16,802        |   |      | 11,695  |   |   | 6,942 |   |   | (c) |   |   | 87,768 |   |
| Income                    taxes                    |   |          | 14,450    |            |   | 2,152         |   |      | 2,841   |   |   | (4,300 | ) |   | (b,c | ) |   | 15,143 |   |
| **Operating                    income**            |   |          | 47,437    |            |   | 11,961        |   |      | 16,310  |   |   | (7,791 | ) |   |   |   |   | 67,917 |   |
|                                               |   |          |      |            |   |          |   |      |    |   |   |   |   |   |   |   |   |   |   |
| Interest                    income                 |   |          | 20,791    |            |   | 2,181         |   |      | 3,969   |   |   | 1,059 |   |   |   |   |   | 28,000 |   |
| Other                    income/(deductions)       |   |          | 3,197     |            |   | 455           |   |      | 1,731   |   |   | (414 | ) |   |   |   |   | 4,969 |   |
| Other                    income taxes              |   |          | (9,497    | )               |   | (1,044        | )      |      | (2,257  | )      |   | 494 |   |   |   |   |   | (12,304 | ) |
| Interest                    charges                |   |          | (25,387   | )               |   | (8,677        | )      |      | (11,974 | )      |   | 4,942 |   |   |   |   |   | (41,096 | ) |
|                                               |   |          |      |            |   |          |   |      |    |   |   |   |   |   |   |   |   |   |   |
| **Segment                    net earnings (loss)** |   | $             | 36,541    |            | $      | 4,876         |   | $         | 7,779   |   | $      | (1,710 | ) |   |   |   | $ | 47,486 |   |
|                                               |   |          |      |            |   |          |   |      |    |   |   |   |   |   |   |   |   |   |   |
| **Gross                    property additions**    |   | $             | 63,342    |            | $      | 28,143        |   | $         | 7,078   |   | $      | (8,231 | ) |   |   |   | $ | 90,332 |   |
|                                               |   |          |      |            |   |          |   |      |    |   |   |   |   |   |   |   |   |   |   |
| **At                    December 31, 2005:**       |   |          |      |            |   |          |   |      |    |   |   |   |   |   |   |   |   |   |   |
| **Total                    Assets**                |   | $             | 1,937,811 |            | $      | 721,021       |   | $         | 421,377 |   | $      | 507,542 |   |   |   |   | $ | 3,587,751 |   |
|                                               |   |          |      |            |   |          |   |      |    |   |   |   |   |   |   |   |   |   |   |

| (a)   | Reflects                EITF 03-11 impact, under which wholesale revenues and the associated                cost                of energy of $27.6 million are reclassified to a net margin basis                in                accordance with GAAP. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)   | Includes                TNP acquisition related costs of $3.6 million and regulatory costs                associated with the NMPRC’s approval of the acquisition of $2.3 million in                operating expenses and an income tax benefit of $2.3 million in income                taxes. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (c)   | Includes                a write-off of software costs of $4.5 million in depreciation and                amortization, and an income tax benefit of $1.8 million in income                taxes. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

| **(4)** | **Fair                  Value of Commodity Financial Instruments** |
|---------|--------------------------------------------------------------------|

***Energy        Contracts***

***Gas        Fixed-for-Float Swaps***

***Options***

***PGAC        portion of options, swaps and hedges***

*Normal        Sales and Purchases Transactions*

*“Accounting        for Derivative Instruments and Hedging Activities”*

----

**PNM            RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC            SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW            MEXICO POWER COMPANY**
**AND            SUBSIDIARIES**

**NOTES            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

*Hedge        Accounting Transactions*

*Mark-to-Market        Transactions*

*Electricity        Contracts*

*Gas        Contracts*

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

|                                                        |   | **September                  30,**              |    | **December                  31,**      |   | **September                  30,** |   | **December                  31,** |    |
|-------------------------------------------------------------|--------|-------------------------------------------------|---------|----------------------------------------|--------|------------------------------------|--------|-----------------------------------|---------|
|                                                        |   | **2006**                                        |    | **2005**                               |   | **2006**                           |   | **2005**                          |    |
| **Type                  of Derivative**                     |   | **Mark-to-Market                  Instruments** |    | **Hedge                  Instruments** |   |
|                                                        |   |                                            |    | (In                  thousands)        |   |                               |   |
| **Current****Assets**                                       |   |                                            |    |                                   |   |                               |   |                              |    |
| Energy                  Contracts                           |   | $                                               | 32,764  |                                   | $      | 11,650                             |   | $                                 | 464     |   | $ | 6,616 |   |
| Gas                  fixed for float swaps                  |   |                                            | 27,064  |                                   |   | 6,488                              |   |                              | 2,056   |   |   | 10,465 |   |
| Options                                                     |   |                                            | 5,841   |                                   |   | 3,746                              |   |                              | 24      |   |   | 261 |   |
| Regulatory                  assets for gas off-system sales |   |                                            | -       |                                   |   | -                                  |   |                              | 135     |   |   | - |   |
| PGAC                  portion of options, swaps and hedges  |   |                                            | -       |                                   |   | -                                  |   |                              | 17,513  |   |   | 7,528 |   |
| Total                  Current Assets                       |   |                                            | 65,669  |                                   |   | 21,884                             |   |                              | 20,192  |   |   | 24,870 |   |
|                                                        |   |                                            |    |                                   |   |                               |   |                              |    |   |   |   |   |
| **Deferred                  Charges**                       |   |                                            |    |                                   |   |                               |   |                              |    |   |   |   |   |
| Energy                  Contracts                           |   |                                            | 1,264   |                                   |   | 3,477                              |   |                              | 33,003  |   |   | - |   |
| Gas                  fixed for float swaps                  |   |                                            | 2,007   |                                   |   | 12,459                             |   |                              | 223     |   |   | 13,614 |   |
| Options                                                     |   |                                            | 63      |                                   |   | 5,329                              |   |                              | -       |   |   | - |   |
| PGAC                  portion of options, swaps and hedges  |   |                                            | -       |                                   |   | -                                  |   |                              | 4,067   |   |   | (5,906 | ) |
| Total                  Deferred Charges                     |   |                                            | 3,334   |                                   |   | 21,265                             |   |                              | 37,293  |   |   | 7,708 |   |
|                                                        |   |                                            |    |                                   |   |                               |   |                              |    |   |   |   |   |
| **Total                  Assets**                           |   | $                                               | 69,003  |                                   | $      | 43,149                             |   | $                                 | 57,485  |   | $ | 32,578 |   |
|                                                        |   |                                            |    |                                   |   |                               |   |                              |    |   |   |   |   |
| **Current                  Liabilities**                    |   |                                            |    |                                   |   |                               |   |                              |    |   |   |   |   |
| Energy                  Contracts                           |   | $                                               | (36,875 | )                                      | $      | (7,333                             | )      | $                                 | -       |   | $ | (503 | ) |
| Gas                  fixed for float swaps                  |   |                                            | (22,664 | )                                      |   | (7,151                             | )      |                              | (6,694  | ) |   | (3,970 | ) |
| Options                                                     |   |                                            | (6,566  | )                                      |   | (3,293                             | )      |                              | -       |   |   | (844 | ) |
| PGAC                  portion of options, swaps and hedges  |   |                                            | -       |                                   |   | -                                  |   |                              | (17,513 | ) |   | 3,942 |   |
| Total                  Current Liabilities                  |   |                                            | (66,105 | )                                      |   | (17,777                            | )      |                              | (24,207 | ) |   | (1,375 | ) |
|                                                        |   |                                            |    |                                   |   |                               |   |                              |    |   |   |   |   |
| **Long-Term                  Liabilities**                  |   |                                            |    |                                   |   |                               |   |                              |    |   |   |   |   |
| Energy                  Contracts                           |   |                                            | (2,504  | )                                      |   | (3,444                             | )      |                              | -       |   |   | - |   |
| Gas                  fixed for float swaps                  |   |                                            | (351    | )                                      |   | (12,257                            | )      |                              | (125    | ) |   | - |   |
| Options                                                     |   |                                            | -       |                                   |   | (5,143                             | )      |                              | -       |   |   | - |   |
| PGAC                  portion of options, swaps and hedges  |   |                                            | -       |                                   |   | -                                  |   |                              | (4,067  | ) |   | (5,564 | ) |
| Total                  Long-Term Liabilities                |   |                                            | (2,855  | )                                      |   | (20,844                            | )      |                              | (4,192  | ) |   | (5,564 | ) |
|                                                        |   |                                            |    |                                   |   |                               |   |                              |    |   |   |   |   |
| **Total                  Liabilities**                      |   | $                                               | (68,960 | )                                      | $      | (38,621                            | )      | $                                 | (28,399 | ) | $ | (6,939 | ) |

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

|                                                    |   | **Three                  Months Ended** |   | **Nine                  Months Ended** |   |
|---------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|
|                                                    |   | **September                  30,**      |   | **September                  30,**     |   |
|                                                    |   | **2006**                                |   | **2005**                               |   | **2006** |   | **2005** |   |
|                                                    |   |                                    |   | (In                  thousands)        |   |   |   |
| Amount                  realized on contracts delivered |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| during                  period                          |   | $                                       | (2,470 | )                                      | $      | (1,480 | ) | $ | (7,270 | ) | $ | (1,731 | ) |
| Changes                  in fair value                  |   |                                    | (151   | )                                      |   | 1,084 |   |   | 2,785 |   |   | 2,150 |   |
| Net                  change recorded as mark-to-market  |   | $                                       | (2,621 | )                                      | $      | (396 | ) | $ | (4,485 | ) | $ | 419 |   |

|                                                               |   | **Three                  Months Ended** |   | **Nine                  Months Ended** |   |
|--------------------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|
|                                                               |   | **September                  30,**      |   | **September                  30,**     |   |
|                                                               |   | **2006**                                |   | **2005**                               |   | **2006** |   | **2005** |   |
| **Type                  of Derivative**                            |   | **Hedge                  Instruments**  |   |
|                                                               |   |                                    |   | (In                  thousands)        |   |   |   |
| Change                  in fair value of energy contracts          |   | $                                       | 28,280 |                                   | $      | (15,920 | ) | $ | 27,354 |   | $ | (18,114 | ) |
| Change                  in fair value of gas fixed for float swaps |   |                                    | (4,759 | )                                      |   | 27,441 |   |   | (24,649 | ) |   | 37,488 |   |
| Change                  in the fair value of options               |   |                                    | 8,310  |                                   |   | 12,694 |   |   | 607 |   |   | 12,694 |   |
| Change                  in regulatory assets for gas off-system    |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| sales                                                              |   |                                    | -      |                                   |   | - |   |   | 135 |   |   | - |   |
| Net                  change in fair value                          |   | $                                       | 31,831 |                                   | $      | 24,215 |   | $ | 3,447 |   | $ | 32,068 |   |

*Normal        Sales and Purchases Transactions*

----

**PNM            RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC            SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW            MEXICO POWER COMPANY**
**AND            SUBSIDIARIES**

**NOTES            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

*Hedge        Accounting Transactions*

*PGAC*

*Wholesale        Electricity*

*Wholesale        Gas*

----

**PNM            RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC            SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW            MEXICO POWER COMPANY**
**AND            SUBSIDIARIES**

**NOTES            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

*Mark-to-Market        Transactions*

*Wholesale        Electricity*

*Wholesale        Gas*

*Liquidity        Reserves*

----

**PNM            RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC            SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW            MEXICO POWER COMPANY**
**AND            SUBSIDIARIES**

**NOTES            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

|                                                        |   | **September                  30,**              |    | **December                  31,**      |   | **September                  30,** |   | **December                  31,** |    |
|-------------------------------------------------------------|--------|-------------------------------------------------|---------|----------------------------------------|--------|------------------------------------|--------|-----------------------------------|---------|
|                                                        |   | **2006**                                        |    | **2005**                               |   | **2006**                           |   | **2005**                          |    |
| **Type                  of Derivative**                     |   | **Mark-to-Market                  Instruments** |    | **Hedge                  Instruments** |   |
|                                                        |   |                                            |    | (In                  thousands)        |   |                               |   |
| **Current****Assets**                                       |   |                                            |    |                                   |   |                               |   |                              |    |
| Energy                  Contracts                           |   | $                                               | 22,073  |                                   | $      | 6,126                              |   | $                                 | 464     |   | $ | 6,616 |   |
| Gas                  fixed for float swaps                  |   |                                            | 2,535   |                                   |   | 2,074                              |   |                              | 2,056   |   |   | 9,150 |   |
| Options                                                     |   |                                            | 3,002   |                                   |   | 2,136                              |   |                              | -  |   |   | - |   |
| Regulatory                  assets for gas off-system sales |   |                                            | -       |                                   |   | -                                  |   |                              | 135     |   |   |   |   |
| GAC                  portion of options, swaps and hedges   |   |                                            | -       |                                   |   | -                                  |   |                              | 17,513  |   |   | 7,528 |   |
| Total                  Current Assets                       |   |                                            | 27,610  |                                   |   | 10,336                             |   |                              | 20,168  |   |   | 23,294 |   |
|                                                        |   |                                            |    |                                   |   |                               |   |                              |    |   |   |   |   |
| **Deferred                  Charges**                       |   |                                            |    |                                   |   |                               |   |                              |    |   |   |   |   |
| Energy                  Contracts                           |   |                                            | 895     |                                   |   | 3,477                              |   |                              | 1,810   |   |   | - |   |
| Gas                  fixed for float swaps                  |   |                                            | 351     |                                   |   | 12,459                             |   |                              | 223     |   |   | 13,614 |   |
| Options                                                     |   |                                            | 63      |                                   |   | 5,329                              |   |                              | -       |   |   | - |   |
| PGAC                  portion of options, swaps and hedges  |   |                                            | -       |                                   |   | -                                  |   |                              | 4,067   |   |   | (5,906 | ) |
| Total                  Deferred Charges                     |   |                                            | 1,309   |                                   |   | 21,265                             |   |                              | 6,100   |   |   | 7,708 |   |
|                                                        |   |                                            |    |                                   |   |                               |   |                              |    |   |   |   |   |
| **Total                  Assets**                           |   | $                                               | 28,919  |                                   | $      | 31,601                             |   | $                                 | 26,268  |   | $ | 31,002 |   |
|                                                        |   |                                            |    |                                   |   |                               |   |                              |    |   |   |   |   |
| **Current                  Liabilities**                    |   |                                            |    |                                   |   |                               |   |                              |    |   |   |   |   |
| Energy                  Contracts                           |   | $                                               | (23,942 | )                                      | $      | (5,931                             | )      | $                                 | -       |   | $ | (503 | ) |
| Gas                  fixed for float swaps                  |   |                                            | (589    | )                                      |   | (351                               | )      |                              | (3,085  | ) |   | (1,255 | ) |
| Options                                                     |   |                                            | (2,555  | )                                      |   | (2,217                             | )      |                              | -       |   |   | - |   |
| PGAC                  portion of options, swaps and hedges  |   |                                            | -       |                                   |   | -                                  |   |                              | (17,513 | ) |   | 3,942 |   |
| Total                  Current Liabilities                  |   |                                            | (27,086 | )                                      |   | (8,499                             | )      |                              | (20,598 | ) |   | 2,184 |   |
|                                                        |   |                                            |    |                                   |   |                               |   |                              |    |   |   |   |   |
| **Long-Term                  Liabilities**                  |   |                                            |    |                                   |   |                               |   |                              |    |   |   |   |   |
| Energy                  Contracts                           |   |                                            | (880    | )                                      |   | (3,444                             | )      |                              | -       |   |   | - |   |
| Gas                  fixed for float swaps                  |   |                                            | -       |                                   |   | (12,257                            | )      |                              | (125    | ) |   | - |   |
| Options                                                     |   |                                            | -       |                                   |   | (5,143                             | )      |                              | -       |   |   | - |   |
| PGAC                  portion of options, swaps and hedges  |   |                                            | -       |                                   |   | -                                  |   |                              | (4,067  | ) |   | (5,564 | ) |
| Total                  Long-Term Liabilities                |   |                                            | (880    | )                                      |   | (20,844                            | )      |                              | (4,192  | ) |   | (5,564 | ) |
|                                                        |   |                                            |    |                                   |   |                               |   |                              |    |   |   |   |   |
| **Total                  Liabilities**                      |   | $                                               | (27,966 | )                                      | $      | (29,343                            | )      | $                                 | (24,790 | ) | $ | (3,380 | ) |

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

|                                                    |   | **Three                  Months Ended** |   | **Nine                  Months Ended** |   |
|---------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|
|                                                    |   | **September                  30,**      |   | **September                  30,**     |   |
|                                                    |   | **2006**                                |   | **2005**                               |   | **2006** |   | **2005** |   |
|                                                    |   |                                    |   | (In                  thousands)        |   |   |   |
| Amount                  realized on contracts delivered |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| during                  period                          |   | $                                       | 206    |                                   | $      | (1,421 | ) | $ | 120 |   | $ | (1,675 | ) |
| Changes                  in fair value                  |   |                                    | 454    |                                   |   | 229 |   |   | (1,425 | ) |   | 1,295 |   |
| Net                  change recorded as mark-to-market  |   | $                                       | 660    |                                   | $      | (1,192 | ) | $ | (1,305 | ) | $ | (380 | ) |

|                                                               |   | **Three                  Months Ended** |   | **Nine                  Months Ended** |   |
|--------------------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|
|                                                               |   | **September                  30,**      |   | **September                  30,**     |   |
|                                                               |   | **2006**                                |   | **2005**                               |   | **2006** |   | **2005** |   |
| **Type                  of Derivative**                            |   | **Hedge                  Instruments**  |   |
|                                                               |   |                                    |   | (In                  thousands)        |   |   |   |
| Change                  in fair value of energy contracts          |   | $                                       | 3,179  |                                   | $      | (15,920 | ) | $ | (3,839 | ) | $ | (18,114 | ) |
| Change                  in fair value of gas fixed for float swaps |   |                                    | (5,468 | )                                      |   | 12,090 |   |   | (22,440 | ) |   | 20,821 |   |
| Change                  in regulatory assets for gas off-system    |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| sales                                                              |   |                                    | -      |                                   |   | - |   |   | 135 |   |   | -  |   |
| Net                  change in fair value                          |   | $                                       | (2,289 | )                                      | $      | (3,830 | ) | $ | (26,144 | ) | $ | 2,707 |   |

*Normal        Sales and Purchases Transactions*

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

| **(5)** | **Earnings                  Per Share** |
|---------|-----------------------------------------|

*Earnings        per Share,”*

|                                                         |   | **Three                  Months Ended**                   |   | **Nine                  Months Ended** |   |
|--------------------------------------------------------------|--------|-----------------------------------------------------------|--------|----------------------------------------|--------|
|                                                         |   | **September                  30,**                        |   | **September                  30,**     |   |
|                                                         |   | **2006**                                                  |   | **2005**                               |   | **2006** |   | **2005** |   |
|                                                         |   | (In                  thousands, except per share amounts) |   |
| **Basic:**                                                   |   |                                                      |   |                                   |   |   |   |   |   |
|                                                         |   |                                                      |   |                                   |   |   |   |   |   |
| **Net                  Earnings**                            |   | $                                                         | 43,844 |                                   | $      | 28,483 |   | $ | 86,476 |   | $ | 60,533 |   |
|                                                         |   |                                                      |   |                                   |   |   |   |   |   |   |   |   |   |
| Average                  Number of Common Shares Outstanding |   |                                                      | 69,726 |                                   |   | 68,742 |   |   | 69,125 |   |   | 64,972 |   |
|                                                         |   |                                                      |   |                                   |   |   |   |   |   |   |   |   |   |
| **Net                  Earnings per Share of**               |   |                                                      |   |                                   |   |   |   |   |   |   |   |   |   |
| **Common                  Stock (Basic)**                    |   | $                                                         | 0.63   |                                   | $      | 0.41 |   | $ | 1.25 |   | $ | 0.93 |   |
|                                                         |   |                                                      |   |                                   |   |   |   |   |   |   |   |   |   |
| **Diluted:**                                                 |   |                                                      |   |                                   |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                      |   |                                   |   |   |   |   |   |   |   |   |   |
| **Net                  Earnings**                            |   | $                                                         | 43,844 |                                   | $      | 28,483 |   | $ | 86,476 |   | $ | 60,533 |   |
|                                                         |   |                                                      |   |                                   |   |   |   |   |   |   |   |   |   |
| Average                  Number of Common Shares Outstanding |   |                                                      | 69,726 |                                   |   | 68,742 |   |   | 69,125 |   |   | 64,972 |   |
| Dilutive                  Effect of Common Stock             |   |                                                      |   |                                   |   |   |   |   |   |   |   |   |   |
| Equivalents                  (a)                             |   |                                                      | 1,035  |                                   |   | 791 |   |   | 659 |   |   | 797 |   |
| Average                  Common and Common                   |   |                                                      |   |                                   |   |   |   |   |   |   |   |   |   |
| Equivalent                  Shares Outstanding               |   |                                                      | 70,761 |                                   |   | 69,533 |   |   | 69,784 |   |   | 65,769 |   |
|                                                         |   |                                                      |   |                                   |   |   |   |   |   |   |   |   |   |
| **Net                  Earnings per Share of Common**        |   |                                                      |   |                                   |   |   |   |   |   |   |   |   |   |
| **Stock                  (Diluted)**                         |   | $                                                         | 0.62   |                                   | $      | 0.41 |   | $ | 1.24 |   | $ | 0.92 |   |

|   | (a) | Excludes                  the effect of average anti-dilutive common stock equivalents related                  to                  out-of-the-money options of 652,133 and zero for the three months                  and                  1,469,333 and 62,095 for the nine months ended September 30, 2006                  and                  2005, respectively. Excludes the effect of anti-dilutive equity-linked                  units of 4,945,000 for the three and nine months ended September                  30, 2006                  and 2005. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **(6)** | **Stock-Based                  Compensation** |
|---------|-----------------------------------------------|

----

**PNM            RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC            SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW            MEXICO POWER COMPANY**
**AND            SUBSIDIARIES**

**NOTES            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

*“Share-Based        Payment*
*"Accounting        for Stock Issued to Employees"*

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

|                                                         |   | **Three** **Months****Ended**                                         |   | **Nine                  Months****Ended** |   |
|--------------------------------------------------------------|--------|----------------------------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                         |   | **September                  30, 2006**                                    |   |
|                                                         |   | (In                  thousands, except per share                  amounts) |   |
|                                                         |   |                                                                       |   |                                      |   |
| Reduction                  - PNMR income from operations     |   | $                                                                          | 738    |                                      | $      | 4,253 |   |
| Reduction                  - PNMR income before income taxes |   | $                                                                          | 738    |                                      | $      | 4,253 |   |
| Reduction                  - PNMR net earnings               |   | $                                                                          | 450    |                                      | $      | 2,592 |   |
| Reduction                  - PNMR earnings per share         |   |                                                                       |   |                                      |   |   |   |
| Basic                                                        |   | $                                                                          | 0.01   |                                      | $      | 0.04 |   |
| Diluted                                                      |   | $                                                                          | 0.01   |                                      | $      | 0.04 |   |

*“Share-Based        Payment*

|                                                         |   | **Three** **Months****Ended**                                         |   | **Nine                  Months****Ended** |   |
|--------------------------------------------------------------|--------|----------------------------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                         |   | **September                  30, 2005**                                    |   |
|                                                         |   | (In                  thousands, except per share                  amounts) |   |
|                                                         |   |                                                                       |   |                                      |   |
| Net                  earnings                                |   | $                                                                          | 28,483 |                                      | $      | 60,533 |   |
| Add:                  Stock compensation expense included in |   |                                                                       |   |                                      |   |   |   |
| reported                  income, net of related tax effects |   |                                                                       | 190    |                                      |   | 571 |   |
| Deduct:                  Total stock-based employee          |   |                                                                       |   |                                      |   |   |   |
| compensation                  expense determined             |   |                                                                       |   |                                      |   |   |   |
| under                  fair value based method for all       |   |                                                                       |   |                                      |   |   |   |
| awards,                  net of related tax effects          |   |                                                                       | (493   | )                                         |   | (1,567 | ) |
| Pro                  forma net earnings                      |   | $                                                                          | 28,180 |                                      | $      | 59,537 |   |
|                                                         |   |                                                                       |   |                                      |   |   |   |
| Earnings                  per share:                         |   |                                                                       |   |                                      |   |   |   |
| Basic                  - as reported                         |   | $                                                                          | 0.41   |                                      | $      | 0.93 |   |
|                                                         |   |                                                                       |   |                                      |   |   |   |
| Basic                  - pro forma                           |   | $                                                                          | 0.41   |                                      | $      | 0.92 |   |
|                                                         |   |                                                                       |   |                                      |   |   |   |
| Diluted                  - as reported                       |   | $                                                                          | 0.41   |                                      | $      | 0.92 |   |
|                                                         |   |                                                                       |   |                                      |   |   |   |
| Diluted                  - pro forma                         |   | $                                                                          | 0.41   |                                      | $      | 0.91 |   |

----

**PNM            RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC            SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW            MEXICO POWER COMPANY**
**AND            SUBSIDIARIES**

**NOTES            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

*Stock        Options*

|                                             | **Nine                  Months Ended** |
|--------------------------------------------------|----------------------------------------|
|                                             | **September                  30,**     |
|                                             | **2006**                               |   | **2005** |
|                                             |                                   |   |   |
| Dividend                  yield                  | 3.33%                                  |   | 2.55% |
| Expected                  volatility             | 21.70%                                 |   | 24.29% |
| Risk-free                  interest rate         | 4.37%                                  |   | 3.79% |
| Expected                  life of option (years) | 4.14               |   | 4.23     |

|                                                  |   |                                                                |      | **Weighted-** |   |          |   | **Weighted-**                      |   |
|-------------------------------------------------------|--------|---------------------------------------------------------------------|-----------|---------------|--------|---------------|--------|------------------------------------|--------|
|                                                  |   |                                                                |      | **Average**   |   | **Aggregate** |   | **Average**                        |   |
|                                                  |   |                                                                |      | **Exercise**  |   | **Intrinsic** |   | **Remaining**                      |   |
| **Stock                  Options**                    |   | **Shares**                                                          |      | **Price**     |   | **Value**     |   | **Contract                  Life** |   |
|                                                  |   | (In                  thousands, except share and per share amounts) |      |
|                                                  |   |                                                                |      |          |   |          |   |                               |   |
| Outstanding                  at beginning of period   |   |                                                                | 3,016,549 |          | $      | 18.97         |   |                               |   |   |   |   |   |
|                                                  |   |                                                                |      |          |   |          |   |                               |   |   |   |   |   |
| Granted                                               |   |                                                                | 817,200   |          | $      | 24.07         |   |                               |   |   |   |   |   |
|                                                  |   |                                                                |      |          |   |          |   |                               |   |   |   |   |   |
| Exercised                                             |   |                                                                | (522,969  | )             | $      | 15.53         |   |                               |   |   |   |   |   |
|                                                  |   |                                                                |      |          |   |          |   |                               |   |   |   |   |   |
| Forfeited                  or expired                 |   |                                                                | (96,512   | )             | $      | 25.05         |   |                               |   |   |   |   |   |
|                                                  |   |                                                                |      |          |   |          |   |                               |   |   |   |   |   |
| Outstanding                  at end of period         |   |                                                                | 3,214,268 |          | $      | 20.73         |   | $                                  | 21,980 |   |   | 7.32                  Years |   |
|                                                  |   |                                                                |      |          |   |          |   |                               |   |   |   |   |   |
| Options                  exercisable at end of period |   |                                                                | 1,818,727 |          | $      | 17.83         |   | $                                  | 17,711 |   |   | 6.16                  Years |   |
|                                                  |   |                                                                |      |          |   |          |   |                               |   |   |   |   |   |
| Options                  available for future grant   |   |                                                                | 3,345,205 |          |   |          |   |                               |   |   |   |   |   |

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

| **Stock                  Options**                                            |   | **2006**                                                                   |   | **2005** |   |
|-------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------|--------|----------|--------|
|                                                                          |   | (In                  thousands, except                  per share amounts) |   |
|                                                                          |   |                                                                       |   |     |   |
| Weighted-average                  grant date fair value of options granted    |   | $                                                                          | 3.87   |     | $      | 5.41 |   |
| Total                  fair value of options that vested during the period    |   | $                                                                          | 3,836  |     | $      | 5,165 |   |
| Total                  intrinsic value of options exercised during the period |   | $                                                                          | 5,691  |     | $      | 15,367 |   |

*Restricted        Stock*

|                                                    | **Nine                  Months Ended**          |
|---------------------------------------------------------|-------------------------------------------------|
|                                                    | **September                  30,**              |
|                                                    | **2006**                                        |   | **2005** |
|                                                    |                                            |   |   |
| Expected                  quarterly dividends per share | $0.20                                           |   | N/A |
| Risk-free                  interest rate                |                       4.64% |   | N/A |

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

|                                              |   |       |    | **Weighted-**                   |   |
|---------------------------------------------------|--------|------------|---------|---------------------------------|--------|
|                                              |   |       |    | **Average**                     |   |
|                                              |   |       |    | **Grant-Date**                  |   |
| **Nonvested                  Restricted Stock**   |   | **Shares** |    | **Fair                  Value** |   |
|                                              |   |       |    |                            |   |
| Nonvested                  at beginning of period |   |       | 109,044 |                            | $      | 24.92 |   |
|                                              |   |       |    |                            |   |   |   |
| Granted                                           |   |       | 105,400 |                            | $      | 24.11 |   |
|                                              |   |       |    |                            |   |   |   |
| Vested                                            |   |       | (40,887 | )                               | $      | 24.26 |   |
|                                              |   |       |    |                            |   |   |   |
| Forfeited                                         |   |       | (9,788  | )                               | $      | 24.06 |   |
|                                              |   |       |    |                            |   |   |   |
| Nonvested                  at end of period       |   |       | 163,769 |                            | $      | 24.55 |   |

| **Nonvested                  Restricted Stock**                           |   | **2006**                                                                  |   | **2005** |   |
|---------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|----------|--------|
|                                                                      |   | (In                  thousands,except                  per share amounts) |   |
|                                                                      |   |                                                                      |   |     |   |
| Weighted-average                  grant date fair value of shares granted |   | $                                                                         | 24.11  |     | $      | 26.46 |   |
| Total                  fair value of shares that vested during the period |   | $                                                                         | 992    |     | $      | 454 |   |

*Performance        Shares*

*ESPP*

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

| **(7)** | **Capitalization** |
|---------|--------------------|

*Borrowing        Arrangements Between PNMR and Subsidiaries*

*Long-Term        Debt*

*Revolving        and Other Credit Facilities *

*Financing        Activities*

----

**PNM                RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC                SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW                MEXICO POWER COMPANY**
**AND                SUBSIDIARIES**

**NOTES                TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

*Long-Term        Debt*

*Revolving        and Other Credit Facilities*

----

**PNM                RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC                SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW                MEXICO POWER COMPANY**
**AND                SUBSIDIARIES**

**NOTES                TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

*Financing        Activities*

*Revolving        and Other Credit Facilities *

| **(8)** | **Pension                  and Other Postretirement Benefit                  Plans** |
|---------|--------------------------------------------------------------------------------------|

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

|                                                 |   | **Three                  Months Ended September 30,** |    |
|------------------------------------------------------|--------|-------------------------------------------------------|---------|
|                                                 |   | **Pension                  Plan**                     |    | **Other                  Postretirement Benefits** |   | **Executive                  Retirement Program** |   |
|                                                 |   | **2006**                                              |    | **2005** |   | **2006** |   | **2005** |   | **2006** |   | **2005** |   |
|                                                 |   |                                                  |    |   |   | (In                  thousands) |   |   |   |   |   |
|                                                 |   |                                                  |    |   |   |   |   |   |   |   |   |   |   |
| Service                  cost                        |   | $                                                     | 126     |   | $ | 477 |   | $ | 679 |   | $ | 718 |   | $ | 14 |   | $ | 16 |   |
| Interest                  cost                       |   |                                                  | 7,711   |   |   | 7,567 |   |   | 1,841 |   |   | 1,717 |   |   | 263 |   |   | 295 |   |
| Expected                  long-term return on assets |   |                                                  | (10,140 | ) |   | (10,042 | ) |   | (1,355 | ) |   | (1,329 | ) |   | - |   |   | - |   |
| Amortization                  of net loss            |   |                                                  | 1,210   |   |   | 892 |   |   | 1,670 |   |   | 1,549 |   |   | 24 |   |   | 43 |   |
| Amortization                  of prior service cost  |   |                                                  | 80      |   |   | 79 |   |   | (1,421 | ) |   | (1,495 | ) |   | 4 |   |   | 34 |   |
| Net                  periodic benefit cost/(income)  |   | $                                                     | (1,013  | ) | $ | (1,027 | ) | $ | 1,414 |   | $ | 1,160 |   | $ | 305 |   | $ | 388 |   |

|                                                 |   | **Nine                  Months Ended September 30,** |    |
|------------------------------------------------------|--------|------------------------------------------------------|---------|
|                                                 |   | **Pension                  Plan**                    |    | **Other                  Postretirement Benefits** |   | **Executive                  Retirement Program** |   |
|                                                 |   | **2006**                                             |    | **2005** |   | **2006** |   | **2005** |   | **2006** |   | **2005** |   |
|                                                 |   |                                                 |    |   |   | (In                  thousands) |   |   |   |   |   |
|                                                 |   |                                                 |    |   |   |   |   |   |   |   |   |   |   |
| Service                  cost                        |   | $                                                    | 378     |   | $ | 1,431 |   | $ | 2,035 |   | $ | 2,008 |   | $ | 42 |   | $ | 48 |   |
| Interest                  cost                       |   |                                                 | 23,131  |   |   | 22,701 |   |   | 5,525 |   |   | 5,013 |   |   | 791 |   |   | 885 |   |
| Expected                  long-term return on assets |   |                                                 | (30,417 | ) |   | (30,126 | ) |   | (4,064 | ) |   | (3,965 | ) |   | - |   |   | - |   |
| Amortization                  of net loss            |   |                                                 | 3,630   |   |   | 2,676 |   |   | 5,010 |   |   | 4,529 |   |   | 74 |   |   | 129 |   |
| Amortization                  of prior service cost  |   |                                                 | 238     |   |   | 237 |   |   | (4,265 | ) |   | (4,899 | ) |   | 10 |   |   | 102 |   |
| Net                  periodic benefit cost/(income)  |   | $                                                    | (3,040  | ) | $ | (3,081 | ) | $ | 4,241 |   | $ | 2,686 |   | $ | 917 |   | $ | 1,164 |   |

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

|                                                              |   | **Three                  Months Ended** |   |
|-------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                              |   | **September                  30,**      |   |
|                                                              |   | **2006**                                |   | **2005** |   |
|                                                              |   | (In                  thousands)         |   |
|                                                              |   |                                    |   |   |   |
| Service                  cost                                     |   | $                                       | -      |   | $ | 583 |   |
| Interest                  cost                                    |   |                                    | 1,084  |   |   | 1,077 |   |
| Expected                  long-term rate of return on plan assets |   |                                    | (1,755 | ) |   | (1,791 | ) |
| Amortization                  of prior service cost               |   |                                    | -      |   |   | - |   |
| Net                  periodic pension benefit cost/(income)       |   | $                                       | (671   | ) | $ | (131 | ) |

|                                                              |   | **Nine                  Months Ended September 30,** |   |
|-------------------------------------------------------------------|--------|------------------------------------------------------|--------|
|                                                              |   | **Post-**                                            |   | **Post-** |   | **Pre-** |   |
|                                                              |   | **Acquisition**                                      |   | **Acquisition** |   | **Acquisition** |   |
|                                                              |   | **January                  1-**                      |   | **June                  6-** |   | **January                  1-** |   |
|                                                              |   | **September                  30,**                   |   | **September                  30,** |   | **June                  6,** |   |
|                                                              |   | **2006**                                             |   | **2005** |   | **2005** |   |
|                                                              |   |                                                 |   | (In                  thousands) |   |   |   |
|                                                              |   |                                                 |   |   |   |   |   |
| Service                  cost                                     |   | $                                                    | -      |   | $ | 770 |   | $ | 848 |   |
| Interest                  cost                                    |   |                                                 | 3,254  |   |   | 1,422 |   |   | 1,875 |   |
| Expected                  long-term rate of return on plan assets |   |                                                 | (5,263 | ) |   | (2,364 | ) |   | (2,387 | ) |
| Amortization                  of prior service cost               |   |                                                 | -      |   |   | - |   |   | (49 | ) |
| Net                  periodic pension benefit cost/(income)       |   | $                                                    | (2,009 | ) | $ | (172 | ) | $ | 287 |   |

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

|                                                              |   | **Three                  Months Ended** |   |
|-------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                              |   | **September                  30,**      |   |
|                                                              |   | **2006**                                |   | **2005** |   |
|                                                              |   | (In                  thousands)         |   |
|                                                              |   |                                    |   |   |   |
| Service                  cost                                     |   | $                                       | 106    |   | $ | 125 |   |
| Interest                  cost                                    |   |                                    | 177    |   |   | 162 |   |
| Expected                  long-term rate of return on plan assets |   |                                    | (114   | ) |   | (104 | ) |
| Amortization                  of transition obligation            |   |                                    | -      |   |   | - |   |
| Amortization                  of prior service cost               |   |                                    | 15     |   |   | - |   |
| Net                  periodic postretirement benefit cost         |   | $                                       | 184    |   | $ | 183 |   |

|                                                              |   | **Nine                  Months Ended September 30,** |   |
|-------------------------------------------------------------------|--------|------------------------------------------------------|--------|
|                                                              |   | **Post-**                                            |   | **Post-** |   |   | **Pre-** |   |
|                                                              |   | **Acquisition**                                      |   | **Acquisition** |   |   | **Acquisition** |   |
|                                                              |   | **January                  1-**                      |   | **June                  6-** |   |   | **January                  1-** |   |
|                                                              |   | **September                  30,**                   |   | **September                  30,** |   |   | **June                  6,** |   |
|                                                              |   | **2006**                                             |   | **2005** |   |   | **2005** |   |
|                                                              |   |                                                 |   | (In                  thousands) |   |   |   |   |
|                                                              |   |                                                 |   |   |   |   |   |   |
| Service                  cost                                     |   | $                                                    | 318    |   | $ | 165 |   |   | $ | 195 |   |
| Interest                  cost                                    |   |                                                 | 533    |   |   | 214 |   |   |   | 282 |   |
| Expected                  long-term rate of return on plan assets |   |                                                 | (342   | ) |   | (137 | ) |   |   | (136 | ) |
| Amortization                  of transition obligation            |   |                                                 | -      |   |   | - |   |   |   | 136 |   |
| Amortization                  of prior service cost               |   |                                                 | 45     |   |   | - |   |   |   | - |   |
| Net                  periodic postretirement benefit cost         |   | $                                                    | 554    |   | $ | 242 |   |   | $ | 477 |   |

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

|                                                            |   | **Three                  Months Ended** |   |
|-----------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                            |   | **September                  30,**      |   |
|                                                            |   | **2006**                                |   | **2005** |   |
|                                                            |   | (In                  thousands)         |   |
|                                                            |   |                                    |   |   |   |
| Service                  cost                                   |   | $                                       | -      |   | $ | - |   |
| Interest                  cost                                  |   |                                    | 19     |   |   | 19 |   |
| Amortization                  of net loss                       |   |                                    | -      |   |   | - |   |
| Amortization                  of prior service cost             |   |                                    | -      |   |   | - |   |
| Net                  periodic executive retirement program cost |   | $                                       | 19     |   | $ | 19 |   |

|                                                            |   | **Nine                  Months Ended September 30,** |   |
|-----------------------------------------------------------------|--------|------------------------------------------------------|--------|
|                                                            |   | **Post-**                                            |   | **Post-** |   |   | **Pre-** |   |
|                                                            |   | **Acquisition**                                      |   | **Acquisition** |   |   | **Acquisition** |   |
|                                                            |   | **January                  1-**                      |   | **June                  6-** |   |   | **January                  1-** |   |
|                                                            |   | **September                  30,**                   |   | **September                  30,** |   |   | **June                  6,** |   |
|                                                            |   | **2006**                                             |   | **2005** |   |   | **2005** |   |
|                                                            |   |                                                 |   | (In                  thousands) |   |   |   |   |
|                                                            |   |                                                 |   |   |   |   |   |   |
| Service                  cost                                   |   | $                                                    | -      |   | $ | - |   |   | $ | 40 |   |
| Interest                  cost                                  |   |                                                 | 57     |   |   | 25 |   |   |   | 78 |   |
| Amortization                  of net loss                       |   |                                                 | -      |   |   | - |   |   |   | 45 |   |
| Amortization                  of prior service cost             |   |                                                 | -      |   |   | - |   |   |   | (35 | ) |
| Net                  periodic executive retirement program cost |   | $                                                    | 57     |   | $ | 25 |   |   | $ | 128 |   |

| **(9)** | **Commitments                  and Contingencies** |
|---------|----------------------------------------------------|

*Overview*

*Accounting        for Contingencies*

----

**PNM            RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC            SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW            MEXICO POWER COMPANY**
**AND            SUBSIDIARIES**

**NOTES            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Coal        Supply**

**Renewable        Portfolio Standard**

**Conflicts        at San Juan Mine Involving Oil and Gas Leaseholders**

**New        Source Review Rules**

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Four        Corners Federal Implementation Plan Litigation**

**SESCO        Matter**

**Regional        Transmission Issues**

*Transmission        Services*

*Transmission        Pricing*

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**California        Refund Proceedings**

----

**PNM            RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC            SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW            MEXICO POWER COMPANY**
**AND            SUBSIDIARIES**

**NOTES            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**California        Antitrust Litigation**

**California        Attorney General Complaint**

*See*
*California        Refund Proceedings*

**Generation        Market Power Filings**

*Acadia        Power Partners, LLC*

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**FERC        Office of Market Oversight and Investigations**

**Block        Forward Agreement Litigation**

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Citizen        Suit Under the Clean Air Act**

**Natural        Gas Royalties Qui Tam Litigation**

**SESCO        Matter**

----

**PNM            RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC            SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW            MEXICO POWER COMPANY**
**AND            SUBSIDIARIES**

**NOTES            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

| **(10)** | **Regulatory                  and Rate Matters** |
|----------|--------------------------------------------------|

**Price-to-Beat        Base Rate Reset**

**Price-to-Beat        Fuel Factor**

**Energy        Agreement**

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Gas        Rate Case**

**Transmission        Rate Case**

**Complaint        Against Southwestern Public Service Company**

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**TNMP        True-Up Proceeding**

**60-Day        Rate Review**

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Updated        Interest Rate for Calculating Carrying Charges on TNMP’s        CTC**

| **(11)** | **Variable                  Interest Entities** |
|----------|-------------------------------------------------|

*“Consolidation        of Variable Interest Entities”*

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

| **(12)** | **Related                  Party Transactions** |
|----------|-------------------------------------------------|

*Related        Party Disclosures*

----

**PNM              RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC              SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW              MEXICO POWER COMPANY**
**AND              SUBSIDIARIES**

**NOTES              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

|                                                       |   | **Three                  Months Ended** |   | **Nine                  Months Ended** |   |
|------------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|
|                                                       |   | **September                  30,**      |   | **September                  30,**     |   |
|                                                       |   | **2006**                                |   | **2005**                               |   | **2006** |   | **2005** |   |
|                                                       |   |                                    |   | (In                  thousands)        |   |   |   |
| **PNMR                  Transactions with PNM**            |   |                                    |   |                                   |   |   |   |   |   |
| Shared                  services billings from PNMR to PNM |   | $                                       | 31,366 |                                   | $      | 30,769 |   | $ | 93,742 |   | $ | 82,059 |   |
|                                                       |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| **PNM                  Transactions with TNMP**            |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| Electricity                  and energy-scheduling         |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| billings                  to TNMP                          |   | $                                       | 11,208 |                                   | $      | 11,043 |   | $ | 38,579 |   | $ | 13,947 |   |
|                                                       |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |

|                                             |   | **September                  30, 2006** |   | **December                  31, 2005** |   |
|--------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|
|                                             |   | (In                  thousands)         |   |
| PNM                  payable to PNMR             |   | $                                       | 63,123 |                                   | $      | 50,070 |   |
|                                             |   |                                    |   |                                   |   |   |   |
| PNM                  receivable from TNMP        |   |                                    |   |                                   |   |   |   |
| (net                  of transmission purchases) |   | $                                       | 18,437 |                                   | $      | 4,130 |   |

----

**PNM            RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC            SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW            MEXICO POWER COMPANY**
**AND            SUBSIDIARIES**

**NOTES            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

|                                                                 |   | **Three                  Months Ended** |   | **Nine                  Months Ended** |   |
|----------------------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|
|                                                                 |   | **September                  30,**      |   | **September                  30,**     |   |
|                                                                 |   | **2006**                                |   | **2005**                               |   | **2006** |   | **2005** |   |
|                                                                 |   |                                    |   | (In                  thousands)        |   |   |   |
| **TNMP                  Transactions with PNMR**                     |   |                                    |   |                                   |   |   |   |   |   |
| Shared                  services billings from PNMR                  |   | $                                       | 6,809  |                                   | $      | 4,235 |   | $ | 25,097 |   | $ | 5,380 |   |
|                                                                 |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| **TNMP                  Transactions with PNM**                      |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| Electricity                  and energy-scheduling billings from PNM |   | $                                       | 11,208 |                                   | $      | 11,043 |   | $ | 38,579 |   | $ | 13,947 |   |
|                                                                 |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| **TNMP                  Transactions with First Choice**             |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| Transmission                  service billings to First Choice       |   | $                                       | 19,378 |                                   | $      | 21,615 |   | $ | 52,545 |   | $ | 29,117 |   |

|                                                             |   | **September                  30, 2006** |   | **December                  31, 2005** |   |
|------------------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|
|                                                             |   | (In                  thousands)         |   |
| TNMP                  payable to PNMR                            |   | $                                       | 7,802  |                                   | $      | 3,043 |   |
|                                                             |   |                                    |   |                                   |   |   |   |
| TNMP                  payable to PNM (net of transmission sales) |   | $                                       | 18,437 |                                   | $      | 4,130 |   |
|                                                             |   |                                    |   |                                   |   |   |   |
| TNMP                  receivable from First Choice               |   | $                                       | 14,118 |                                   | $      | 9,565 |   |

----

**PNM            RESOURCES, INC. AND SUBSIDIARIES**

**PUBLIC            SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY**

**TEXAS-NEW            MEXICO POWER COMPANY**
**AND            SUBSIDIARIES**

**NOTES            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

| **(13)** | **New                  Accounting Pronouncements** |
|----------|----------------------------------------------------|

*Employers’        Accounting for Defined Benefit Pension and Other Postretirement Plans (an        amendment of FASB Statements No. 87, 88, 106, and 132R*
*)*

*Fair        Value Measurements*

*“Considering        the Effects of Prior Year Misstatements When Quantifying Misstatements in        the        Current Year Financial Statements” *

*Accounting        for Uncertainty in Income Taxes*

*** ***
*“Accounting        for Certain Hybrid Instruments," (an Amendment of FASB Statements No. 133        and        140)” *

----

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

**RESULTS        OF OPERATIONS - EXECUTIVE SUMMARY**

*PVNGS        Operations*

----

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

*Business        and Strategy*

*Overview*

*Proposed        Energy Company. *

| ·   | Competitive                retail electricity sales; |
|--------------------|------------------------------------------------------|
| ·   | Operation                and ownership of diverse generation assets;                and |
|--------------------|-----------------------------------------------------------------------------------------|
| ·   | Wholesale                marketing and trading to optimize its assets. |
|--------------------|------------------------------------------------------------------------|

----

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

*TNMP        Asset Transfer to PNM*

*First        Choice Power Retail LP*

*Luna        Plant*

*Biomass        Project*

*Las        Vegas Generating Plant*

----

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

*Segment        Information*

**RESULTS        OF OPERATIONS - PNMR**

**THREE        MONTHS ENDED SEPTEMBER 30, 2006 **

**COMPARED        TO THREE MONTHS ENDED SEPTEMBER 30, 2005**

----

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

**Regulated        Operations**

**PNM        Electric **

|                                                   |   | **Three                  Months Ended** |        |     |   |
|--------------------------------------------------------|--------|-----------------------------------------|-------------|----------|--------|
|                                                   |   | **September                  30,**      |        |     |   |
|                                                   |   | **2006**                                |        | **2005** |   | **Variance** |   |
|                                                   |   | (In                  thousands)         |        |
| **Operating                  revenues**                |   | **$**                                   | **161,715** |     | **$**  | **162,945** |   | **$** | **(1,230** | **)** |
| Less:                  Cost of energy                  |   |                                    | 55,271      |     |   | 57,958 |   |   | (2,687 | ) |
| Intersegment                  energy transfer          |   |                                    | (5,861      | )        |   | (7,205 | ) |   | 1,344 |   |
| **Gross                  margin**                      |   |                                    | **112,305** |     |   | **112,192** |   |   | **113** |   |
| Energy                  production costs               |   |                                    | 28,403      |     |   | 28,563 |   |   | (160 | ) |
| Transmission                  and distribution O&M |   |                                    | 8,599       |     |   | 8,340 |   |   | 259 |   |
| Customer                  related expense              |   |                                    | 3,776       |     |   | 5,553 |   |   | (1,777 | ) |
| Administrative                  and general            |   |                                    | 1,699       |     |   | 1,347 |   |   | 352 |   |
| **Total                  non-fuel O&M**            |   |                                    | **42,477**  |     |   | **43,803** |   |   | **(1,326** | **)** |
| Corporate                  allocation                  |   |                                    | 18,852      |     |   | 18,120 |   |   | 732 |   |
| Depreciation                  and amortization         |   |                                    | 15,241      |     |   | 17,276 |   |   | (2,035 | ) |
| Taxes                  other than income taxes         |   |                                    | 5,154       |     |   | 5,027 |   |   | 127 |   |
| Income                  taxes                          |   |                                    | 8,529       |     |   | 7,796 |   |   | 733 |   |
| **Total                  non-fuel operating expenses** |   |                                    | **90,253**  |     |   | **92,022** |   |   | **(1,769** | **)** |
| **Operating                  income**                  |   | **$**                                   | **22,052**  |     | **$**  | **20,170** |   | **$** | **1,882** |   |

**PNM        Electric Revenues**

|                               |   | **Three                  Months Ended**           |    |     |   |
|------------------------------------|--------|---------------------------------------------------|---------|----------|--------|
|                               |   | **September                  30,**                |    |     |   |
|                               |   | **2006**                                          |    | **2005** |   | **Variance** |   |
|                               |   | (In                  thousands, except customers) |    |
| Residential                        |   | $                                                 | 60,784  |     | $      | 61,580 |   | $ | (796 | ) |
| Commercial                         |   |                                              | 70,924  |     |   | 73,090 |   |   | (2,166 | ) |
| Industrial                         |   |                                              | 16,741  |     |   | 16,054 |   |   | 687 |   |
| Transmission                       |   |                                              | 7,675   |     |   | 6,287 |   |   | 1,388 |   |
| Other                              |   |                                              | 5,591   |     |   | 5,934 |   |   | (343 | ) |
|                               |   | $                                                 | 161,715 |     | $      | 162,945 |   | $ | (1,230 | ) |
|                               |   |                                              |    |     |   |   |   |   |   |   |
| Average                  customers |   |                                              | 431,648 |     |   | 419,195 |   |   | 12,453 |   |

----

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

**PNM        Electric Sales**

|        |   | **Three                  Months Ended** |      |     |   |
|-------------|--------|-----------------------------------------|-----------|----------|--------|
|        |   | **September                  30,**      |      |     |   |
|        |   | **2006**                                |      | **2005** |   | **Variance** |   |
|        |   | (Megawatt                  hours)       |      |
| Residential |   |                                    | 756,397   |     |   | 754,103 |   |   | 2,294 |   |
| Commercial  |   |                                    | 1,008,856 |     |   | 1,022,049 |   |   | (13,193 | ) |
| Industrial  |   |                                    | 353,404   |     |   | 333,781 |   |   | 19,623 |   |
| Other       |   |                                    | 71,810    |     |   | 81,480 |   |   | (9,670 | ) |
|        |   |                                    | 2,190,467 |     |   | 2,191,413 |   |   | (946 | ) |

----

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

**TNMP        Electric**

|                                                   |   | **Three                  Months Ended** |       |     |   |
|--------------------------------------------------------|--------|-----------------------------------------|------------|----------|--------|
|                                                   |   | **September                  30,**      |       |     |   |
|                                                   |   | **2006**                                |       | **2005** |   | **Variance** |   |
|                                                   |   | (In                  thousands)         |       |
| **Operating                  revenues**                |   | **$**                                   | **70,241** |     | **$**  | **71,441** |   | **$** | **(1,200** | **)** |
| Less:                  Cost of energy                  |   |                                    | 27,987     |     |   | 25,764 |   |   | 2,223 |   |
| **Gross                  margin**                      |   |                                    | **42,254** |     |   | **45,677** |   |   | **(3,423** | **)** |
| Transmission                  and distribution O&M |   |                                    | 4,864      |     |   | 5,671 |   |   | (807 | ) |
| Customer                  related expense              |   |                                    | 1,165      |     |   | 1,433 |   |   | (268 | ) |
| Administrative                  and general            |   |                                    | 1,179      |     |   | 522 |   |   | 657 |   |
| **Total                  non-fuel O&M**            |   |                                    | **7,208**  |     |   | **7,626** |   |   | **(418** | **)** |
| Corporate                  allocation                  |   |                                    | 6,847      |     |   | 3,735 |   |   | 3,112 |   |
| Depreciation                  and amortization         |   |                                    | 7,899      |     |   | 7,814 |   |   | 85 |   |
| Taxes                  other than income taxes         |   |                                    | 6,822      |     |   | 6,597 |   |   | 225 |   |
| Income                  taxes                          |   |                                    | 1,974      |     |   | 4,519 |   |   | (2,545 | ) |
| **Total                  non-fuel operating expenses** |   |                                    | **30,750** |     |   | **30,291** |   |   | **459** |   |
| **Operating                  income**                  |   | **$**                                   | **11,504** |     | **$**  | **15,386** |   | **$** | **(3,882** | **)** |

**TNMP        Electric Revenues**

|                                  |   | **Three                    Months Ended**           |    |     |   |
|---------------------------------------|--------|-----------------------------------------------------|---------|----------|--------|
|                                  |   | **September                    30,**                |    |     |   |
|                                  |   | **2006**                                            |    | **2005** |   | **Variance** |   |
|                                  |   | (In                    thousands, except customers) |    |
| Residential                           |   | $                                                   | 28,840  |     | $      | 28,476 |   | $ | 364 |   |
| Commercial                            |   |                                                | 25,245  |     |   | 23,629 |   |   | 1,616 |   |
| Industrial                            |   |                                                | 6,412   |     |   | 10,517 |   |   | (4,105 | ) |
| Other                                 |   |                                                | 9,744   |     |   | 8,819 |   |   | 925 |   |
|                                  |   | $                                                   | 70,241  |     | $      | 71,441 |   | $ | (1,200 | ) |
|                                  |   |                                                |    |     |   |   |   |   |   |   |
| Average                    customers* |   |                                                | 263,785 |     |   | 259,168 |   |   | 4,617 |   |

----

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

**TNMP        Electric Sales ***

|        |   | **Three                  Months Ended** |      |     |   |
|-------------|--------|-----------------------------------------|-----------|----------|--------|
|        |   | **September                  30,**      |      |     |   |
|        |   | **2006**                                |      | **2005** |   | **Variance** |   |
|        |   | (Megawatt                  hours)       |      |     |   |
| Residential |   |                                    | 921,839   |     |   | 949,410 |   |   | (27,571 | ) |
| Commercial  |   |                                    | 829,140   |     |   | 680,276 |   |   | 148,864 |   |
| Industrial  |   |                                    | 454,435   |     |   | 515,243 |   |   | (60,808 | ) |
| Other       |   |                                    | 32,634    |     |   | 33,332 |   |   | (698 | ) |
|        |   |                                    | 2,238,048 |     |   | 2,178,261 |   |   | 59,787 |   |

----

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

**PNM        Gas**

|                                                   |   | **Three                  Months Ended** |       |     |   |
|--------------------------------------------------------|--------|-----------------------------------------|------------|----------|--------|
|                                                   |   | **September                  30,**      |       |     |   |
|                                                   |   | **2006**                                |       | **2005** |   | **Variance** |   |
|                                                   |   | (In                  thousands)         |       |
| **Operating                  revenues**                |   | **$**                                   | **69,246** |     | **$**  | **78,687** |   | **$** | **(9,441** | **)** |
| Less:                  Cost of energy                  |   |                                    | 43,889     |     |   | 53,512 |   |   | (9,623 | ) |
| **Gross                  margin**                      |   |                                    | **25,357** |     |   | **25,175** |   |   | **182** |   |
| Energy                  production costs               |   |                                    | 494        |     |   | 630 |   |   | (136 | ) |
| Transmission                  and distribution O&M |   |                                    | 6,260      |     |   | 7,254 |   |   | (994 | ) |
| Customer                  related expense              |   |                                    | 4,461      |     |   | 5,183 |   |   | (722 | ) |
| Administrative                  and general            |   |                                    | 1,312      |     |   | 408 |   |   | 904 |   |
| **Total                  non-fuel O&M**            |   |                                    | **12,527** |     |   | **13,475** |   |   | **(948** | **)** |
| Corporate                  allocation                  |   |                                    | 11,037     |     |   | 10,405 |   |   | 632 |   |
| Depreciation                  and amortization         |   |                                    | 6,007      |     |   | 5,630 |   |   | 377 |   |
| Taxes                  other than income taxes         |   |                                    | 1,982      |     |   | 1,998 |   |   | (16 | ) |
| Income                  taxes                          |   |                                    | (3,686     | )        |   | (3,635 | ) |   | (51 | ) |
| **Total                  non-fuel operating expenses** |   |                                    | **27,867** |     |   | **27,873** |   |   | **(6** | **)** |
| **Operating                  income/(loss)**           |   | **$**                                   | **(2,510** | **)**    | **$**  | **(2,698** | **)** | **$** | **188** |   |

**PNM        Gas Revenues**

|                               |   | **Three                  Months Ended**           |    |     |   |
|------------------------------------|--------|---------------------------------------------------|---------|----------|--------|
|                               |   | **September                  30,**                |    |     |   |
|                               |   | **2006**                                          |    | **2005** |   | **Variance** |   |
|                               |   | (In                  thousands, except customers) |    |
| Residential                        |   | $                                                 | 34,552  |     | $      | 34,202 |   | $ | 350 |   |
| Commercial                         |   |                                              | 12,284  |     |   | 12,232 |   |   | 52 |   |
| Industrial                         |   |                                              | 968     |     |   | 598 |   |   | 370 |   |
| Transportation*                    |   |                                              | 2,650   |     |   | 3,076 |   |   | (426 | ) |
| Other                              |   |                                              | 18,792  |     |   | 28,579 |   |   | (9,787 | ) |
|                               |   | $                                                 | 69,246  |     | $      | 78,687 |   | $ | (9,441 | ) |
|                               |   |                                              |    |     |   |   |   |   |   |   |
| Average                  customers |   |                                              | 481,125 |     |   | 469,947 |   |   | 11,178 |   |

----

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

**PNM        Gas Throughput**

|            |   | **Three                  Months Ended**    |   |     |   |
|-----------------|--------|--------------------------------------------|--------|----------|--------|
|            |   | **September                  30,**         |   |     |   |
|            |   | **2006**                                   |   | **2005** |   | **Variance** |   |
|            |   | (Thousands                  of decatherms) |   |
| Residential     |   |                                       | 2,450  |     |   | 2,266 |   |   | 184 |   |
| Commercial      |   |                                       | 1,320  |     |   | 1,230 |   |   | 90 |   |
| Industrial      |   |                                       | 128    |     |   | 82 |   |   | 46 |   |
| Transportation* |   |                                       | 8,769  |     |   | 10,334 |   |   | (1,565 | ) |
| Other           |   |                                       | 2,328  |     |   | 2,849 |   |   | (521 | ) |
|            |   |                                       | 14,995 |     |   | 16,761 |   |   | (1,766 | ) |

----

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

**Unregulated        Operations**

**Wholesale**

|                                                   |   | **Three                  Months Ended** |        |     |   |
|--------------------------------------------------------|--------|-----------------------------------------|-------------|----------|--------|
|                                                   |   | **September                  30,**      |        |     |   |
|                                                   |   | **2006**                                |        | **2005** |   | **Variance** |   |
|                                                   |   | (In                  thousands)         |        |
| **Operating                  revenues**                |   | **$**                                   | **204,701** |     | **$**  | **179,855** |   | **$** | **24,846** |   |
| Less:                  Cost of energy                  |   |                                    | 135,986     |     |   | 156,024 |   |   | (20,038 | ) |
| Intersegment                  energy transfer          |   |                                    | 5,861       |     |   | 7,205 |   |   | (1,344 | ) |
| **Gross                  margin**                      |   |                                    | **62,854**  |     |   | **16,626** |   |   | **46,228** |   |
| Energy                  production costs               |   |                                    | 9,558       |     |   | 7,335 |   |   | 2,223 |   |
| Transmission                  O&M                  |   |                                    | 26          |     |   | 15 |   |   | 11 |   |
| Customer                  related expense              |   |                                    | 88          |     |   | 334 |   |   | (246 | ) |
| Administrative                  and general            |   |                                    | 1,632       |     |   | 1,813 |   |   | (181 | ) |
| **Total                  non-fuel O&M**            |   |                                    | **11,304**  |     |   | **9,497** |   |   | **1,807** |   |
| Corporate                  allocation                  |   |                                    | 2,150       |     |   | 1,213 |   |   | 937 |   |
| Depreciation                  and amortization         |   |                                    | 7,894       |     |   | 3,667 |   |   | 4,227 |   |
| Taxes                  other than income taxes         |   |                                    | 1,696       |     |   | 888 |   |   | 808 |   |
| Income                  taxes                          |   |                                    | 10,920      |     |   | (1,034 | ) |   | 11,954 |   |
| **Total                  non-fuel operating expenses** |   |                                    | **33,964**  |     |   | **14,231** |   |   | **19,733** |   |
| **Operating                  income**                  |   | **$**                                   | **28,890**  |     | **$**  | **2,395** |   | **$** | **26,495** |   |

----

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

**Wholesale        Revenues**

|                                 |   | **Three                  Months Ended** |    |     |   |
|--------------------------------------|--------|-----------------------------------------|---------|----------|--------|
|                                 |   | **September                  30,**      |    |     |   |
|                                 |   | **2006**                                |    | **2005** |   | **Variance** |   |
|                                 |   | (In                  thousands)         |    |
| Long-term                  contracts |   | $                                       | 91,417  |     | $      | 39,866 |   | $ | 51,551 |   |
| Short-term                  sales    |   |                                    | 113,284 |     |   | 139,989 |   |   | (26,705 | ) |
|                                 |   | $                                       | 204,701 |     | $      | 179,855 |   | $ | 24,846 |   |

**Wholesale        Sales**

|                                 |   | **Three                  Months Ended** |      |     |   |
|--------------------------------------|--------|-----------------------------------------|-----------|----------|--------|
|                                 |   | **September                  30,**      |      |     |   |
|                                 |   | **2006**                                |      | **2005** |   | **Variance** |   |
|                                 |   | (Megawatt                  hours)       |      |
| Long-term                  contracts |   |                                    | 1,318,996 |     |   | 651,178 |   |   | 667,818 |   |
| Short-term                  sales    |   |                                    | 1,719,059 |     |   | 2,300,775 |   |   | (581,716 | ) |
|                                 |   |                                    | 3,038,055 |     |   | 2,951,953 |   |   | 86,102 |   |

----

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

**First        Choice**

|                                                   |   | **Three                  Months Ended** |        |     |   |
|--------------------------------------------------------|--------|-----------------------------------------|-------------|----------|--------|
|                                                   |   | **September                  30,**      |        |     |   |
|                                                   |   | **2006**                                |        | **2005** |   | **Variance** |   |
|                                                   |   | (In                  thousands)         |        |
| **Operating                  revenues**                |   | **$**                                   | **186,972** |     | **$**  | **155,479** |   | **$** | **31,493** |   |
| Less:                  Cost of energy                  |   |                                    | 146,337     |     |   | 120,751 |   |   | 25,586 |   |
| **Gross                  margin**                      |   |                                    | **40,635**  |     |   | **34,728** |   |   | **5,907** |   |
| Customer                  related expense              |   |                                    | 3,785       |     |   | 1,672 |   |   | 2,113 |   |
| Administrative                  and general            |   |                                    | 9,022       |     |   | 4,647 |   |   | 4,375 |   |
| **Total                  non-fuel O&M**            |   |                                    | **12,807**  |     |   | **6,319** |   |   | **6,488** |   |
| Corporate                  allocation                  |   |                                    | 2,962       |     |   | 3,658 |   |   | (696 | ) |
| Depreciation                  and amortization         |   |                                    | 510         |     |   | 480 |   |   | 30 |   |
| Taxes                  other than income taxes         |   |                                    | 1,538       |     |   | 1,822 |   |   | (284 | ) |
| Income                  taxes                          |   |                                    | 8,065       |     |   | 7,826 |   |   | 239 |   |
| **Total                  non-fuel operating expenses** |   |                                    | **25,882**  |     |   | **20,105** |   |   | **5,777** |   |
| **Operating                  income**                  |   | **$**                                   | **14,753**  |     | **$**  | **14,623** |   | **$** | **130** |   |

**First        Choice Electric Revenues**

|                               |   | **Three                  Months Ended**           |    |     |   |
|------------------------------------|--------|---------------------------------------------------|---------|----------|--------|
|                               |   | **September                  30,**                |    |     |   |
|                               |   | **2006**                                          |    | **2005** |   | **Variance** |   |
|                               |   | (In                  thousands, except customers) |    |
| Residential                        |   | $                                                 | 119,096 |     | $      | 102,013 |   | $ | 17,083 |   |
| Mass-market                        |   |                                              | 23,189  |     |   | 25,208 |   |   | (2,019 | ) |
| Mid-market                         |   |                                              | 36,628  |     |   | 21,980 |   |   | 14,648 |   |
| Other                              |   |                                              | 8,059   |     |   | 6,278 |   |   | 1,781 |   |
|                               |   | $                                                 | 186,972 |     | $      | 155,479 |   | $ | 31,493 |   |
|                               |   |                                              |    |     |   |   |   |   |   |   |
| Actual                  customers* |   |                                              | 233,941 |     |   | 214,009 |   |   | 19,932 |   |

|   | * | Due                  to the competitive nature of First Choice’s business, actual customer                  count at September 30 is presented in the table above as a more                  representative business indicator. First Choice had 228,362 average                  customers and 215,376 average customers for the three months ended                  September 30, 2006 and 2005, respectively. |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

**First        Choice Electric Sales***

|        |   | **Three                  Months Ended** |      |     |   |
|-------------|--------|-----------------------------------------|-----------|----------|--------|
|        |   | **September                  30,**      |      |     |   |
|        |   | **2006**                                |      | **2005** |   | **Variance** |   |
|        |   | (Megawatt                  hours)       |      |
| Residential |   |                                    | 847,290   |     |   | 846,683 |   |   | 607 |   |
| Mass-market |   |                                    | 157,633   |     |   | 205,183 |   |   | (47,550 | ) |
| Mid-market  |   |                                    | 337,868   |     |   | 236,604 |   |   | 101,264 |   |
| Other       |   |                                    | 12,644    |     |   | 13,565 |   |   | (921 | ) |
|        |   |                                    | 1,355,435 |     |   | 1,302,035 |   |   | 53,400 |   |

|   | * | See                  note above in the TNMP Electric segment discussion about the impact                  of                  TECA. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------|

**Corporate        and Other**

*Corporate        Administrative and General Expenses*

*Depreciation        Expense*

----

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

*Taxes        Other Than Income*

**PNMR        Consolidated**

*Other        Income and Deductions*

*Interest        Charges*

*Income        Taxes*

----

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

**RESULTS        OF OPERATIONS - PNMR**

**NINE        MONTHS ENDED SEPTEMBER 30, 2006 **

**COMPARED        TO NINE MONTHS ENDED SEPTEMBER 30, 2005**

----

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

**Regulated        Operations**

**PNM        Electric **

|                                                   |   | **Nine                  Months Ended** |        |     |   |
|--------------------------------------------------------|--------|----------------------------------------|-------------|----------|--------|
|                                                   |   | **September                  30,**     |        |     |   |
|                                                   |   | **2006**                               |        | **2005** |   | **Variance** |   |
|                                                   |   | (In                  thousands)        |        |
| **Operating                  revenues**                |   | **$**                                  | **446,829** |     | **$**  | **435,908** |   | **$** | **10,921** |   |
| Less:                  Cost of energy                  |   |                                   | 144,053     |     |   | 150,359 |   |   | (6,306 | ) |
| Intersegment                  energy transfer          |   |                                   | (2,515      | )        |   | (24,740 | ) |   | 22,225 |   |
| **Gross                  margin**                      |   |                                   | **305,291** |     |   | **310,289** |   |   | **(4,998** | **)** |
| Energy                  production costs               |   |                                   | 88,520      |     |   | 88,844 |   |   | (324 | ) |
| Transmission                  and distribution O&M |   |                                   | 24,967      |     |   | 22,965 |   |   | 2,002 |   |
| Customer                  related expense              |   |                                   | 11,734      |     |   | 14,253 |   |   | (2,519 | ) |
| Administrative                  and general            |   |                                   | 3,336       |     |   | 6,637 |   |   | (3,301 | ) |
| **Total                  non-fuel O&M**            |   |                                   | **128,557** |     |   | **132,699** |   |   | **(4,142** | **)** |
| Corporate                  allocation                  |   |                                   | 55,015      |     |   | 48,329 |   |   | 6,686 |   |
| Depreciation                  and amortization         |   |                                   | 44,529      |     |   | 52,329 |   |   | (7,800 | ) |
| Taxes                  other than income taxes         |   |                                   | 16,629      |     |   | 15,045 |   |   | 1,584 |   |
| Income                  taxes                          |   |                                   | 13,453      |     |   | 14,450 |   |   | (997 | ) |
| **Total                  non-fuel operating expenses** |   |                                   | **258,183** |     |   | **262,852** |   |   | **(4,669** | **)** |
| **Operating                  income**                  |   | **$**                                  | **47,108**  |     | **$**  | **47,437** |   | **$** | **(329** | **)** |

**PNM        Electric Revenues**

|                               |   | **Nine                  Months Ended**            |    |     |   |
|------------------------------------|--------|---------------------------------------------------|---------|----------|--------|
|                               |   | **September                  30,**                |    |     |   |
|                               |   | **2006**                                          |    | **2005** |   | **Variance** |   |
|                               |   | (In                  thousands, except customers) |    |
| Residential                        |   | $                                                 | 168,138 |     | $      | 165,638 |   | $ | 2,500 |   |
| Commercial                         |   |                                              | 193,575 |     |   | 192,979 |   |   | 596 |   |
| Industrial                         |   |                                              | 47,070  |     |   | 46,597 |   |   | 473 |   |
| Transmission                       |   |                                              | 21,913  |     |   | 15,325 |   |   | 6,588 |   |
| Other                              |   |                                              | 16,133  |     |   | 15,369 |   |   | 764 |   |
|                               |   | $                                                 | 446,829 |     | $      | 435,908 |   | $ | 10,921 |   |
|                               |   |                                              |    |     |   |   |   |   |   |   |
| Average                  customers |   |                                              | 428,731 |     |   | 416,417 |   |   | 12,314 |   |

----

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

**PNM        Electric Sales**

|        |   | **Nine                  Months Ended** |      |     |   |
|-------------|--------|----------------------------------------|-----------|----------|--------|
|        |   | **September                  30,**     |      |     |   |
|        |   | **2006**                               |      | **2005** |   | **Variance** |   |
|        |   | (Megawatt                  hours)      |      |
| Residential |   |                                   | 2,092,291 |     |   | 2,014,615 |   |   | 77,676 |   |
| Commercial  |   |                                   | 2,741,777 |     |   | 2,661,667 |   |   | 80,110 |   |
| Industrial  |   |                                   | 999,991   |     |   | 967,269 |   |   | 32,722 |   |
| Other       |   |                                   | 198,231   |     |   | 195,496 |   |   | 2,735 |   |
|        |   |                                   | 6,032,290 |     |   | 5,839,047 |   |   | 193,243 |   |

----

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

**TNMP        Electric**

|                                                   |   | **Nine                  Months****Ended** |        | **For                  the Period****June                  6 -** |   |
|--------------------------------------------------------|--------|-------------------------------------------|-------------|------------------------------------------------------------------|--------|
|                                                   |   | **September                  30,**        |        | **September                  30,**                               |   |
|                                                   |   | **2006**                                  |        | **2005**                                                         |   |
|                                                   |   | (In                  thousands)           |        |
| **Operating                  revenues**                |   | **$**                                     | **194,382** |                                                             | **$**  | **90,676** |   |
| Less:                  Cost of energy                  |   |                                      | 77,810      |                                                             |   | 32,466 |   |
| **Gross                  margin**                      |   |                                      | **116,572** |                                                             |   | **58,210** |   |
| Transmission                  and distribution O&M |   |                                      | 14,976      |                                                             |   | 6,821 |   |
| Customer                  related expense              |   |                                      | 3,765       |                                                             |   | 1,735 |   |
| Administrative                  and general            |   |                                      | 1,463       |                                                             |   | 810 |   |
| **Total                  non-fuel O&M**            |   |                                      | **20,204**  |                                                             |   | **9,366** |   |
| Corporate                  allocation                  |   |                                      | 24,861      |                                                             |   | 5,196 |   |
| Depreciation                  and amortization         |   |                                      | 23,462      |                                                             |   | 9,899 |   |
| Taxes                  other than income taxes         |   |                                      | 18,301      |                                                             |   | 8,482 |   |
| Income                  taxes                          |   |                                      | 2,540       |                                                             |   | 5,694 |   |
| **Total                  non-fuel operating expenses** |   |                                      | **89,368**  |                                                             |   | **38,637** |   |
| **Operating                  income**                  |   | **$**                                     | **27,204**  |                                                             | **$**  | **19,573** |   |

**TNMP        Electric Revenues**

|                                |   | **Nine                  Months****Ended**         |    | **For                  the period****June                  6 -** |   |
|-------------------------------------|--------|---------------------------------------------------|---------|------------------------------------------------------------------|--------|
|                                |   | **September                  30,**                |    | **September                  30,**                               |   |
|                                |   | **2006**                                          |    | **2005**                                                         |   |
|                                |   | (In                  thousands, except customers) |    |
| Residential                         |   | $                                                 | 68,771  |                                                             | $      | 36,333 |   |
| Commercial                          |   |                                              | 68,752  |                                                             |   | 30,151 |   |
| Industrial                          |   |                                              | 28,052  |                                                             |   | 13,124 |   |
| Other                               |   |                                              | 28,807  |                                                             |   | 11,068 |   |
|                                |   | $                                                 | 194,382 |                                                             | $      | 90,676 |   |
|                                |   |                                              |    |                                                             |   |   |   |
| Average                  customers* |   |                                              | 262,330 |                                                             |   | 258,939 |   |

----

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

**TNMP        Electric Sales ***

|        |   | **Nine                  Months****Ended** |      | **For                  the period****June                  6 -** |   |
|-------------|--------|-------------------------------------------|-----------|------------------------------------------------------------------|--------|
|        |   | **September                  30,**        |      | **September                  30,**                               |   |
|        |   | **2006****                                |      | **2005**                                                         |   |
|        |   | (Megawatt                  hours)         |      |
| Residential |   |                                      | 2,158,818 |                                                             |   | 1,224,681 |   |
| Commercial  |   |                                      | 2,148,024 |                                                             |   | 870,043 |   |
| Industrial  |   |                                      | 1,409,957 |                                                             |   | 660,034 |   |
| Other       |   |                                      | 93,349    |                                                             |   | 41,922 |   |
|        |   |                                      | 5,810,148 |                                                             |   | 2,796,680 |   |

----

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

**PNM        Gas**

|                                                   |   | **Nine                  Months Ended** |        |     |   |
|--------------------------------------------------------|--------|----------------------------------------|-------------|----------|--------|
|                                                   |   | **September                  30,**     |        |     |   |
|                                                   |   | **2006**                               |        | **2005** |   | **Variance** |   |
|                                                   |   | (In                  thousands)        |        |
| **Operating                  revenues**                |   | **$**                                  | **345,732** |     | **$**  | **326,357** |   | **$** | **19,375** |   |
| Less:                  Cost of energy                  |   |                                   | 243,748     |     |   | 221,239 |   |   | 22,509 |   |
| **Gross                  margin**                      |   |                                   | **101,984** |     |   | **105,118** |   |   | **(3,134** | **)** |
| Energy                  production costs               |   |                                   | 1,597       |     |   | 1,827 |   |   | (230 | ) |
| Transmission                  and distribution O&M |   |                                   | 20,114      |     |   | 20,621 |   |   | (507 | ) |
| Customer                  related expense              |   |                                   | 12,608      |     |   | 14,496 |   |   | (1,888 | ) |
| Administrative                  and general            |   |                                   | 2,580       |     |   | 2,969 |   |   | (389 | ) |
| **Total                  non-fuel O&M**            |   |                                   | **36,899**  |     |   | **39,913** |   |   | **(3,014** | **)** |
| Corporate                  allocation                  |   |                                   | 33,351      |     |   | 28,286 |   |   | 5,065 |   |
| Depreciation                  and amortization         |   |                                   | 17,921      |     |   | 16,802 |   |   | 1,119 |   |
| Taxes                  other than income taxes         |   |                                   | 6,267       |     |   | 6,004 |   |   | 263 |   |
| Income                  taxes                          |   |                                   | (656        | )        |   | 2,152 |   |   | (2,808 | ) |
| **Total                  non-fuel operating expenses** |   |                                   | **93,782**  |     |   | **93,157** |   |   | **625** |   |
| **Operating                  income**                  |   | **$**                                  | **8,202**   |     | **$**  | **11,961** |   | **$** | **(3,759** | **)** |

**PNM        Gas Revenues**

|                               |   | **Nine                  Months Ended**            |    |     |   |
|------------------------------------|--------|---------------------------------------------------|---------|----------|--------|
|                               |   | **September                  30,**                |    |     |   |
|                               |   | **2006**                                          |    | **2005** |   | **Variance** |   |
|                               |   | (In                  thousands, except customers) |    |
| Residential                        |   | $                                                 | 214,703 |     | $      | 185,821 |   | $ | 28,882 |   |
| Commercial                         |   |                                              | 69,668  |     |   | 57,581 |   |   | 12,087 |   |
| Industrial                         |   |                                              | 3,219   |     |   | 1,523 |   |   | 1,696 |   |
| Transportation*                    |   |                                              | 10,136  |     |   | 10,193 |   |   | (57 | ) |
| Other                              |   |                                              | 48,006  |     |   | 71,239 |   |   | (23,233 | ) |
|                               |   | $                                                 | 345,732 |     | $      | 326,357 |   | $ | 19,375 |   |
|                               |   |                                              |    |     |   |   |   |   |   |   |
| Average                  customers |   |                                              | 480,761 |     |   | 470,026 |   |   | 10,735 |   |

----

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

**PNM        Gas Throughput**

|            |   | **Nine                  Months Ended**     |   |     |   |
|-----------------|--------|--------------------------------------------|--------|----------|--------|
|            |   | **September                  30,**         |   |     |   |
|            |   | **2006**                                   |   | **2005** |   | **Variance** |   |
|            |   | (Thousands                  of decatherms) |   |
| Residential     |   |                                       | 17,470 |     |   | 18,970 |   |   | (1,500 | ) |
| Commercial      |   |                                       | 6,877  |     |   | 7,115 |   |   | (238 | ) |
| Industrial      |   |                                       | 395    |     |   | 212 |   |   | 183 |   |
| Transportation* |   |                                       | 29,171 |     |   | 27,586 |   |   | 1,585 |   |
| Other           |   |                                       | 5,395  |     |   | 8,834 |   |   | (3,439 | ) |
|            |   |                                       | 59,308 |     |   | 62,717 |   |   | (3,409 | ) |

----

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

**Unregulated        Operations**

**Wholesale**

|                                                   |   | **Nine                  Months Ended** |        |     |   |
|--------------------------------------------------------|--------|----------------------------------------|-------------|----------|--------|
|                                                   |   | **September                  30,**     |        |     |   |
|                                                   |   | **2006**                               |        | **2005** |   | **Variance** |   |
|                                                   |   | (In                  thousands)        |        |
| **Operating                  revenues**                |   | **$**                                  | **538,683** |     | **$**  | **454,141** |   | **$** | **84,542** |   |
| Less:                  Cost of energy                  |   |                                   | 398,732     |     |   | 364,989 |   |   | 33,743 |   |
| Intersegment                  energy transfer          |   |                                   | 2,515       |     |   | 24,740 |   |   | (22,225 | ) |
| **Gross                  margin**                      |   |                                   | **137,436** |     |   | **64,412** |   |   | **73,024** |   |
| Energy                  production costs               |   |                                   | 29,694      |     |   | 21,737 |   |   | 7,957 |   |
| Transmission                  O&M                  |   |                                   | 76          |     |   | 36 |   |   | 40 |   |
| Customer                  related expense              |   |                                   | 650         |     |   | 716 |   |   | (66 | ) |
| Administrative                  and general            |   |                                   | 4,926       |     |   | 5,196 |   |   | (270 | ) |
| **Total                  non-fuel O&M**            |   |                                   | **35,346**  |     |   | **27,685** |   |   | **7,661** |   |
| Corporate                  allocation                  |   |                                   | 5,225       |     |   | 3,266 |   |   | 1,959 |   |
| Depreciation                  and amortization         |   |                                   | 18,210      |     |   | 11,695 |   |   | 6,515 |   |
| Taxes                  other than income taxes         |   |                                   | 4,744       |     |   | 2,615 |   |   | 2,129 |   |
| Income                  taxes                          |   |                                   | 19,153      |     |   | 2,841 |   |   | 16,312 |   |
| **Total                  non-fuel operating expenses** |   |                                   | **82,678**  |     |   | **48,102** |   |   | **34,576** |   |
| **Operating                  income**                  |   | **$**                                  | **54,758**  |     | **$**  | **16,310** |   | **$** | **38,448** |   |

----

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

**Wholesale        Revenues**

|                                 |   | **Nine                  Months Ended** |    |     |   |
|--------------------------------------|--------|----------------------------------------|---------|----------|--------|
|                                 |   | **September                  30,**     |    |     |   |
|                                 |   | **2006**                               |    | **2005** |   | **Variance** |   |
|                                 |   | (In                  thousands)        |    |
| Long-term                  contracts |   | $                                      | 196,575 |     | $      | 115,238 |   | $ | 81,337 |   |
| Short-term                  sales    |   |                                   | 342,108 |     |   | 338,903 |   |   | 3,205 |   |
|                                 |   | $                                      | 538,683 |     | $      | 454,141 |   | $ | 84,542 |   |

**Wholesale        Sales**

|                                 |   | **Nine                  Months Ended** |      |     |   |
|--------------------------------------|--------|----------------------------------------|-----------|----------|--------|
|                                 |   | **September                  30,**     |      |     |   |
|                                 |   | **2006**                               |      | **2005** |   | **Variance** |   |
|                                 |   | (Megawatt                  hours)      |      |
| Long-term                  contracts |   |                                   | 2,999,905 |     |   | 1,940,063 |   |   | 1,059,842 |   |
| Short-term                  sales    |   |                                   | 5,508,962 |     |   | 6,375,214 |   |   | (866,252 | ) |
|                                 |   |                                   | 8,508,867 |     |   | 8,315,277 |   |   | 193,590 |   |

----

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

**First        Choice**

|                                                   |   | **Nine                  Months****Ended** |        | **For                  the Period****June                  6 -** |   |
|--------------------------------------------------------|--------|-------------------------------------------|-------------|------------------------------------------------------------------|--------|
|                                                   |   | **September                  30,**        |        | **September                  30**                                |   |
|                                                   |   | **2006**                                  |        | **2005**                                                         |   |
|                                                   |   | (In                  thousands)           |        |
| **Operating                  revenues**                |   | **$**                                     | **446,962** |                                                             | **$**  | **198,510** |   |
| Less:                  Cost of energy                  |   |                                      | 354,745     |                                                             |   | 154,834 |   |
| **Gross                  margin**                      |   |                                      | **92,217**  |                                                             |   | **43,676** |   |
| Customer                  related expense              |   |                                      | 9,773       |                                                             |   | 2,138 |   |
| Administrative                  and general            |   |                                      | 21,078      |                                                             |   | 5,736 |   |
| **Total                  non-fuel O&M**            |   |                                      | **30,851**  |                                                             |   | **7,874** |   |
| Corporate                  allocation                  |   |                                      | 10,927      |                                                             |   | 4,788 |   |
| Depreciation                  and amortization         |   |                                      | 1,518       |                                                             |   | 585 |   |
| Taxes                  other than income taxes         |   |                                      | 4,074       |                                                             |   | 2,334 |   |
| Income                  taxes                          |   |                                      | 15,728      |                                                             |   | 9,846 |   |
| **Total                  non-fuel operating expenses** |   |                                      | **63,098**  |                                                             |   | **25,427** |   |
| **Operating                  income**                  |   | **$**                                     | **29,119**  |                                                             | **$**  | **18,249** |   |

**First        Choice Electric Revenues**

|                                                      |   | **Nine                  Months****Ended**         |    | **For                  the Period****June                  6 -** |   |
|-----------------------------------------------------------|--------|---------------------------------------------------|---------|------------------------------------------------------------------|--------|
|                                                      |   | **September                  30,**                |    | **September                  30**                                |   |
|                                                      |   | **2006**                                          |    | **2005**                                                         |   |
|                                                      |   | (In                  thousands, except customers) |    |
| Residential                                               |   | $                                                 | 267,878 |                                                             | $      | 131,278 |   |
| Mass-market                                               |   |                                              | 65,919  |                                                             |   | 31,823 |   |
| Mid-market                                                |   |                                              | 89,941  |                                                             |   | 27,844 |   |
| Other                                                     |   |                                              | 23,224  |                                                             |   | 7,565 |   |
|                                                      |   | $                                                 | 446,962 |                                                             | $      | 198,510 |   |
|                                                      |   |                                              |    |                                                             |   |   |   |
| Actual                  customers (1,                  2) |   |                                              | 233,941 |                                                             |   | 214,009 |   |

| (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 September 30 is presented in the table above as a more                representative business indicator. First Choice had 218,093 average                customers and 215,524 average customers for the nine months ended                September 30, 2006 and 2005, respectively. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

**First        Choice Electric Sales***

|        |   | **Nine                  Months**            |      | **For                  the period**                             |   |
|-------------|--------|---------------------------------------------|-----------|-----------------------------------------------------------------|--------|
|        |   | **Ended****September                  30,** |      | **June                  6 -****September                  30,** |   |
|        |   | **2006**                                    |      | **2005**                                                        |   |
|        |   | (Megawatt                  hours)           |      |
| Residential |   |                                        | 1,911,496 |                                                            |   | 1,093,015 |   |
| Mass-market |   |                                        | 440,422   |                                                            |   | 260,607 |   |
| Mid-market  |   |                                        | 823,931   |                                                            |   | 304,024 |   |
| Other       |   |                                        | 38,089    |                                                            |   | 16,514 |   |
|        |   |                                        | 3,213,938 |                                                            |   | 1,674,160 |   |

**Corporate        and Other**

*Corporate        Administrative and General Expenses*

*Depreciation        Expense*

*Taxes        Other Than Income*

----

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

**PNMR        Consolidated**

*Other        Income and Deductions*

*Interest        Charges*

*Income        Taxes*

----

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

**RESULTS        OF OPERATIONS - PNM**

**THREE        AND NINE MONTHS ENDED SEPTEMBER 30, 2006**

**COMPARED        TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005**

----

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

**RESULTS        OF OPERATIONS - TNMP**

**THREE        AND NINE MONTHS ENDED SEPTEMBER 30, 2006**

**COMPARED        TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005**

**CRITICAL        ACCOUNTING POLICIES AND ESTIMATES**

----

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

**LIQUIDITY        AND CAPITAL RESOURCES**

*Statements        of Cash Flow*

----

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

*Capital        Requirements*

----

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

*Liquidity*

*Borrowing        Arrangements Between PNMR and Subsidiaries*

----

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

----

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

*Off-Balance        Sheet Arrangements*

*Commitments        and Contractual Obligations*

----

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

----

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

*Financing        Activities*

----

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

*Capital        Structure*

|                                  |   | **September                  30,** |   | **December                  31,** |   |
|---------------------------------------|--------|------------------------------------|--------|-----------------------------------|--------|
|                                  |   | **2006**                           |   | **2005**                          |   |
|                                  |   |                               |   |                              |   |
| Common                  Equity        |   |                               | 44.0   | %                                 |   | 42.3 | % |
| Preferred                  Stock      |   |                               | 0.4    | %                                 |   | 0.4 | % |
| Long-term                  Debt       |   |                               | 55.6   | %                                 |   | 57.3 | % |
| Total                  Capitalization |   |                               | 100.0  | %                                 |   | 100.0 | % |

|                                  |   | **September                  30,** |   | **December                  31,** |   |
|---------------------------------------|--------|------------------------------------|--------|-----------------------------------|--------|
|                                  |   | **2006**                           |   | **2005**                          |   |
|                                  |   |                               |   |                              |   |
| Common                  Equity        |   |                               | 51.4   | %                                 |   | 50.2 | % |
| Preferred                  Stock      |   |                               | 0.6    | %                                 |   | 0.6 | % |
| Long-term                  Debt       |   |                               | 48.0   | %                                 |   | 49.2 | % |
| Total                  Capitalization |   |                               | 100.0  | %                                 |   | 100.0 | % |

|                                  |   | **September                  30,** |   | **December                  31,** |   |
|---------------------------------------|--------|------------------------------------|--------|-----------------------------------|--------|
|                                  |   | **2006**                           |   | **2005**                          |   |
|                                  |   |                               |   |                              |   |
| Common                  Equity        |   |                               | 55.0   | %                                 |   | 54.6 | % |
| Long-term                  Debt       |   |                               | 45.0   | %                                 |   | 45.4 | % |
| Total                  Capitalization |   |                               | 100.0  | %                                 |   | 100.0 | % |

----

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

**OTHER        ISSUES FACING THE COMPANY**

**NEW        ACCOUNTING STANDARDS**

*Accounting        for Uncertainty in Income Taxes,*
*Fair        Value Measurements,*

**DISCLOSURE        REGARDING FORWARD LOOKING STATEMENTS**

| ·   | The                  risks that the conditions to the creation of EnergyCo are not satisfied,                  and the inability of EnergyCo to identify and implement profitable                  acquisitions, |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                  potential unavailability of cash from PNMR’s subsidiaries due to                  regulatory, statutory and contractual                  restrictions, |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                  outcome of any appeals of the PUCT order in the stranded cost true-up                  proceeding, |
|--------------------|-------------------------------------------------------------------------------------------------------------------------|

| ·   | The                  ability of First Choice to attract and retain                  customers, |
|--------------------|------------------------------------------------------------------------------------------------|

| ·   | Changes                  in ERCOT protocols, |
|--------------------|----------------------------------------------|

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

| ·   | Collections                  experience, |
|--------------------|------------------------------------------|

| ·   | Insurance                  coverage available for claims made in                  litigation, |
|--------------------|-----------------------------------------------------------------------------------------------|

| ·   | Fluctuations                  in interest rates, |
|--------------------|--------------------------------------------------|

| ·   | The                  risk that the Twin Oaks power plant will not be successfully integrated                  into PNMR, |
|--------------------|--------------------------------------------------------------------------------------------------------------------------|

| ·   | Conditions                  in the financial markets affecting PNMR’s permanent financing for the Twin                  Oaks power plant acquisition, |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Weather, |
|--------------------|----------|

| ·   | Water                  supply, |
|--------------------|--------------------------------|

| ·   | Changes                  in fuel costs, |
|--------------------|-----------------------------------------|

| ·   | Availability                  of fuel supplies, |
|--------------------|-------------------------------------------------|

| ·   | 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, |
|--------------------|------------------------------------------------------------------------------------------------------------------------|

| ·   | Changes                  in the competitive environment in the electric and natural gas                  industries, |
|--------------------|----------------------------------------------------------------------------------------------------------------------|

| ·   | The                  performance of generating units, including PVNGS, and transmission                  systems, |
|--------------------|-------------------------------------------------------------------------------------------------------------------|

----

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

| ·   | The                  market for electrical generating                  equipment, |
|--------------------|-----------------------------------------------------------------------------------|

| ·   | The                  ability to secure long-term power                  sales, |
|--------------------|--------------------------------------------------------------------------------|

| ·   | The                  risks associated with completion of generation, including the expansion                  of                  the Afton Generating Station, transmission, distribution and other                  projects, including construction delays and unanticipated cost                  overruns, |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | State                  and federal regulatory and legislative decisions and                  actions, |
|--------------------|-------------------------------------------------------------------------------------------------------|

| ·   | The                  outcome of legal proceedings, |
|--------------------|----------------------------------------------------|

| ·   | Changes                  in applicable accounting principles,                  and |
|--------------------|------------------------------------------------------------------------------------|

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

**SECURITIES        ACT DISCLAIMER**

----

**ITEM        3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET        RISK**

*Accounting        for Derivatives*

*Commodity        Risk*

----

**ITEM            3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET            RISK**

|                                                               |   | **September                  30,** |    | **December                  31,** |   |
|--------------------------------------------------------------------|--------|------------------------------------|---------|-----------------------------------|--------|
|                                                               |   | **2006**                           |    | **2005**                          |   |
|                                                               |   | (In                  thousands)    |    |
| Mark-to-Market                  Energy Contracts:                  |   |                               |    |                              |   |
| Current                  asset                                     |   | $                                  | 65,669  |                              | $      | 21,884 |   |
| Long-term                  asset                                   |   |                               | 3,334   |                              |   | 21,265 |   |
| Total                  mark-to-market assets                       |   |                               | 69,003  |                              |   | 43,149 |   |
| Current                  liability                                 |   |                               | (66,105 | )                                 |   | (17,777 | ) |
| Long-term                  liability                               |   |                               | (2,855  | )                                 |   | (20,844 | ) |
| Total                  mark-to-market liabilities                  |   |                               | (68,960 | )                                 |   | (38,621 | ) |
|                                                               |   |                               |    |                              |   |   |   |
| Net                  fair value of mark-to-market energy contracts |   | $                                  | 43      |                              | $      | 4,528 |   |

|                                                                  |   | **Nine                  Months Ended** |   |
|-----------------------------------------------------------------------|--------|----------------------------------------|--------|
|                                                                  |   | **September                  30,**     |   |
|                                                                  |   | **2006**                               |   | **2005** |   |
|                                                                  |   | (In                  thousands)        |   |
| Sources                  of Fair Value Gain/(Loss):                   |   |                                   |   |   |   |
| Fair                  value at beginning of period                    |   | $                                      | 4,528  |   | $ | 2,073 |   |
|                                                                  |   |                                   |   |   |   |   |   |
| Amount                  realized on contracts delivered during period |   |                                   | (7,270 | ) |   | (1,731 | ) |
|                                                                  |   |                                   |   |   |   |   |   |
| Changes                  in fair value                                |   |                                   | 2,785  |   |   | 2,150 |   |
|                                                                  |   |                                   |   |   |   |   |   |
| Net                  fair value at end of period                      |   | $                                      | 43     |   | $ | 2,492 |   |
|                                                                  |   |                                   |   |   |   |   |   |
| Net                  change recorded as mark-to-market                |   | $                                      | (4,485 | ) | $ | 419 |   |

----

**ITEM            3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET            RISK**

**Fair        Value at September 30, 2006**

| **Maturities**                 |
|--------------------------------|
| **Less                  than** |   |   |   |   |   |   |
| **1                  year**    |   | **1-3                  Years** |   | **4+                  Years** |   | **Total** |
|                           |   | (In                  thousands) |   |   |
| $(436)                         |   | $252 |   | $227 |   | $43 |

*Risk        Management Activities*

*“Amendment        of Statement 133 on Derivative Instruments and Hedging*
*Activities.”*

----

**ITEM              3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET              RISK**

*Credit        Risk*

**Wholesale**

**Schedule        of Credit Risk Exposure**

**September        30, 2006**

|                                  |   |                                    |   |         |   | **Net**      |   |
|---------------------------------------|--------|-----------------------------------------|--------|--------------|--------|--------------|--------|
|                                  |   | **(b)**                                 |   | **Number**   |   | **Exposure** |   |
|                                  |   | **Net**                                 |   | **of**       |   | **of**       |   |
|                                  |   | **Credit**                              |   | **Counter-** |   | **Counter-** |   |
|                                  |   | **Risk**                                |   | **parties**  |   | **parties**  |   |
| **Rating                  (a)**       |   | **Exposure**                            |   | **>10%**  |   | **>10%**  |   |
|                                  |   | (Dollars                  in thousands) |   |
|                                  |   |                                    |   |         |   |         |   |
| Investment                  grade     |   | $                                       | 95,878 |         |   | 3            |   | $ | 58,901 |   |
| Non-investment                  grade |   |                                    | 331    |         |   | -            |   |   | - |   |
| Internal                  ratings     |   |                                    |   |         |   |         |   |   |   |   |
| Investment                  grade     |   |                                    | 201    |         |   | -            |   |   | - |   |
| Non-investment                  grade |   |                                    | 2,559  |         |   | -            |   |   | - |   |
| Total                                 |   | $                                       | 98,969 |         |   |         |   | $ | 58,901 |   |

| (a)   | The***Rating***** **included                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                ***Net                Credit Risk Exposure***                is                the net credit exposure to PNM from Wholesale operations. This includes                long-term contracts, forward sales and short-term sales. The exposure                captures the net amounts due to PNM 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 and reduced by credit                collateral. Credit collateral includes cash deposits, letters of                credit                and performance bonds received from counterparties. Amounts are presented                before those reserves that are determined on a portfolio                basis. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**ITEM              3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET              RISK**

**Wholesale**

**Maturity        of Credit Risk Exposure**

**September        30, 2006**

|                                  |   |                           |   |                            |   |                             |   | **Total**    |   |
|---------------------------------------|--------|--------------------------------|--------|---------------------------------|--------|----------------------------------|--------|--------------|--------|
|                                  |   | **Less                  than** |   |                            |   |                             |   | **Net**      |   |
| **Rating**                            |   | **2                  Years**   |   | **2-5                  Years**  |   | **>5                  Years** |   | **Exposure** |   |
|                                  |   |                           |   | (In                  thousands) |   |                             |   |
|                                  |   |                           |   |                            |   |                             |   |         |   |
| Investment                  grade     |   | $                              | 90,211 |                            | $      | 3,966                            |   |         | 1,701  |   | $ | 95,878 |   |
| Non-investment                  grade |   |                           | 331    |                            |   | -                                |   |         | -      |   |   | 331 |   |
| Internal                  ratings     |   |                           |   |                            |   |                             |   |         |   |   |   |   |   |
| Investment                  grade     |   |                           | 201    |                            |   | -                                |   |         | -      |   |   | 201 |   |
| Non-investment                  grade |   |                           | 2,559  |                            |   | -                                |   |         | -      |   |   | 2,559 |   |
| Total                                 |   | $                              | 93,302 |                            | $      | 3,966                            |   |         | 1,701  |   | $ | 98,969 |   |

*First        Choice*

*Interest        Rate Risk*

----

**ITEM                3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET                RISK**

*Equity        Market Risk*

----

**ITEM        4. CONTROLS AND PROCEDURES**

***PNMR***

*Disclosure        Controls and Procedures*

*Changes        in Internal Controls*

*TNP        Acquisition*

*Twin        Oaks Acquisition*

** **

***PNM***

*Disclosure        Controls and Procedures*

*Changes        in Internal Controls*

***TNMP***

*Disclosure        Controls and Procedures*

----

*Changes        in Internal Controls*

----

**PART        II - OTHER INFORMATION**

**ITEM        1. LEGAL PROCEEDINGS**
| ·   | SESCO                Matter (for both PNM and TNMP) |
|--------------------|-----------------------------------------------------|
| ·   | California                Refund Proceedings |
|--------------------|----------------------------------------------|
| ·   | California                Antitrust Litigation |
|--------------------|------------------------------------------------|
| ·   | California                Attorney General Complaint |
|--------------------|------------------------------------------------------|
| ·   | Block                Forward Agreement Litigation |
|--------------------|---------------------------------------------------|
| ·   | Citizen                Suit Under the Clean Air Act |
|--------------------|-----------------------------------------------------|
| ·   | Natural                Gas Royalties Qui Tam Litigation |
|--------------------|---------------------------------------------------------|
| ·   | TNMP                True-Up Proceeding |
|--------------------|----------------------------------------|

**ITEM        1A. RISK FACTORS**

**The        proposed joint venture between the Company and a subsidiary of Cascade may        not        be formed, if the conditions to its formation cannot be satisfied, and, if        formed, there is no assurance that the joint venture will be able to identify        and implement profitable acquisitions.**

**ITEM        5. OTHER EVENTS**

----

**ITEM        6. EXHIBITS**

| 3.1    | PNMR   | Restated                  Articles of Incorporation of PNM Resources, Inc. dated August 3,                  2006                  |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                              |
| 12.1   | PNMR   | Ratio                  of Earnings to Fixed Charges                                                                               |
|   |   |                                                                                                                              |
| 12.2   | PNMR   | Ratio                  of Earnings to Combined Fixed Charges and Preferred Stock                  Dividends                       |
|   |   |                                                                                                                              |
| 31.1   | PNMR   | Chief                  Executive Officer Certification Pursuant to Section 302 of the                  Sarbanes-Oxley Act of 2002 |
|   |   |                                                                                                                              |
| 31.2   | PNMR   | Chief                  Financial Officer Certification Pursuant to Section 302 of the                  Sarbanes-Oxley Act of 2002 |
|   |   |                                                                                                                              |
| 31.3   | PNM    | Chief                  Executive Officer Certification Pursuant to Section 302 of the                  Sarbanes-Oxley Act of 2002 |
|   |   |                                                                                                                              |
| 31.4   | PNM    | Chief                  Financial Officer Certification Pursuant to Section 302 of the                  Sarbanes-Oxley Act of 2002 |
|   |   |                                                                                                                              |
| 31.5   | TNMP   | Chief                  Executive Officer Certification Pursuant to Section 302 of the                  Sarbanes-Oxley Act of 2002 |
|   |   |                                                                                                                              |
| 31.6   | TNMP   | Chief                  Financial Officer Certification Pursuant to Section 302 of the                  Sarbanes-Oxley Act of 2002 |
|   |   |                                                                                                                              |
| 32.1   | PNMR   | Chief                  Executive Officer Certification Pursuant to Section 906 of the                  Sarbanes-Oxley Act of 2002 |
|   |   |                                                                                                                              |
| 32.2   | PNMR   | Chief                  Financial Officer Certification Pursuant to Section 906 of the                  Sarbanes-Oxley Act of 2002 |
|   |   |                                                                                                                              |
| 32.3   | PNM    | Chief                  Executive Officer Certification Pursuant to Section 906 of the                  Sarbanes-Oxley Act of 2002 |
|   |   |                                                                                                                              |
| 32.4   | PNM    | Chief                  Financial Officer Certification Pursuant to Section 906 of the                  Sarbanes-Oxley Act of 2002 |
|   |   |                                                                                                                              |
| 32.5   | TNMP   | Chief                  Executive Officer Certification Pursuant to Section 906 of the                  Sarbanes-Oxley Act of 2002 |
|   |   |                                                                                                                              |
| 32.6   | TNMP   | Chief                  Financial Officer Certification Pursuant to Section 906 of the                  Sarbanes-Oxley Act of 2002 |

----

**SIGNATURE**

|                                    | **PNM                  RESOURCES, INC.****PUBLIC                  SERVICE COMPANY OF NEW MEXICO****TEXAS-NEW                  MEXICO POWER COMPANY** |
|-----------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                    | (Registrants)                                                                                                                                        |
|                                    |                                                                                                                                                 |
|                                    |                                                                                                                                                 |
| Date:                  November 9, 2006 | /s/                  Thomas G. Sategna                                                                                                               |
|                                    | Thomas                  G. Sategna                                                                                                                   |
|                                    | Vice                  President and Corporate Controller                                                                                             |
|                                    | (Officer                  duly authorized to sign this                  report)                                                                      |