| UNITED      STATES                                                     |
|------------------------------------------------------------------------|
| SECURITIES      AND EXCHANGE COMMISSION                                |
| Washington,      D.C.  20549                                 |
|                                                                   |
| FORM      10-Q                                                         |
| (Mark      One)                                                        |
|  [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| SECURITIES      EXCHANGE ACT OF 1934                                   |
|                                                                   |
| For      the quarterly period ended September 30,      2008            |
|                                                                   |
|                                                                   |
|                                                                   |   |   |   |   |
| 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 |
|-------------------------------------------------------------------------------------------------------------------|------------------------------------------------------|----------------------------------------------|

----

----

| Definitions:                                   |                                                                                                                                             |   |
|------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Afton                                          | Afton      Generating Station                                                                                                                    |   |
| AG                                             | New      Mexico Attorney General                                                                                                                 |   |
| ALJ                                            | Administrative      Law Judge                                                                                                                    |   |
| Altura                                         | Altura      Power L.P.                                                                                                                           |   |
| APS                                            | Arizona      Public Service Company                                                                                                              |   |
| BART                                           | Best      Available Retrofit Technology                                                                                                          |   |
| Board                                          | Board      of Directors of PNMR                                                                                                                  |   |
| BTU                                            | British      Thermal Unit                                                                                                                        |   |
| CAIR                                           | EPA’s      Clean Air Interstate Rule                                                                                                       |   |
| Cal      PX                                    | California      Power Exchange                                                                                                                   |   |
| Cal      ISO                                   | California      Independent System Operator                                                                                                      |   |
| Cascade                                        | Cascade      Investment, L.L.C.                                                                                                                  |   |
| Continental                                    | Continental      Energy Systems, LLC                                                                                                             |   |
| CRHC                                           | Cap      Rock Holding Corporation, a subsidiary of Continental                                                                                   |   |
| CTC                                            | Competition      Transition Charge                                                                                                               |   |
| Decatherm                                      | Million      BTUs                                                                                                                                |   |
| Delta                                          | Delta-Person      Limited Partnership                                                                                                            |   |
| EaR                                            | Earnings      at Risk                                                                                                                            |   |
| ECJV                                           | ECJV      Holdings, LLC                                                                                                                          |   |
| EEI                                            | Edison      Electric Institute                                                                                                                   |   |
| EIP                                            | Eastern      Interconnection Project                                                                                                             |   |
| EITF                                           | Emerging      Issues Task Force                                                                                                                  |   |
| EnergyCo                                       | EnergyCo,      LLC, a limited liability corporation, owned 50% by each of PNMR and      ECJV                                                     |   |
| EPA                                            | United      States Environmental Protection Agency                                                                                               |   |
| EPE                                            | El      Paso Electric                                                                                                                            |   |
| ERCOT                                          | Electric      Reliability Council of Texas                                                                                                       |   |
| ESPP                                           | Employee      Stock Purchase Plan                                                                                                                |   |
|             FASB | Financial      Accounting Standards Board                                                                                                        |   |
| FERC                                           | Federal      Energy Regulatory Commission                                                                                                        |   |
| FIN                                            | FASB      Interpretation Number                                                                                                                  |   |
| FIP                                            | Federal      Implementation Plan                                                                                                                 |   |
| FSP                                            | FASB      Staff Position                                                                                                                         |   |
| First      Choice                              | First      Choice Power, L. P. and Subsidiaries                                                                                                  |   |
| Four      Corners                              | Four      Corners Power Plant                                                                                                                    |   |
| FPPAC                                          | Fuel      and Purchased Power Adjustment Clause                                                                                                  |   |
| GAAP                                           | Generally      Accepted Accounting Principles in the United States of    America                                                                 |   |
| GWh                                            | Gigawatt      hours                                                                                                                              |   |
| IBEW                                           | International      Brotherhood of Electrical Workers, Local 611                                                                                  |   |
| ISO                                            | Independent      System Operator                                                                                                                 |   |
| LBB                                            | Lehman      Brothers Bank, FSB, a subsidiary of LBH                                                                                              |   |
| LBCS                                           | Lehman      Brothers Commodity Services, a subsidiary of LBH                                                                                     |   |
| LBH                                            | Lehman      Brothers Holdings Inc.                                                                                                               |   |
| LIBOR                                          | London      Interbank Offered Rate                                                                                                               |   |
| Lordsburg                                      | Lordsburg      Generating Station                                                                                                                |   |
| Luna                                           | Luna      Energy Facility                                                                                                                        |   |
| MD&A                                       | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations                                            |   |
| Moody’s                                  | Moody’s      Investor Services, Inc.                                                                                                       |   |
| MW                                             | Megawatt                                                                                                                                         |   |
| Navajo      Acts                               | Navajo      Nation Air Pollution Prevention and Control Act, the Navajo Nation Safe      Drinking Water Act, and the Navajo Nation Pesticide Act |   |
| NDT                                            | Nuclear      Decommissioning Trusts for PVNGS                                                                                                    |   |
| Ninth      Circuit                             | United      States Court of Appeals for the Ninth Circuit                                                                                        |   |
| NMGC                                           | New      Mexico Gas Company, Inc., a subsidiary of Continental                                                                                   |   |
| NMED                                           | New      Mexico Environment Department                                                                                                           |   |
| NMPRC                                          | New      Mexico Public Regulation Commission                                                                                                     |   |
| NOPR                                           | Notice      of Proposed Rulemaking                                                                                                               |   |
| NOX                                            | Nitrogen      Oxides                                                                                                                             |   |
| NOI                                            | Notice      of Inquiry                                                                                                                           |   |
| NRC                                            | United      States Nuclear Regulatory Commission                                                                                                 |   |
| NSPS                                           | New      Source Performance Standards                                                                                                            |   |
| NSR                                            | New      Source Review                                                                                                                           |   |
| OATT                                           | Open      Access Transmission Tariff                                                                                                             |   |

----

| O&M                                                      | Operations      and Maintenance                                                                                                                                                                                |   |
|--------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| PGAC                                                         | Purchased      Gas Adjustment Clause                                                                                                                                                                           |   |
| PG&E                                                     | Pacific      Gas and Electric Co.                                                                                                                                                                              |   |
| PNM                                                          | Public      Service Company of New Mexico and Subsidiaries                                                                                                                                                     |   |
| PNM      Facility                                            | PNM’s      $400 Million Unsecured Revolving Credit Facility                                                                                                                                              |   |
| PNMR                                                         | PNM      Resources, Inc. and Subsidiaries                                                                                                                                                                      |   |
| PNMR      Facility                                           | PNMR’s      $600 Million Unsecured Revolving Credit Facility                                                                                                                                             |   |
| PPA                                                          | Power      Purchase Agreement                                                                                                                                                                                  |   |
| PRP                                                          | Potential      Responsible Party                                                                                                                                                                               |   |
| PSD                                                          | Prevention      of Significant Deterioration                                                                                                                                                                   |   |
| PUCT                                                         | Public      Utility Commission of Texas                                                                                                                                                                        |   |
| PVNGS                                                        | Palo      Verde Nuclear Generating Station                                                                                                                                                                     |   |
| Pyramid                                                      | Tri-State      Pyramid Unit 4                                                                                                                                                                                  |   |
| REC                                                          | Renewable      Energy Certificates                                                                                                                                                                             |   |
| REP                                                          | Retail      Electricity Provider                                                                                                                                                                               |   |
| Reimbursement      Agreement                                 | PNM’s      $100 Million Letter of Credit Facility                                                                                                                                                        |   |
| RMC                                                          | Risk      Management Committee                                                                                                                                                                                 |   |
| SCE                                                          | Southern      Cal Edison Company                                                                                                                                                                               |   |
| SDG&E                                                    | San      Diego Gas and Electric Company                                                                                                                                                                        |   |
|             SEC                | United      States Securities and Exchange Commission                                                                                                                                                          |   |
|             SFAS               | FASB      Statement of Financial Accounting Standards                                                                                                                                                          |   |
| SJCC                                                         | San      Juan Coal Company                                                                                                                                                                                     |   |
| SJGS                                                         | San      Juan Generating Station                                                                                                                                                                               |   |
| SOAH                                                         | State      Office of Administrative Hearings                                                                                                                                                                   |   |
| SO2                                                          | Sulfur      Dioxide                                                                                                                                                                                            |   |
| SPS                                                          | Southwestern      Public Service Company                                                                                                                                                                       |   |
| SRP                                                          | Salt      River Project                                                                                                                                                                                        |   |
| S&P                                                      | Standard      and Poors Ratings Services                                                                                                                                                                       |   |
| TECA                                                         | Texas      Electric Choice Act                                                                                                                                                                                 |   |
| Term Loan      Agreement                                     | PNM’s      $300 Million Unsecured Delayed Draw Term Loan Facility                                                                                                                                        |   |
| TNMP                                                         | Texas-New      Mexico Power Company and Subsidiaries                                                                                                                                                           |   |
| TNMP      Bridge Facility                                    | TNMP’s      $100 Million Bridge Term Loan Credit Agreement                                                                                                                                               |   |
| TNMP      Facility                                           | TNMP’s      $200 Million Unsecured Revolving Credit Facility                                                                                                                                             |   |
| TNP                                                          | TNP      Enterprises, Inc. and Subsidiaries                                                                                                                                                                    |   |
| Tri-State                                                    | Tri-State      Generation and Transmission Association, Inc.                                                                                                                                                   |   |
| Twin      Oaks                                               | Assets      of Twin Oaks Power, L.P. and Twin Oaks Power III, L.P.                                                                                                                                             |   |
| Valencia                                                     | Valencia      Energy Facility                                                                                                                                                                                  |   |
| VaR                                                          | Value      at Risk                                                                                                                                                                                             |   |
| Accounting Pronouncements (as amended and      interpreted): |
| EITF      02-3                                               | EITF      Issue No. 02-3 “Issues      Involved in Accounting for Derivative Contracts Held for Trading Purposes      and Contracts Involved in Energy Trading and Risk Management      Activities” |
| FIN      46R                                                 | FIN      46R “Consolidation of      Variable Interest Entities an Interpretation of ARB No.      51”                                                                                               |
| FSP      FAS 157-3                                           | FASB      Staff Position No. FAS 157-3 “Determining the Fair Value      of a Financial Asset when the Market for that Asset is not      Active”                                                    |
| FSP      FIN 39-1                                            | FASB      Staff Position No. FIN 39-1 – “Amendment of FASB      Interpretation No. 39”                                                                                                       |
| SFAS      5                                                  | SFAS      No. 5 “Accounting for      Contingencies”                                                                                                                                                |
| SFAS      57                                                 | SFAS      No. 57 “Related Party      Disclosures”                                                                                                                                                  |
| SFAS      112                                                | SFAS      No. 112 “Employers’      Accounting for Postemployment Benefits – an amendment of FASB Statements      No. 5 and 43”                                                         |
| SFAS      115                                                | SFAS      No. 115 “Accounting for      Certain Investments in Debt and Equity  Securities”                                                                                                         |
| SFAS      128                                                | SFAS      No. 128 “Earnings per      Share”                                                                                                                                                        |
| SFAS      133                                                | SFAS      No. 133 “Accounting for      Derivative Instruments and Hedging Activities”                                                                                                              |
| SFAS      141                                                | SFAS      No. 141 “Business      Combinations”                                                                                                                                                     |
| SFAS      142                                                | SFAS      No. 142 “Goodwill and      Other Intangible Assets”                                                                                                                                      |
| SFAS      144                                                | SFAS      No. 144 “Accounting for      the Impairment or Disposal of Long-Lived Assets”                                                                                                            |
| SFAS      157                                                | SFAS      No. 157 “Fair Value      Measurements”                                                                                                                                                   |
| SFAS      159                                                | SFAS      No. 159 “The Fair Value      Option for Financial Assets and Financial Liabilities—Including an      amendment of FASB Statement No. 115”                                          |
| SFAS      161                                                | SFAS      No. 161 “Disclosure      about Derivative Instruments and Hedging Activities – an Amendment of FASB      Statement No. 133”                                                        |
| SFAS      162                                                | SFAS      No. 162 “The Hierarchy      of Generally Accepted Accounting Principles”                                                                                             |

----

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS(LOSS)

|                                                              |   | Three      Months Ended                       |    |   | Nine      Months Ended |   |
|-------------------------------------------------------------------|--------|-----------------------------------------------|---------|--------|------------------------|--------|
|                                                              |   | September      30,                            |    |   | September      30,     |   |
|                                                              |   | 2008                                          |    |   | 2007                   |   |   | 2008 |   |   | 2007 |   |
|                                                              |   | (In thousands, except per share      amounts) |    |
|                                                              |   |                                          |    |   |                   |   |   |   |   |   |   |   |
| Operating      Revenues:                                          |   |                                          |    |   |                   |   |   |   |   |   |   |   |
| Electric                                                          |   | $                                             | 607,023 |   |                   | $      | 569,575 |   |   | $ | 1,551,668 |   |   | $ | 1,511,814 |   |
| Other                                                             |   |                                          | 53      |   |                   |   | 334 |   |   |   | 221 |   |   |   | 708 |   |
| Total      operating revenues                                     |   |                                          | 607,076 |   |                   |   | 569,909 |   |   |   | 1,551,889 |   |   |   | 1,512,522 |   |
|                                                              |   |                                          |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      Expenses:                                          |   |                                          |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of energy                                               |   |                                          | 393,623 |   |                   |   | 375,006 |   |   |   | 1,026,702 |   |   |   | 903,283 |   |
| Administrative      and general                                   |   |                                          | 60,999  |   |                   |   | 56,507 |   |   |   | 167,753 |   |   |   | 165,434 |   |
| Energy      production costs                                      |   |                                          | 46,471  |   |                   |   | 57,223 |   |   |   | 143,231 |   |   |   | 156,279 |   |
| Impairment      of goodwill and other intangible assets           |   |                                          | 7,906   |   |                   |   | - |   |   |   | 144,085 |   |   |   | - |   |
| Regulatory      disallowances                                     |   |                                          | -       |   |                   |   | - |   |   |   | 30,248 |   |   |   | - |   |
| Depreciation      and amortization                                |   |                                          | 36,752  |   |                   |   | 31,441 |   |   |   | 105,438 |   |   |   | 100,504 |   |
| Transmission      and distribution costs                          |   |                                          | 14,981  |   |                   |   | 14,347 |   |   |   | 43,467 |   |   |   | 43,955 |   |
| Taxes      other than income taxes                                |   |                                          | 12,680  |   |                   |   | 12,153 |   |   |   | 39,032 |   |   |   | 45,484 |   |
| Total      operating expenses                                     |   |                                          | 573,412 |   |                   |   | 546,677 |   |   |   | 1,699,956 |   |   |   | 1,414,939 |   |
| Operating      income (loss)                                      |   |                                          | 33,664  |   |                   |   | 23,232 |   |   |   | (148,067 | ) |   |   | 97,583 |   |
|                                                              |   |                                          |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Other      Income and Deductions:                                 |   |                                          |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      income                                              |   |                                          | 7,248   |   |                   |   | 10,144 |   |   |   | 17,190 |   |   |   | 27,519 |   |
| Gains      (losses) on investments held by NDT                    |   |                                          | (5,697  | )      |                   |   | 3,897 |   |   |   | (10,079 | ) |   |   | 6,898 |   |
| Other      income                                                 |   |                                          | 2,834   |   |                   |   | 1,574 |   |   |   | 4,950 |   |   |   | 5,294 |   |
| Equity      in net earnings (loss) of EnergyCo                    |   |                                          | (1,485  | )      |                   |   | 10,556 |   |   |   | (29,091 | ) |   |   | 12,166 |   |
| Minority      interest in earnings of Valencia                    |   |                                          | (3,451  | )      |                   |   | - |   |   |   | (4,452 | ) |   |   | - |   |
| Other      deductions                                             |   |                                          | (1,785  | )      |                   |   | (2,037 | ) |   |   | (8,866 | ) |   |   | (8,517 | ) |
| Net      other income and deductions                              |   |                                          | (2,336  | )      |                   |   | 24,134 |   |   |   | (30,348 | ) |   |   | 43,360 |   |
|                                                              |   |                                          |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      Charges:                                            |   |                                          |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      on long-term debt                                   |   |                                          | 29,518  |   |                   |   | 21,298 |   |   |   | 72,622 |   |   |   | 58,197 |   |
| Other      interest charges                                       |   |                                          | 9,634   |   |                   |   | 10,088 |   |   |   | 26,384 |   |   |   | 35,084 |   |
| Total      interest charges                                       |   |                                          | 39,152  |   |                   |   | 31,386 |   |   |   | 99,006 |   |   |   | 93,281 |   |
|                                                              |   |                                          |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      (Loss) before Income Taxes                          |   |                                          | (7,824  | )      |                   |   | 15,980 |   |   |   | (277,421 | ) |   |   | 47,662 |   |
|                                                              |   |                                          |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Income      Taxes (Benefit)                                       |   |                                          | (3,109  | )      |                   |   | 4,212 |   |   |   | (55,587 | ) |   |   | (1,340 | ) |
|                                                              |   |                                          |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred      Stock Dividend Requirements of Subsidiary          |   |                                          | 132     |   |                   |   | 132 |   |   |   | 396 |   |   |   | 396 |   |
|                                                              |   |                                          |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      (Loss) from Continuing Operations                   |   |                                          | (4,847  | )      |                   |   | 11,636 |   |   |   | (222,230 | ) |   |   | 48,606 |   |
|                                                              |   |                                          |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      (Loss) from Discontinued Operations, net of Income  |   |                                          |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Taxes      (Benefit) of $820, $(2,139), $16,299 and $6,337        |   |                                          | (638    | )      |                   |   | (3,264 | ) |   |   | 24,622 |   |   |   | 9,671 |   |
|                                                              |   |                                          |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Net      Earnings (Loss)                                          |   | $                                             | (5,485  | )      |                   | $      | 8,372 |   |   | $ | (197,608 | ) |   | $ | 58,277 |   |
|                                                              |   |                                          |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      (Loss) from Continuing Operations per Common Share: |   |                                          |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                             |   | $                                             | (0.06   | )      |                   | $      | 0.15 |   |   | $ | (2.72 | ) |   | $ | 0.63 |   |
| Diluted                                                           |   | $                                             | (0.06   | )      |                   | $      | 0.15 |   |   | $ | (2.72 | ) |   | $ | 0.62 |   |
| Net      Earnings (Loss) per Common Share:                        |   |                                          |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                             |   | $                                             | (0.06   | )      |                   | $      | 0.11 |   |   | $ | (2.42 | ) |   | $ | 0.76 |   |
| Diluted                                                           |   | $                                             | (0.06   | )      |                   | $      | 0.11 |   |   | $ | (2.42 | ) |   | $ | 0.75 |   |
|                                                              |   |                                          |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Dividends      Declared per Common Share                          |   | $                                             | 0.125   |   |                   | $      | 0.230 |   |   | $ | 0.480 |   |   | $ | 0.690 |   |

----

CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                                             |   | September      30,  |      |   | December      31, |   |
|--------------------------------------------------------------------------------------------------|--------|---------------------|-----------|--------|-------------------|--------|
|                                                                                             |   | 2008                |      |   | 2007              |   |
|                                                                                             |   | (In      thousands) |      |
| ASSETS                                                                                           |   |                |      |   |              |   |
| Current      Assets:                                                                             |   |                |      |   |              |   |
| Cash      and cash equivalents                                                                   |   | $                   | 267,116   |   |              | $      | 17,763 |   |
| Special      deposits                                                                            |   |                | 3,275     |   |              |   | 1,717 |   |
| Accounts      receivable, net of allowance for uncollectible accounts of $11,671 and      $6,021 |   |                | 172,700   |   |              |   | 134,325 |   |
| Unbilled      revenues                                                                           |   |                | 79,527    |   |              |   | 74,896 |   |
| Other      receivables                                                                           |   |                | 61,488    |   |              |   | 90,002 |   |
| Materials,      supplies, and fuel stock                                                         |   |                | 45,822    |   |              |   | 41,312 |   |
| Regulatory      assets                                                                           |   |                | 1,932     |   |              |   | 157 |   |
| Derivative      instruments                                                                      |   |                | 84,406    |   |              |   | 49,257 |   |
| Income      taxes receivable                                                                     |   |                | 46,803    |   |              |   | 39,189 |   |
| Current      assets of discontinued operations                                                   |   |                | 73,454    |   |              |   | 120,061 |   |
| Other      current assets                                                                        |   |                | 82,566    |   |              |   | 37,198 |   |
|                                                                                             |   |                |      |   |              |   |   |   |
| Total      current assets                                                                        |   |                | 919,089   |   |              |   | 605,877 |   |
|                                                                                             |   |                |      |   |              |   |   |   |
| Other      Property and Investments:                                                             |   |                |      |   |              |   |   |   |
| Investment      in PVNGS lessor notes                                                            |   |                | 169,071   |   |              |   | 192,226 |   |
| Equity      investment in EnergyCo                                                               |   |                | 227,740   |   |              |   | 248,094 |   |
| Investments      held by NDT                                                                     |   |                | 120,424   |   |              |   | 139,642 |   |
| Other      investments                                                                           |   |                | 35,972    |   |              |   | 47,749 |   |
| Non-utility      property, net of accumulated depreciation of $2,228 and    $1,570               |   |                | 9,490     |   |              |   | 6,968 |   |
|                                                                                             |   |                |      |   |              |   |   |   |
| Total      other property and investments                                                        |   |                | 562,697   |   |              |   | 634,679 |   |
|                                                                                             |   |                |      |   |              |   |   |   |
| Utility      Plant:                                                                              |   |                |      |   |              |   |   |   |
| Electric      plant in service                                                                   |   |                | 4,246,815 |   |              |   | 3,920,071 |   |
| Common      plant in service and plant held for future use                                       |   |                | 146,182   |   |              |   | 128,119 |   |
|                                                                                             |   |                | 4,392,997 |   |              |   | 4,048,190 |   |
| Less      accumulated depreciation and amortization                                              |   |                | 1,523,871 |   |              |   | 1,464,625 |   |
|                                                                                             |   |                | 2,869,126 |   |              |   | 2,583,565 |   |
| Construction      work in progress                                                               |   |                | 202,200   |   |              |   | 299,574 |   |
| Nuclear      fuel, net of accumulated amortization of $18,669 and    $15,395                     |   |                | 61,068    |   |              |   | 52,246 |   |
|                                                                                             |   |                |      |   |              |   |   |   |
| Net      utility plant                                                                           |   |                | 3,132,394 |   |              |   | 2,935,385 |   |
|                                                                                             |   |                |      |   |              |   |   |   |
| Deferred      Charges and Other Assets:                                                          |   |                |      |   |              |   |   |   |
| Regulatory      assets                                                                           |   |                | 435,722   |   |              |   | 481,872 |   |
| Pension      asset                                                                               |   |                | 24,059    |   |              |   | 17,778 |   |
| Goodwill                                                                                         |   |                | 360,607   |   |              |   | 495,664 |   |
| Other      intangible assets, net of accumulated amortization of $4,344 and      $3,362          |   |                | 65,882    |   |              |   | 75,892 |   |
| Derivative      instruments                                                                      |   |                | 23,331    |   |              |   | 45,694 |   |
| Non-current      assets of discontinued operations                                               |   |                | 552,510   |   |              |   | 526,539 |   |
| Other      deferred charges                                                                      |   |                | 89,363    |   |              |   | 52,756 |   |
|                                                                                             |   |                |      |   |              |   |   |   |
| Total      deferred charges and other assets                                                     |   |                | 1,551,474 |   |              |   | 1,696,195 |   |
|                                                                                             |   | $                   | 6,165,654 |   |              | $      | 5,872,136 |   |

----

|                                                                                                  |   | September      30,                            |      |   | December      31, |   |
|-------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|-----------|--------|-------------------|--------|
|                                                                                                  |   | 2008                                          |      |   | 2007              |   |
|                                                                                                  |   | (In      thousands, except share information) |      |
| LIABILITIES      AND STOCKHOLDERS’ EQUITY                                                       |   |                                          |      |   |              |   |
| Current      Liabilities:                                                                             |   |                                          |      |   |              |   |
| Short-term      debt                                                                                  |   | $                                             | 778,667   |   |              | $      | 665,900 |   |
| Current      installments of long-term debt                                                           |   |                                          | 205,561   |   |              |   | 449,219 |   |
| Accounts      payable                                                                                 |   |                                          | 210,540   |   |              |   | 148,955 |   |
| Accrued      interest and taxes                                                                       |   |                                          | 67,489    |   |              |   | 57,766 |   |
| Derivative      instruments                                                                           |   |                                          | 88,174    |   |              |   | 53,832 |   |
| Current      liabilities of discontinued operations                                                   |   |                                          | 45,982    |   |              |   | 96,003 |   |
| Other      current liabilities                                                                        |   |                                          | 127,053   |   |              |   | 112,394 |   |
|                                                                                                  |   |                                          |      |   |              |   |   |   |
| Total      current liabilities                                                                        |   |                                          | 1,523,466 |   |              |   | 1,584,069 |   |
|                                                                                                  |   |                                          |      |   |              |   |   |   |
| Long-term      Debt                                                                                   |   |                                          | 1,481,011 |   |              |   | 1,231,859 |   |
|                                                                                                  |   |                                          |      |   |              |   |   |   |
| Deferred      Credits and Other Liabilities:                                                          |   |                                          |      |   |              |   |   |   |
| Accumulated      deferred income taxes                                                                |   |                                          | 592,893   |   |              |   | 600,187 |   |
| Accumulated      deferred investment tax credits                                                      |   |                                          | 24,582    |   |              |   | 26,825 |   |
| Regulatory      liabilities                                                                           |   |                                          | 339,468   |   |              |   | 332,372 |   |
| Asset      retirement obligations                                                                     |   |                                          | 62,218    |   |              |   | 66,466 |   |
| Accrued      pension liability and postretirement benefit cost                                        |   |                                          | 56,561    |   |              |   | 60,022 |   |
| Derivative      instruments                                                                           |   |                                          | 6,609     |   |              |   | 55,206 |   |
| Minority      interest in Valencia                                                                    |   |                                          | 95,949    |   |              |   | - |   |
| Non-current      liabilities of discontinued operations                                               |   |                                          | 90,077    |   |              |   | 89,848 |   |
| Other      deferred credits                                                                           |   |                                          | 156,479   |   |              |   | 121,342 |   |
|                                                                                                  |   |                                          |      |   |              |   |   |   |
| Total      deferred credits and other liabilities                                                     |   |                                          | 1,424,836 |   |              |   | 1,352,268 |   |
|                                                                                                  |   |                                          |      |   |              |   |   |   |
| Total      liabilities                                                                                |   |                                          | 4,429,313 |   |              |   | 4,168,196 |   |
|                                                                                                  |   |                                          |      |   |              |   |   |   |
| Commitments      and Contingencies (See Note 9)                                                       |   |                                          |      |   |              |   |   |   |
|                                                                                                  |   |                                          |      |   |              |   |   |   |
| Cumulative      Preferred Stock of Subsidiary                                                         |   |                                          |      |   |              |   |   |   |
| without      mandatory redemption requirements ($100 stated value, 10,000,000 shares      authorized: |   |                                          |      |   |              |   |   |   |
| issued      and outstanding 115,293 shares)                                                           |   |                                          | 11,529    |   |              |   | 11,529 |   |
|                                                                                                  |   |                                          |      |   |              |   |   |   |
| Common      Stockholders’ Equity:                                                               |   |                                          |      |   |              |   |   |   |
| Common      stock outstanding (no par value, 120,000,000 shares authorized:      issued               |   |                                          |      |   |              |   |   |   |
| and      outstanding 86,454,111 and 76,814,491 shares)                                                |   |                                          | 1,287,555 |   |              |   | 1,042,974 |   |
| Accumulated      other comprehensive income, net of income taxes                                      |   |                                          | 25,514    |   |              |   | 11,208 |   |
| Retained      earnings                                                                                |   |                                          | 411,743   |   |              |   | 638,229 |   |
|                                                                                                  |   |                                          |      |   |              |   |   |   |
| Total      common stockholders’ equity                                                          |   |                                          | 1,724,812 |   |              |   | 1,692,411 |   |
|                                                                                                  |   |                                          |      |   |              |   |   |   |
|                                                                                                  |   | $                                             | 6,165,654 |   |              | $      | 5,872,136 |   |

----

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                                |   | Nine      Months Ended September 30, |     |
|-----------------------------------------------------------------------------------------------------|--------|--------------------------------------|----------|
|                                                                                                |   | 2008                                 |     |   | 2007 |   |
|                                                                                                |   | (In      thousands)                  |     |
| Cash      Flows From Operating Activities:                                                          |   |                                 |     |   |   |   |
| Net      earnings (loss)                                                                            |   | $                                    | (197,608 | ) |   | $ | 58,277 |   |
| Adjustments      to reconcile net earnings (loss) to net cash flows from operating      activities: |   |                                 |     |   |   |   |   |   |
| Depreciation      and amortization                                                                  |   |                                 | 116,797  |   |   |   | 141,220 |   |
| Amortization      of prepayments on PVNGS firm-sales contracts                                      |   |                                 | (10,313  | ) |   |   | - |   |
| Deferred      income tax expense (benefit)                                                          |   |                                 | (26,056  | ) |   |   | 4,769 |   |
| Equity      in net (earnings) loss of EnergyCo                                                      |   |                                 | 29,091   |   |   |   | (12,166 | ) |
| Minority      interest in earnings of Valencia                                                      |   |                                 | 4,452    |   |   |   | - |   |
| Net      unrealized losses on derivatives                                                           |   |                                 | 14,222   |   |   |   | 15,618 |   |
| Realized      (gains) losses on investments held by NDT                                             |   |                                 | 10,079   |   |   |   | (6,898 | ) |
| Realized      loss on Altura contribution                                                           |   |                                 | -        |   |   |   | 3,637 |   |
| Impairment      of goodwill and other intangible assets                                             |   |                                 | 144,085  |   |   |   | 3,380 |   |
| Impairment      loss on utility plant                                                               |   |                                 | -        |   |   |   | 19,500 |   |
| Amortization      of fair value of acquired Twin Oaks sales contract                                |   |                                 | -        |   |   |   | (35,073 | ) |
| Stock      based compensation expense                                                               |   |                                 | 2,810    |   |   |   | 6,115 |   |
| Regulatory      disallowances                                                                       |   |                                 | 30,248   |   |   |   | - |   |
| Other,      net                                                                                     |   |                                 | 1,168    |   |   |   | (4,991 | ) |
| Changes      in certain assets and liabilities:                                                     |   |                                 |     |   |   |   |   |   |
| Accounts      receivable and unbilled revenues                                                      |   |                                 | 1,695    |   |   |   | 1,528 |   |
| Materials,      supplies, fuel stock, and natural gas stored                                        |   |                                 | (9,486   | ) |   |   | (3,972 | ) |
| Other      current assets                                                                           |   |                                 | (31,300  | ) |   |   | 19,129 |   |
| Other      assets                                                                                   |   |                                 | (29,440  | ) |   |   | (821 | ) |
| Accounts      payable                                                                               |   |                                 | 1,624    |   |   |   | (40,340 | ) |
| Accrued      interest and taxes                                                                     |   |                                 | 2,016    |   |   |   | (8,520 | ) |
| Other      current liabilities                                                                      |   |                                 | 10,750   |   |   |   | (8,331 | ) |
| Other      liabilities                                                                              |   |                                 | (783     | ) |   |   | (25,085 | ) |
| Net      cash flows from operating activities                                                       |   |                                 | 64,051   |   |   |   | 126,976 |   |
|                                                                                                |   |                                 |     |   |   |   |   |   |
| Cash      Flows From Investing Activities:                                                          |   |                                 |     |   |   |   |   |   |
| Utility      plant additions                                                                        |   |                                 | (235,672 | ) |   |   | (336,597 | ) |
| Proceeds      from sales of investments held by NDT                                                 |   |                                 | 105,055  |   |   |   | 99,525 |   |
| Purchases      of investments held by NDT                                                           |   |                                 | (106,437 | ) |   |   | (104,455 | ) |
| Proceeds      from sales of utility plant                                                           |   |                                 | 1,390    |   |   |   | 25,041 |   |
| Return      of principal on PVNGS lessor notes                                                      |   |                                 | 22,164   |   |   |   | 24,296 |   |
| Change      in restricted special deposits                                                          |   |                                 | 6,581    |   |   |   | (10,203 | ) |
| Investments      in EnergyCo                                                                        |   |                                 | -        |   |   |   | (45,040 | ) |
| Distributions      from EnergyCo                                                                    |   |                                 | -        |   |   |   | 362,275 |   |
| Other,      net                                                                                     |   |                                 | (2,985   | ) |   |   | 4,443 |   |
| Net      cash flows from investing activities                                                       |   |                                 | (209,904 | ) |   |   | 19,285 |   |

----

|                                                                                                                                                                                                                                                                                                              |   | Nine      Months Ended September 30, |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|
|                                                                                                                                                                                                                                                                                                              |   | 2008                                 |   |   | 2007 |
|                                                                                                                                                                                                                                                                                                              |   | (In      thousands)                  |
| Cash      Flows From Financing Activities:                                                                                                                                                                                                                                                                        |   |                                 |   |   |   |
| Short-term      borrowings (repayments), net                                                                                                                                                                                                                                                                      |   |                                 | 112,767 |   |   |   | (115,661 | ) |   |
| Long-term      borrowings                                                                                                                                                                                                                                                                                         |   |                                 | 452,750 |   |   |   | 20,000 |   |   |
| Redemption      of long-term debt                                                                                                                                                                                                                                                                                 |   |                                 | (448,935 | ) |   |   | (100,500 | ) |   |
| Issuance      of common stock                                                                                                                                                                                                                                                                                     |   |                                 | 250,231 |   |   |   | 3,309 |   |   |
| Proceeds      from stock option exercise                                                                                                                                                                                                                                                                          |   |                                 | 86 |   |   |   | 10,935 |   |   |
| Purchase      of common stock to satisfy stock awards                                                                                                                                                                                                                                                             |   |                                 | (1,355 | ) |   |   | (18,078 | ) |   |
| Excess      tax benefits (tax shortfall) from stock-based payment      arrangements                                                                                                                                                                                                                               |   |                                 | (618 | ) |   |   | 9 |   |   |
| Dividends      paid                                                                                                                                                                                                                                                                                               |   |                                 | (46,558 | ) |   |   | (52,545 | ) |   |
| Payments      received on PVNGS firm-sales contracts                                                                                                                                                                                                                                                              |   |                                 | 80,858 |   |   |   | - |   |   |
| Other,      net                                                                                                                                                                                                                                                                                                   |   |                                 | (4,022 | ) |   |   | (410 | ) |   |
| Net      cash flows from financing activities                                                                                                                                                                                                                                                                     |   |                                 | 395,204 |   |   |   | (252,941 | ) |   |
|                                                                                                                                                                                                                                                                                                              |   |                                 |   |   |   |   |   |   |   |
| Change      in Cash and Cash Equivalents                                                                                                                                                                                                                                                                          |   |                                 | 249,351 |   |   |   | (106,680 | ) |   |
| Cash      and Cash Equivalents at Beginning of Period                                                                                                                                                                                                                                                             |   |                                 | 17,791 |   |   |   | 123,419 |   |   |
| Cash      and Cash Equivalents at End of Period                                                                                                                                                                                                                                                                   |   | $                                    | 267,142 |   |   | $ | 16,739 |   |   |
|                                                                                                                                                                                                                                                                                                              |   |                                 |   |   |   |   |   |   |   |
| Supplemental      Cash Flow Disclosures:                                                                                                                                                                                                                                                                          |   |                                 |   |   |   |   |   |   |   |
| Interest      paid, net of capitalized interest                                                                                                                                                                                                                                                                   |   | $                                    | 91,715 |   |   | $ | 90,799 |   |   |
| Income      taxes paid (refunded), net                                                                                                                                                                                                                                                                            |   | $                                    | (1,702 | ) |   | $ | 2,904 |   |   |
|                                                                                                                                                                                                                                                                                                              |   |                                 |   |   |   |   |   |   |   |
| Supplemental      schedule of noncash investing and financing activities:                                                                                                                                                                                                                                         |   |                                 |   |   |   |   |   |   |   |
| As      of June 1, 2007, PNMR contributed its ownership of Altura to EnergyCo at a      fair value of $549.6 million after an adjustment for working capital      changes. In conjunction with the contribution, PNMR removed Altura’s      assets and liabilities from its balance sheet as  follows: |
| Current      assets                                                                                                                                                                                                                                                                                               |   | $                                    | 22,529 |   |   |   |   |   |   |
| Utility      plant, net                                                                                                                                                                                                                                                                                           |   |                                 | 575,906 |   |   |   |   |   |   |
| Deferred      charges                                                                                                                                                                                                                                                                                             |   |                                 | 46,018 |   |   |   |   |   |   |
| Total      assets contributed                                                                                                                                                                                                                                                                                     |   |                                 | 644,453 |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                              |   |                                 |   |   |   |   |   |   |   |
| Current      liabilities                                                                                                                                                                                                                                                                                          |   |                                 | 63,268 |   |   |   |   |   |   |
| Deferred      credits and other liabilities                                                                                                                                                                                                                                                                       |   |                                 | 38,095 |   |   |   |   |   |   |
| Total      liabilities contributed                                                                                                                                                                                                                                                                                |   |                                 | 101,363 |   |   |   |   |   |   |
| Other      comprehensive income                                                                                                                                                                                                                                                                                   |   |                                 | (12,651 | ) |   |   |   |   |   |
| Total      liabilities and OCI contributed                                                                                                                                                                                                                                                                        |   |                                 | 88,712 |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                              |   |                                 |   |   |   |   |   |   |   |
| Net      contribution to EnergyCo                                                                                                                                                                                                                                                                                 |   | $                                    | 555,741 |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                              |   |                                 |   |   |   |   |   |   |   |
| Utility      plant purchased in 2007 through assumption of long-term debt that offsets      a portion of investment in PVNGS lessor notes and is eliminated in      consolidation.                                                                                                                                |
|                                                                                                                                                                                                                                                                                                              |   | $                                    | 41,152 |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                              |   |                                 |   |   |   |   |   |   |   |
| Activities      related to the consolidation of Valencia (see Note 16):                                                                                                                                                                                                                                           |   |                                 |   |   |   |   |   |   |   |

| Initial      consolidation at May 30, 2008:              |   |                            |
|----------------------------------------------------------|--------|---------------------------------|
| Utility      plant additions                             |   | $    87,310 |
| Increase      in short-term borrowings                   |   | $    82,468 |
|                                                     |   |                            |
| Minority      interest transactions as of July 10, 2008: |   |                            |
| Reduction      in short-term borrowings                  |   | $   88,059       |
| Increase      in minority interest in Valencia           |   | $   90,148       |

----

|                                                          |   |              |       |   | Accumulated                 |   |      |          |   |   |              |   |
|---------------------------------------------------------------|--------|-------------------|------------|--------|-----------------------------|--------|-----------|---------------|--------|--------|-------------------|--------|
|                                                          |   | Common      Stock |       |   | Other                       |   |      |          |   |   | Total      Common |   |
|                                                          |   | Number      of    |       |   | Aggregate                   |   |      | Comprehensive |   |   | Retained          |   |   | Stockholders’ |   |
|                                                          |   | Shares            |       |   | Value                       |   |      | Income        |   |   | Earnings          |   |   | Equity |   |
|                                                          |   |              |       |   | (Dollars      in thousands) |   |
|                                                          |   |              |       |   |                        |   |      |          |   |   |              |   |   |   |   |
| Balance      at December 31, 2007                             |   |              | 76,814,491 |   |                        | $      | 1,042,974 |          |   | $      | 11,208            |   |   | $ | 638,229 |   |   | $ | 1,692,411 |   |
| Adoption      of SFAS 157                                     |   |              | -          |   |                        |   | -         |          |   |   | -                 |   |   |   | 10,422 |   |   |   | 10,422 |   |
| Exercise      of stock options                                |   |              | -          |   |                        |   | (1,241    | )             |   |   | -                 |   |   |   | - |   |   |   | (1,241 | ) |
| Tax      shortfall from stock-based compensation arrangements |   |              | -          |   |                        |   | (618      | )             |   |   | -                 |   |   |   | - |   |   |   | (618 | ) |
| Stock      based compensation expense                         |   |              | -          |   |                        |   | 2,810     |          |   |   | -                 |   |   |   | - |   |   |   | 2,810 |   |
| Sale      of common stock                                     |   |              | 9,568,786  |   |                        |   | 242,856   |          |   |   | -                 |   |   |   | - |   |   |   | 242,856 |   |
| Common      stock issued to ESPP                              |   |              | 70,834     |   |                        |   | 774       |          |   |   | -                 |   |   |   | - |   |   |   | 774 |   |
| Net      earnings (loss)                                      |   |              | -          |   |                        |   | -         |          |   |   | -                 |   |   |   | (197,608 | ) |   |   | (197,608 | ) |
| Total      other comprehensive income                         |   |              | -          |   |                        |   | -         |          |   |   | 14,306            |   |   |   | - |   |   |   | 14,306 |   |
| Dividends      declared on common stock                       |   |              | -          |   |                        |   | -         |          |   |   | -                 |   |   |   | (39,300 | ) |   |   | (39,300 | ) |
| Balance      at September 30, 2008                            |   |              | 86,454,111 |   |                        | $      | 1,287,555 |          |   | $      | 25,514            |   |   | $ | 411,743 |   |   | $ | 1,724,812 |   |

----

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(LOSS)

|                                                            |   | Three      Months Ended September 30, |   |   | Nine      Months Ended September 30, |   |
|-----------------------------------------------------------------|--------|---------------------------------------|--------|--------|--------------------------------------|--------|
|                                                            |   | 2008                                  |   |   | 2007                                 |   |   | 2008 |   |   | 2007 |   |
|                                                            |   | (In      thousands)                   |   |
| Net      Earnings (Loss)                                        |   | $                                     | (5,485 | )      |                                 | $      | 8,372 |   |   | $ | (197,608 | ) |   | $ | 58,277 |   |
|                                                            |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Other      Comprehensive Income (Loss):                         |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
|                                                            |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized Gain (Loss) on      Investment Securities:           |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized      holding gains (losses) arising during           |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| the      period, net of income tax (expense) benefit            |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| of      $1,196, $(1,549), $1,608, and $(4,070)                  |   |                                  | (1,825 | )      |                                 |   | 2,364 |   |   |   | (2,454 | ) |   |   | 6,210 |   |
| Reclassification      adjustment for (gains) included in        |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| net      earnings (loss), net of income tax expense             |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| of      $1,051, $2,401, $2,777, and $2,493                      |   |                                  | (1,603 | )      |                                 |   | (3,664 | ) |   |   | (4,237 | ) |   |   | (3,804 | ) |
|                                                            |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Fair      Value Adjustment for Designated Cash Flow Hedges:     |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Change      in fair market value, net of income tax (expense)   |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| benefit      of $(34,281), $(4,887), $(13,423), and $6,079      |   |                                  | 51,583 |   |                                 |   | 7,414 |   |   |   | 21,153 |   |   |   | (9,333 | ) |
| Reclassification      adjustment for (gains) losses included in |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| net      earnings (loss), net of income tax expense (benefit)   |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| of      $(1,986) $482, $(583), and $(653)                       |   |                                  | 1,946  |   |                                 |   | (638 | ) |   |   | (156 | ) |   |   | 1,093 |   |
|                                                            |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Total      Other Comprehensive Income (Loss)                    |   |                                  | 50,101 |   |                                 |   | 5,476 |   |   |   | 14,306 |   |   |   | (5,834 | ) |
|                                                            |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive      Income (Loss)                                |   | $                                     | 44,616 |   |                                 | $      | 13,848 |   |   | $ | (183,302 | ) |   | $ | 52,443 |   |

----

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS(LOSS)

|                                                             |   | Three      Months Ended September 30, |    |   | Nine      Months Ended September 30, |   |
|------------------------------------------------------------------|--------|---------------------------------------|---------|--------|--------------------------------------|--------|
|                                                             |   | 2008                                  |    |   | 2007                                 |   |   | 2008 |   |   | 2007 |   |
|                                                             |   | (In      thousands)                   |    |
|                                                             |   |                                  |    |   |                                 |   |   |   |   |   |   |   |
| Electric      Operating Revenues                                 |   | $                                     | 356,397 |   |                                 | $      | 360,455 |   |   | $ | 995,119 |   |   | $ | 901,137 |   |
|                                                             |   |                                  |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Operating      Expenses:                                         |   |                                  |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of energy                                              |   |                                  | 194,478 |   |                                 |   | 229,248 |   |   |   | 577,762 |   |   |   | 517,767 |   |
| Administrative      and general                                  |   |                                  | 27,900  |   |                                 |   | 34,138 |   |   |   | 86,134 |   |   |   | 94,767 |   |
| Energy      production costs                                     |   |                                  | 48,808  |   |                                 |   | 59,558 |   |   |   | 150,365 |   |   |   | 142,693 |   |
| Impairment      of goodwill                                      |   |                                  | -       |   |                                 |   | - |   |   |   | 51,143 |   |   |   | - |   |
| Regulatory      disallowances                                    |   |                                  | -       |   |                                 |   | - |   |   |   | 30,248 |   |   |   | - |   |
| Depreciation      and amortization                               |   |                                  | 21,666  |   |                                 |   | 20,731 |   |   |   | 63,532 |   |   |   | 62,215 |   |
| Transmission      and distribution costs                         |   |                                  | 9,743   |   |                                 |   | 9,877 |   |   |   | 28,247 |   |   |   | 29,609 |   |
| Taxes      other than income taxes                               |   |                                  | 6,417   |   |                                 |   | 6,602 |   |   |   | 20,522 |   |   |   | 21,016 |   |
|         Total operating expenses                       |   |                                  | 309,012 |   |                                 |   | 360,154 |   |   |   | 1,007,953 |   |   |   | 868,067 |   |
|         Operating income (loss)                        |   |                                  | 47,385  |   |                                 |   | 301 |   |   |   | (12,834 | ) |   |   | 33,070 |   |
|                                                             |   |                                  |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Other      Income and Deductions:                                |   |                                  |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Interest      income                                             |   |                                  | 7,227   |   |                                 |   | 10,477 |   |   |   | 18,197 |   |   |   | 25,375 |   |
| Gains      (losses) on investments held by NDT                   |   |                                  | (5,697  | )      |                                 |   | 3,897 |   |   |   | (10,079 | ) |   |   | 6,898 |   |
| Other      income                                                |   |                                  | 912     |   |                                 |   | 1,081 |   |   |   | 2,068 |   |   |   | 3,101 |   |
| Minority      interest in earnings of Valencia                   |   |                                  | (3,451  | )      |                                 |   | - |   |   |   | (4,452 | ) |   |   | - |   |
| Other      deductions                                            |   |                                  | (587    | )      |                                 |   | (852 | ) |   |   | (4,018 | ) |   |   | (3,331 | ) |
|         Net other income and deductions                |   |                                  | (1,596  | )      |                                 |   | 14,603 |   |   |   | 1,716 |   |   |   | 32,043 |   |
|                                                             |   |                                  |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Interest      Charges:                                           |   |                                  |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Interest      on long-term debt                                  |   |                                  | 17,628  |   |                                 |   | 9,536 |   |   |   | 42,924 |   |   |   | 28,084 |   |
| Other      interest charges                                      |   |                                  | 2,687   |   |                                 |   | 3,485 |   |   |   | 9,117 |   |   |   | 10,824 |   |
|         Total interest charges                         |   |                                  | 20,315  |   |                                 |   | 13,021 |   |   |   | 52,041 |   |   |   | 38,908 |   |
|                                                             |   |                                  |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      (Loss) before Income Taxes                         |   |                                  | 25,474  |   |                                 |   | 1,883 |   |   |   | (63,159 | ) |   |   | 26,205 |   |
|                                                             |   |                                  |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Income      Taxes (Benefit)                                      |   |                                  | 9,540   |   |                                 |   | 377 |   |   |   | (5,108 | ) |   |   | 9,565 |   |
|                                                             |   |                                  |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      (Loss) from Continuing Operations                  |   |                                  | 15,934  |   |                                 |   | 1,506 |   |   |   | (58,051 | ) |   |   | 16,640 |   |
|                                                             |   |                                  |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      (Loss) from Discontinued Operations, net of Income |   |                                  |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Taxes      (Benefit) of $820, $(2,139), $16,299 and $6,337       |   |                                  | (638    | )      |                                 |   | (3,264 | ) |   |   | 24,622 |   |   |   | 9,671 |   |
|                                                             |   |                                  |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Net      Earnings (Loss)                                         |   |                                  | 15,296  |   |                                 |   | (1,758 | ) |   |   | (33,429 | ) |   |   | 26,311 |   |
|                                                             |   |                                  |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Preferred      Stock Dividends Requirements                      |   |                                  | 132     |   |                                 |   | 132 |   |   |   | 396 |   |   |   | 396 |   |
|                                                             |   |                                  |    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Net      Earnings (Loss) Available for Common Stock              |   | $                                     | 15,164  |   |                                 | $      | (1,890 | ) |   | $ | (33,825 | ) |   | $ | 25,915 |   |

----

CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                                          |   | September      30,  |      |   | December      31, |   |
|-----------------------------------------------------------------------------------------------|--------|---------------------|-----------|--------|-------------------|--------|
|                                                                                          |   | 2008                |      |   | 2007              |   |
|                                                                                          |   | (In      thousands) |      |
| ASSETS                                                                                        |   |                |      |   |              |   |
| Current      Assets:                                                                          |   |                |      |   |              |   |
| Cash      and cash equivalents                                                                |   | $                   | 96,208    |   |              | $      | 4,303 |   |
| Special      deposits                                                                         |   |                | 3,225     |   |              |   | 1,397 |   |
| Accounts      receivable, net of allowance for uncollectible accounts of $1,368 and      $729 |   |                | 87,211    |   |              |   | 78,094 |   |
| Unbilled      revenues                                                                        |   |                | 35,316    |   |              |   | 32,039 |   |
| Other      receivables                                                                        |   |                | 54,585    |   |              |   | 79,842 |   |
| Affiliate      accounts receivable                                                            |   |                | 70        |   |              |   | 271 |   |
| Materials,      supplies, and fuel stock                                                      |   |                | 44,280    |   |              |   | 39,771 |   |
| Regulatory      assets                                                                        |   |                | 1,932     |   |              |   | 157 |   |
| Derivative      instruments                                                                   |   |                | 26,329    |   |              |   | 14,859 |   |
| Current      assets of discontinued operations                                                |   |                | 73,454    |   |              |   | 120,061 |   |
| Other      current assets                                                                     |   |                | 49,799    |   |              |   | 28,926 |   |
|                                                                                          |   |                |      |   |              |   |   |   |
|         Total current assets                                                        |   |                | 472,409   |   |              |   | 399,720 |   |
|                                                                                          |   |                |      |   |              |   |   |   |
| Other      Property and Investments:                                                          |   |                |      |   |              |   |   |   |
| Investment      in PVNGS lessor notes                                                         |   |                | 201,053   |   |              |   | 231,582 |   |
| Investments      held by NDT                                                                  |   |                | 120,424   |   |              |   | 139,642 |   |
| Other      investments                                                                        |   |                | 12,054    |   |              |   | 20,733 |   |
| Non-utility      property                                                                     |   |                | 976       |   |              |   | 976 |   |
|                                                                                          |   |                |      |   |              |   |   |   |
|         Total other property and investments                                        |   |                | 334,507   |   |              |   | 392,933 |   |
|                                                                                          |   |                |      |   |              |   |   |   |
| Utility      Plant:                                                                           |   |                |      |   |              |   |   |   |
| Electric      plant in service                                                                |   |                | 3,362,285 |   |              |   | 3,055,953 |   |
| Common      plant in service and plant held for future use                                    |   |                | 17,400    |   |              |   | 18,237 |   |
|                                                                                          |   |                | 3,379,685 |   |              |   | 3,074,190 |   |
| Less      accumulated depreciation and amortization                                           |   |                | 1,189,800 |   |              |   | 1,157,775 |   |
|                                                                                          |   |                | 2,189,885 |   |              |   | 1,916,415 |   |
| Construction      work in progress                                                            |   |                | 164,139   |   |              |   | 259,386 |   |
| Nuclear      fuel, net of accumulated amortization of $18,669 and    $15,395                  |   |                | 61,068    |   |              |   | 52,246 |   |
|                                                                                          |   |                |      |   |              |   |   |   |
|         Net utility plant                                                           |   |                | 2,415,092 |   |              |   | 2,228,047 |   |
|                                                                                          |   |                |      |   |              |   |   |   |
| Deferred      Charges and Other Assets:                                                       |   |                |      |   |              |   |   |   |
| Regulatory      assets                                                                        |   |                | 310,989   |   |              |   | 348,719 |   |
| Pension      asset                                                                            |   |                | 7,236     |   |              |   | 2,859 |   |
| Derivative      instruments                                                                   |   |                | 15,943    |   |              |   | 37,359 |   |
| Goodwill                                                                                      |   |                | 51,632    |   |              |   | 102,775 |   |
| Non-current      assets of discontinued operations                                            |   |                | 552,510   |   |              |   | 526,539 |   |
| Other      deferred charges                                                                   |   |                | 71,250    |   |              |   | 64,449 |   |
|                                                                                          |   |                |      |   |              |   |   |   |
|         Total deferred charges and other assets                                     |   |                | 1,009,560 |   |              |   | 1,082,700 |   |
|                                                                                          |   | $                   | 4,231,568 |   |              | $      | 4,103,400 |   |

----

|                                                                                           |   | September      30,                            |      |   | December      31, |   |
|------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|-----------|--------|-------------------|--------|
|                                                                                           |   | 2008                                          |      |   | 2007              |   |
|                                                                                           |   | (In      thousands, except share information) |      |
| LIABILITIES      AND STOCKHOLDER’S EQUITY                                                |   |                                          |      |   |              |   |
| Current      Liabilities:                                                                      |   |                                          |      |   |              |   |
| Short-term      debt                                                                           |   | $                                             | 340,000   |   |              | $      | 321,000 |   |
| Current      installments of long-term debt                                                    |   |                                          | 36,000    |   |              |   | 299,969 |   |
| Accounts      payable                                                                          |   |                                          | 112,932   |   |              |   | 72,864 |   |
| Affiliate      accounts payable                                                                |   |                                          | 13,606    |   |              |   | 19,948 |   |
| Accrued      interest and taxes                                                                |   |                                          | 56,760    |   |              |   | 26,385 |   |
| Derivative      instruments                                                                    |   |                                          | 13,794    |   |              |   | 17,896 |   |
| Current      liability of discontinued operations                                              |   |                                          | 45,982    |   |              |   | 96,003 |   |
| Other      current liabilities                                                                 |   |                                          | 71,392    |   |              |   | 59,468 |   |
|                                                                                           |   |                                          |      |   |              |   |   |   |
|         Total current liabilities                                                    |   |                                          | 690,466   |   |              |   | 913,533 |   |
|                                                                                           |   |                                          |      |   |              |   |   |   |
| Long-term      Debt                                                                            |   |                                          | 1,019,713 |   |              |   | 705,701 |   |
|                                                                                           |   |                                          |      |   |              |   |   |   |
| Deferred      Credits and Other Liabilities:                                                   |   |                                          |      |   |              |   |   |   |
| Accumulated      deferred income taxes                                                         |   |                                          | 421,311   |   |              |   | 409,430 |   |
| Accumulated      deferred investment tax credits                                               |   |                                          | 24,534    |   |              |   | 26,634 |   |
| Regulatory      liabilities                                                                    |   |                                          | 291,067   |   |              |   | 285,782 |   |
| Asset      retirement obligations                                                              |   |                                          | 61,437    |   |              |   | 65,725 |   |
| Accrued      pension liability and postretirement benefit cost                                 |   |                                          | 52,796    |   |              |   | 56,101 |   |
| Derivative      instruments                                                                    |   |                                          | 15        |   |              |   | 47,597 |   |
| Minority      interest in Valencia                                                             |   |                                          | 95,949    |   |              |   | - |   |
| Non-current      liabilities of discontinued operations                                        |   |                                          | 90,077    |   |              |   | 89,848 |   |
| Other      deferred credits                                                                    |   |                                          | 131,129   |   |              |   | 98,295 |   |
|                                                                                           |   |                                          |      |   |              |   |   |   |
|         Total deferred credits and liabilities                                       |   |                                          | 1,168,315 |   |              |   | 1,079,412 |   |
|                                                                                           |   |                                          |      |   |              |   |   |   |
|         Total liabilities                                                            |   |                                          | 2,878,494 |   |              |   | 2,698,646 |   |
|                                                                                           |   |                                          |      |   |              |   |   |   |
| Commitments      and Contingencies (See Note 9)                                                |   |                                          |      |   |              |   |   |   |
|                                                                                           |   |                                          |      |   |              |   |   |   |
| Cumulative      Preferred Stock                                                                |   |                                          |      |   |              |   |   |   |
| without      mandatory redemption requirements ($100 stated value, 10,000,000      authorized: |   |                                          |      |   |              |   |   |   |
| issued      and outstanding 115,293 shares)                                                    |   |                                          | 11,529    |   |              |   | 11,529 |   |
|                                                                                           |   |                                          |      |   |              |   |   |   |
| Common      Stockholder’s Equity:                                                        |   |                                          |      |   |              |   |   |   |
| Common      stock outstanding (no par value, 40,000,000 shares authorized:      issued         |   |                                          |      |   |              |   |   |   |
| and      outstanding 39,117,799 shares)                                                        |   |                                          | 932,523   |   |              |   | 932,523 |   |
| Accumulated      other comprehensive income, net of income tax                                 |   |                                          | 19,303    |   |              |   | 7,580 |   |
| Retained      earnings                                                                         |   |                                          | 389,719   |   |              |   | 453,122 |   |
|                                                                                           |   |                                          |      |   |              |   |   |   |
|         Total common stockholder’s equity                                      |   |                                          | 1,341,545 |   |              |   | 1,393,225 |   |
|                                                                                           |   |                                          |      |   |              |   |   |   |
|                                                                                           |   | $                                             | 4,231,568 |   |              | $      | 4,103,400 |   |

----

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                                |   | Nine      Months Ended September 30, |     |
|-----------------------------------------------------------------------------------------------------|--------|--------------------------------------|----------|
|                                                                                                |   | 2008                                 |     |   | 2007 |   |
|                                                                                                |   | (In      thousands)                  |     |
|             Cash Flows From Operating Activities:                          |   |                                 |     |   |   |   |
|             Net earnings (loss)                                            |   | $                                    | (33,429  | ) |   | $ | 26,311 |   |
| Adjustments      to reconcile net earnings (loss) to net cash flows from operating      activities: |   |                                 |     |   |   |   |   |   |
| Depreciation      and amortization                                                                  |   |                                 | 75,803   |   |   |   | 100,224 |   |
| Amortization      of prepayments on PVNGS firm-sales contracts                                      |   |                                 | (10,313  | ) |   |   | - |   |
| Deferred      income tax expense                                                                    |   |                                 | (4,732   | ) |   |   | (14,695 | ) |
| Minority      interest in earnings of Valencia                                                      |   |                                 | 4,452    |   |   |   | - |   |
| Net      unrealized (gains) losses on derivatives                                                   |   |                                 | 5,955    |   |   |   | 14,943 |   |
| Realized      (gains) losses on investments held by NDT                                             |   |                                 | 10,079   |   |   |   | (6,898 | ) |
| Impairment      of utility plant                                                                    |   |                                 | -        |   |   |   | 19,500 |   |
| Regulatory      disallowances                                                                       |   |                                 | 30,248   |   |   |   | - |   |
| Impairment      of goodwill                                                                         |   |                                 | 51,143   |   |   |   | - |   |
| Other,      net                                                                                     |   |                                 | (1,445   | ) |   |   | (3,515 | ) |
| Changes      in certain assets and liabilities:                                                     |   |                                 |     |   |   |   |   |   |
| Accounts      receivable and unbilled revenues                                                      |   |                                 | 37,318   |   |   |   | 58,893 |   |
| Materials,      supplies, fuel stock, and natural gas stored                                        |   |                                 | (9,486   | ) |   |   | (3,761 | ) |
| Other      current assets                                                                           |   |                                 | (1,531   | ) |   |   | 26,241 |   |
| Other      assets                                                                                   |   |                                 | (1,783   | ) |   |   | (1,263 | ) |
| Accounts      payable                                                                               |   |                                 | (18,401  | ) |   |   | (44,666 | ) |
| Accrued      interest and taxes                                                                     |   |                                 | 30,738   |   |   |   | 29,575 |   |
| Other      current liabilities                                                                      |   |                                 | (15,536  | ) |   |   | (18,228 | ) |
| Other      liabilities                                                                              |   |                                 | (2,238   | ) |   |   | (22,312 | ) |
| Net      cash flows from operating activities                                                       |   |                                 | 146,842  |   |   |   | 160,349 |   |
|                                                                                                |   |                                 |     |   |   |   |   |   |
| Cash      Flows From Investing Activities:                                                          |   |                                 |     |   |   |   |   |   |
| Utility      plant additions                                                                        |   |                                 | (200,983 | ) |   |   | (260,250 | ) |
| Proceeds      from sales of NDT investments                                                         |   |                                 | 105,055  |   |   |   | 99,525 |   |
| Purchases      of NDT investments                                                                   |   |                                 | (106,437 | ) |   |   | (104,455 | ) |
| Proceeds      from sales of utility plant                                                           |   |                                 | 837      |   |   |   | 25,041 |   |
| Return      of principal on PVNGS lessor notes                                                      |   |                                 | 25,735   |   |   |   | 24,296 |   |
| Change      in restricted special deposits                                                          |   |                                 | 6,581    |   |   |   | (10,203 | ) |
| Other,      net                                                                                     |   |                                 | (284     | ) |   |   | 1,653 |   |
| Net      cash flows from investing activities                                                       |   |                                 | (169,496 | ) |   |   | (224,393 | ) |

----

|                                                                                                                                                                                                                                                                            |   | Nine      Months Ended September 30, |     |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|----------|
|                                                                                                                                                                                                                                                                            |   | 2008                                 |     |   | 2007 |   |
|                                                                                                                                                                                                                                                                            |   | (In      thousands)                  |     |
| Cash      Flows From Financing Activities:                                                                                                                                                                                                                                      |   |                                 |     |   |   |   |
| Short-term      borrowings (repayments), net                                                                                                                                                                                                                                    |   |                                 | 19,000   |   |   |   | 35,310 |   |
| Long-term      borrowings                                                                                                                                                                                                                                                       |   |                                 | 350,000  |   |   |   | 20,000 |   |
| Redemption      of long-term debt                                                                                                                                                                                                                                               |   |                                 | (300,000 | ) |   |   | - |   |
| Payments      received on PVNGS firm-sales contracts                                                                                                                                                                                                                            |   |                                 | 80,858   |   |   |   | - |   |
| Dividends      paid                                                                                                                                                                                                                                                             |   |                                 | (40,396  | ) |   |   | (396 | ) |
| Other,      net                                                                                                                                                                                                                                                                 |   |                                 | 5,095    |   |   |   | (41 | ) |
| Net      cash flows from financing activities                                                                                                                                                                                                                                   |   |                                 | 114,557  |   |   |   | 54,873 |   |
|                                                                                                                                                                                                                                                                            |   |                                 |     |   |   |   |   |   |
| Change      in Cash and Cash Equivalents                                                                                                                                                                                                                                        |   |                                 | 91,903   |   |   |   | (9,171 | ) |
| Cash      and Cash Equivalents at Beginning of Period                                                                                                                                                                                                                           |   |                                 | 4,331    |   |   |   | 11,886 |   |
| Cash      and Cash Equivalents at End of Period                                                                                                                                                                                                                                 |   | $                                    | 96,234   |   |   | $ | 2,715 |   |
|                                                                                                                                                                                                                                                                            |   |                                 |     |   |   |   |   |   |
| Supplemental      Cash Flow Disclosures:                                                                                                                                                                                                                                        |   |                                 |     |   |   |   |   |   |
| Interest      paid, net of capitalized interest                                                                                                                                                                                                                                 |   | $                                    | 49,354   |   |   | $ | 49,839 |   |
| Income      taxes paid (refunded), net                                                                                                                                                                                                                                          |   | $                                    | (1,855   | ) |   | $ | - |   |
|                                                                                                                                                                                                                                                                            |   |                                 |     |   |   |   |   |   |
| Supplemental      schedule of noncash investing and financing activities:                                                                                                                                                                                                       |   |                                 |     |   |   |   |   |   |
| As      of January 1, 2007, TNMP transferred its New Mexico operational assets and      liabilities to PNMR through a redemption of TNMP’s common stock. PNMR      contemporaneously contributed the TNMP New Mexico operational assets and      liabilities to PNM. |   |
| Current      assets                                                                                                                                                                                                                                                             |   | $                                    | 15,444   |   |   |   |   |   |
| Other      property and investments                                                                                                                                                                                                                                             |   |                                 | 10       |   |   |   |   |   |
| Utility      plant, net                                                                                                                                                                                                                                                         |   |                                 | 96,468   |   |   |   |   |   |
| Goodwill                                                                                                                                                                                                                                                                        |   |                                 | 102,775  |   |   |   |   |   |
| Deferred      charges                                                                                                                                                                                                                                                           |   |                                 | 1,377    |   |   |   |   |   |
| Total      assets transferred from TNMP                                                                                                                                                                                                                                         |   |                                 | 216,074  |   |   |   |   |   |
|                                                                                                                                                                                                                                                                            |   |                                 |     |   |   |   |   |   |
| Current      liabilities                                                                                                                                                                                                                                                        |   |                                 | 17,313   |   |   |   |   |   |
| Long-term      debt                                                                                                                                                                                                                                                             |   |                                 | 1,065    |   |   |   |   |   |
| Deferred      credits and other liabilities                                                                                                                                                                                                                                     |   |                                 | 30,673   |   |   |   |   |   |
| Total      liabilities transferred from TNMP                                                                                                                                                                                                                                    |   |                                 | 49,051   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                            |   |                                 |     |   |   |   |   |   |
| Net      assets transferred – increase in common stockholder’s    equity                                                                                                                                                                                            |   | $                                    | 167,023  |   |   |   |   |   |
|                                                                                                                                                                                                                                                                            |   |                                 |     |   |   |   |   |   |
| Activities      related to the consolidation of Valencia (see Note 16):                                                                                                                                                                                                         |   |                                 |     |   |   |   |   |   |
| Initial      consolidation at May 30, 2008:                                                                                                                                                                                                                                     |   |                                 |     |   |   |   |   |   |
| Utility      plant additions                                                                                                                                                                                                                                                    |   | $                                    | 87,310   |   |   |   |   |   |
| Increase      in short-term borrowings                                                                                                                                                                                                                                          |   | $                                    | 82,468   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                            |   |                                 |     |   |   |   |   |   |
| Minority      interest transactions as of July 10, 2008:                                                                                                                                                                                                                        |   |                                 |     |   |   |   |   |   |
| Reduction      in short-term borrowings                                                                                                                                                                                                                                         |   | $                                    | 88,059   |   |   |   |   |   |
| Increase      in minority interest in Valencia                                                                                                                                                                                                                                  |   | $                                    | 90,148   |   |   |   |   |   |

----

|                                  |   |              |       |   | Accumulated                 |   |    |          |   |   |              |   |
|---------------------------------------|--------|-------------------|------------|--------|-----------------------------|--------|---------|---------------|--------|--------|-------------------|--------|
|                                  |   | Common      Stock |       |   | Other                       |   |    |          |   |   | Total      Common |   |
|                                  |   | Number      of    |       |   | Aggregate                   |   |    | Comprehensive |   |   | Retained          |   |   | Stockholder’s |   |
|                                  |   | Shares            |       |   | Value                       |   |    | Income        |   |   | Earnings          |   |   | Equity |   |
|                                  |   |              |       |   | (Dollars      in thousands) |   |
|                                  |   |              |       |   |                        |   |    |          |   |   |              |   |   |   |   |
| Balance      at December 31, 2007     |   |              | 39,117,799 |   |                        | $      | 932,523 |          |   | $      | 7,580             |   |   | $ | 453,122 |   |   | $ | 1,393,225 |   |
| Adoption      of SFAS 157             |   |              | -          |   |                        |   | -       |          |   |   | -                 |   |   |   | 10,422 |   |   |   | 10,422 |   |
| Net      earnings (loss)              |   |              | -          |   |                        |   | -       |          |   |   | -                 |   |   |   | (33,429 | ) |   |   | (33,429 | ) |
| Total      other comprehensive income |   |              | -          |   |                        |   | -       |          |   |   | 11,723            |   |   |   | - |   |   |   | 11,723 |   |
| Dividends      on preferred stock     |   |              | -          |   |                        |   | -       |          |   |   | -                 |   |   |   | (396 | ) |   |   | (396 | ) |
| Dividends      on common stock        |   |              | -          |   |                        |   | -       |          |   |   | -                 |   |   |   | (40,000 | ) |   |   | (40,000 | ) |
| Balance      at September 30, 2008    |   |              | 39,117,799 |   |                        | $      | 932,523 |          |   | $      | 19,303            |   |   | $ | 389,719 |   |   | $ | 1,341,545 |   |

----

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(LOSS)

|                                                                |   | Three      Months Ended September 30, |   |   | Nine      Months Ended September 30, |   |
|---------------------------------------------------------------------|--------|---------------------------------------|--------|--------|--------------------------------------|--------|
|                                                                |   | 2008                                  |   |   | 2007                                 |   |   | 2008 |   |   | 2007 |   |
|                                                                |   | (In      thousands)                   |   |
| Net      Earnings (Loss) Available for Common Stock                 |   | $                                     | 15,164 |   |                                 | $      | (1,890 | ) |   | $ | (33,825 | ) |   | $ | 25,915 |   |
|                                                                |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Other      Comprehensive Income (Loss):                             |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
|                                                                |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized Gain (Loss) on      Investment Securities:               |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized      holding gains (losses) arising during               |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| the      period, net of income tax (expense) benefit                |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| of      $1,196, $(1,549), $1,608 and $(4,070)                       |   |                                  | (1,825 | )      |                                 |   | 2,364 |   |   |   | (2,454 | ) |   |   | 6,210 |   |
| Reclassification      adjustment for (gains) included in            |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| net      earnings (loss), net of income tax expense                 |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| of  $1,051,      $2,401, $2,777 and $2,493                |   |                                  | (1,603 | )      |                                 |   | (3,664 | ) |   |   | (4,237 | ) |   |   | (3,804 | ) |
|                                                                |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Fair      Value Adjustment for Designated Cash Flow Hedges:         |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Change      in fair market value, net of income tax (expense)       |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| benefit      of  $(18,619), $(903), $(9,485) and $(1,886) |   |                                  | 28,411 |   |                                 |   | 1,378 |   |   |   | 14,474 |   |   |   | 2,877 |   |
| Reclassification      adjustment for (gains) losses included in     |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| net      earnings (loss), net of income tax expense (benefit)       |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| of  $(2,956),      $826, $(2,582) and $(300)              |   |                                  | 4,511  |   |                                 |   | (1,261 | ) |   |   | 3,940 |   |   |   | 458 |   |
|                                                                |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Total      Other Comprehensive Income (Loss)                        |   |                                  | 29,494 |   |                                 |   | (1,183 | ) |   |   | 11,723 |   |   |   | 5,741 |   |
|                                                                |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive      Income (Loss)                                    |   | $                                     | 44,658 |   |                                 | $      | (3,073 | ) |   | $ | (22,102 | ) |   | $ | 31,656 |   |

----

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS(LOSS)

|                                     |   | Three      Months Ended September 30, |   |   | Nine      Months Ended September 30, |   |
|------------------------------------------|--------|---------------------------------------|--------|--------|--------------------------------------|--------|
|                                     |   | 2008                                  |   |   | 2007                                 |   |   | 2008 |   |   | 2007 |   |
|                                     |   | (In      thousands)                   |   |
| Electric      Operating Revenues         |   | $                                     | 51,097 |   |                                 | $      | 52,680 |   |   | $ | 140,442 |   |   | $ | 137,144 |   |
|                                     |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Operating      Expenses:                 |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of energy                      |   |                                  | 8,423  |   |                                 |   | 7,544 |   |   |   | 24,170 |   |   |   | 21,936 |   |
| Administrative      and general          |   |                                  | 7,000  |   |                                 |   | 6,024 |   |   |   | 20,643 |   |   |   | 22,288 |   |
| Impairment      of goodwill              |   |                                  | -      |   |                                 |   | - |   |   |   | 34,456 |   |   |   | - |   |
| Depreciation      and amortization       |   |                                  | 9,901  |   |                                 |   | 7,082 |   |   |   | 27,037 |   |   |   | 21,123 |   |
| Transmission      and distribution costs |   |                                  | 5,235  |   |                                 |   | 4,465 |   |   |   | 15,208 |   |   |   | 14,332 |   |
| Taxes,      other than income taxes      |   |                                  | 5,032  |   |                                 |   | 6,503 |   |   |   | 14,402 |   |   |   | 16,741 |   |
| Total      operating expenses            |   |                                  | 35,591 |   |                                 |   | 31,618 |   |   |   | 135,916 |   |   |   | 96,420 |   |
| Operating      income                    |   |                                  | 15,506 |   |                                 |   | 21,062 |   |   |   | 4,526 |   |   |   | 40,724 |   |
|                                     |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Other      Income and Deductions:        |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Interest      income                     |   |                                  | 20     |   |                                 |   | 25 |   |   |   | 25 |   |   |   | 888 |   |
| Other      income                        |   |                                  | 1,726  |   |                                 |   | 397 |   |   |   | 2,746 |   |   |   | 1,444 |   |
| Other      deductions                    |   |                                  | (18    | )      |                                 |   | (25 | ) |   |   | (46 | ) |   |   | (99 | ) |
| Net      other income and deductions     |   |                                  | 1,728  |   |                                 |   | 397 |   |   |   | 2,725 |   |   |   | 2,233 |   |
|                                     |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Interest      Charges:                   |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Interest      on long-term debt          |   |                                  | 2,623  |   |                                 |   | 4,890 |   |   |   | 9,832 |   |   |   | 17,475 |   |
| Other      interest charges              |   |                                  | 1,608  |   |                                 |   | 878 |   |   |   | 3,752 |   |   |   | 2,242 |   |
| Net      interest charges                |   |                                  | 4,231  |   |                                 |   | 5,768 |   |   |   | 13,584 |   |   |   | 19,717 |   |
|                                     |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      (Loss) Before Income Taxes |   |                                  | 13,003 |   |                                 |   | 15,691 |   |   |   | (6,333 | ) |   |   | 23,240 |   |
|                                     |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Income      Taxes                        |   |                                  | 4,910  |   |                                 |   | 5,463 |   |   |   | 10,597 |   |   |   | 7,840 |   |
|                                     |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Net      Earnings (Loss)                 |   | $                                     | 8,093  |   |                                 | $      | 10,228 |   |   | $ | (16,930 | ) |   | $ | 15,400 |   |

----

CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                                     |   | September      30,  |    |   | December      31, |   |
|------------------------------------------------------------------------------------------|--------|---------------------|---------|--------|-------------------|--------|
|                                                                                     |   | 2008                |    |   | 2007              |   |
|                                                                                     |   | (In      thousands) |    |
| ASSETS                                                                                   |   |                |    |   |              |   |
| Current      Assets:                                                                     |   |                |    |   |              |   |
| Cash      and cash equivalents                                                           |   | $                   | 9,017   |   |              | $      | 187 |   |
| Special      deposits                                                                    |   |                | 50      |   |              |   | 50 |   |
| Accounts      receivable, net of allowance for uncollectible accounts of $96 and      $0 |   |                | 12,803  |   |              |   | 8,789 |   |
| Unbilled      revenues                                                                   |   |                | 4,166   |   |              |   | 4,392 |   |
| Other      receivables                                                                   |   |                | 2,529   |   |              |   | 1,063 |   |
| Affiliate      accounts receivable                                                       |   |                | 7,004   |   |              |   | 8,005 |   |
| Materials      and supplies                                                              |   |                | 1,541   |   |              |   | 1,425 |   |
| Income      taxes receivable                                                             |   |                | -       |   |              |   | 881 |   |
| Other      current assets                                                                |   |                | 1,275   |   |              |   | 501 |   |
|                                                                                     |   |                |    |   |              |   |   |   |
| Total      current assets                                                                |   |                | 38,385  |   |              |   | 25,293 |   |
|                                                                                     |   |                |    |   |              |   |   |   |
| Other      Property and Investments:                                                     |   |                |    |   |              |   |   |   |
| Other      investments                                                                   |   |                | 554     |   |              |   | 554 |   |
| Non-utility      property                                                                |   |                | 2,111   |   |              |   | 2,111 |   |
|                                                                                     |   |                |    |   |              |   |   |   |
| Total      other property and investments                                                |   |                | 2,665   |   |              |   | 2,665 |   |
|                                                                                     |   |                |    |   |              |   |   |   |
| Utility      Plant:                                                                      |   |                |    |   |              |   |   |   |
| Electric      plant in service                                                           |   |                | 801,767 |   |              |   | 781,355 |   |
| Common      plant in service and plant held for future use                               |   |                | 488     |   |              |   | 488 |   |
|                                                                                     |   |                | 802,255 |   |              |   | 781,843 |   |
| Less      accumulated depreciation and amortization                                      |   |                | 288,163 |   |              |   | 274,128 |   |
|                                                                                     |   |                | 514,092 |   |              |   | 507,715 |   |
| Construction      work in progress                                                       |   |                | 30,740  |   |              |   | 22,493 |   |
|                                                                                     |   |                |    |   |              |   |   |   |
| Net      utility plant                                                                   |   |                | 544,832 |   |              |   | 530,208 |   |
|                                                                                     |   |                |    |   |              |   |   |   |
| Deferred      Charges and Other Assets:                                                  |   |                |    |   |              |   |   |   |
| Regulatory      assets                                                                   |   |                | 124,733 |   |              |   | 133,154 |   |
| Goodwill                                                                                 |   |                | 226,665 |   |              |   | 261,121 |   |
| Pension      asset                                                                       |   |                | 16,822  |   |              |   | 14,919 |   |
| Other      deferred charges                                                              |   |                | 30,447  |   |              |   | 5,432 |   |
|                                                                                     |   |                |    |   |              |   |   |   |
| Total      deferred charges and other assets                                             |   |                | 398,667 |   |              |   | 414,626 |   |
|                                                                                     |   |                |    |   |              |   |   |   |
|                                                                                     |   | $                   | 984,549 |   |              | $      | 972,792 |   |

----

|                                                                             |   | September      30,                            |    |   | December      31, |   |
|----------------------------------------------------------------------------------|--------|-----------------------------------------------|---------|--------|-------------------|--------|
|                                                                             |   | 2008                                          |    |   | 2007              |   |
|                                                                             |   | (In      thousands, except share information) |    |
| LIABILITIES      AND STOCKHOLDER’S EQUITY                                  |   |                                          |    |   |              |   |
| Current      Liabilities:                                                        |   |                                          |    |   |              |   |
| Short-term      debt                                                             |   | $                                             | 150,000 |   |              | $      | - |   |
| Short-term      debt – affiliate                                           |   |                                          | -       |   |              |   | 3,404 |   |
| Current      installments of long-term debt                                      |   |                                          | 167,670 |   |              |   | 148,882 |   |
| Accounts      payable                                                            |   |                                          | 27,675  |   |              |   | 5,666 |   |
| Affiliate      accounts payable                                                  |   |                                          | 3,755   |   |              |   | 3,456 |   |
| Accrued      interest and taxes                                                  |   |                                          | 42,081  |   |              |   | 35,204 |   |
| Other      current liabilities                                                   |   |                                          | 5,390   |   |              |   | 1,785 |   |
|                                                                             |   |                                          |    |   |              |   |   |   |
| Total      current liabilities                                                   |   |                                          | 396,571 |   |              |   | 198,397 |   |
|                                                                             |   |                                          |    |   |              |   |   |   |
| Long-term      Debt                                                              |   |                                          | -       |   |              |   | 167,609 |   |
|                                                                             |   |                                          |    |   |              |   |   |   |
| Deferred      Credits and Other Liabilities:                                     |   |                                          |    |   |              |   |   |   |
| Accumulated      deferred income taxes                                           |   |                                          | 116,032 |   |              |   | 120,274 |   |
| Accumulated      deferred investment tax credits                                 |   |                                          | 48      |   |              |   | 191 |   |
| Regulatory      liabilities                                                      |   |                                          | 48,401  |   |              |   | 46,590 |   |
| Asset      retirement obligations                                                |   |                                          | 697     |   |              |   | 662 |   |
| Accrued      pension liability and postretirement benefit cost                   |   |                                          | 3,766   |   |              |   | 3,922 |   |
| Other      deferred credits                                                      |   |                                          | 2,516   |   |              |   | 1,699 |   |
|                                                                             |   |                                          |    |   |              |   |   |   |
| Total      deferred credits and other liabilities                                |   |                                          | 171,460 |   |              |   | 173,338 |   |
|                                                                             |   |                                          |    |   |              |   |   |   |
| Total      liabilities                                                           |   |                                          | 568,031 |   |              |   | 539,344 |   |
|                                                                             |   |                                          |    |   |              |   |   |   |
| Commitments      and Contingencies (See Note 9)                                  |   |                                          |    |   |              |   |   |   |
|                                                                             |   |                                          |    |   |              |   |   |   |
| Common      Stockholder’s Equity:                                          |   |                                          |    |   |              |   |   |   |
| Common      stock outstanding ($10 par value, 12,000,000 shares      authorized: |   |                                          |    |   |              |   |   |   |
| issued      and outstanding 6,358 shares)                                        |   |                                          | 64      |   |              |   | 64 |   |
| Paid-in-capital                                                                  |   |                                          | 427,320 |   |              |   | 427,320 |   |
| Accumulated      other comprehensive income, net of income tax                   |   |                                          | 823     |   |              |   | 823 |   |
| Retained      earnings (deficit)                                                 |   |                                          | (11,689 | )      |              |   | 5,241 |   |
|                                                                             |   |                                          |    |   |              |   |   |   |
| Total      common stockholder’s equity                                     |   |                                          | 416,518 |   |              |   | 433,448 |   |
|                                                                             |   |                                          |    |   |              |   |   |   |
|                                                                             |   | $                                             | 984,549 |   |              | $      | 972,792 |   |

----

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                         |   | Nine      Months Ended September 30, |    |
|--------------------------------------------------------------|--------|--------------------------------------|---------|
|                                                         |   | 2008                                 |    |   | 2007 |   |
|                                                         |   | (In      thousands)                  |    |
| Cash      Flows From Operating Activities:                   |   |                                 |    |   |   |   |
| Net      earnings (loss)                                     |   | $                                    | (16,930 | ) |   | $ | 15,400 |   |
| Adjustments      to reconcile net earnings (loss) to         |   |                                 |    |   |   |   |   |   |
|         net cash flows from operating activities:  |   |                                 |    |   |   |   |   |   |
|         Depreciation and amortization              |   |                                 | 29,866  |   |   |   | 23,768 |   |
|         Impairment of goodwill                     |   |                                 | 34,456  |   |   |   | - |   |
|         Deferred income tax expense (benefit)      |   |                                 | (4,386  | ) |   |   | (3,253 | ) |
|         Other, net                                 |   |                                 | (1,941  | ) |   |   | (2,238 | ) |
|         Changes in certain assets and liabilities: |   |                                 |    |   |   |   |   |   |
| Accounts      receivable and unbilled revenues               |   |                                 | (3,884  | ) |   |   | (11,932 | ) |
|          Materials and supplies               |   |                                 | (117    | ) |   |   | (283 | ) |
|          Other current assets                 |   |                                 | (1,412  | ) |   |   | (191 | ) |
| Other      assets                                            |   |                                 | (25,689 | ) |   |   | 588 |   |
| Accounts      payable                                        |   |                                 | 22,010  |   |   |   | (5,679 | ) |
| Accrued      interest and taxes                              |   |                                 | 7,838   |   |   |   | 7,554 |   |
| Other      current liabilities                               |   |                                 | 4,905   |   |   |   | (18,512 | ) |
| Other      liabilities                                       |   |                                 | 465     |   |   |   | (123 | ) |
|         Net cash flows from operating activities   |   |                                 | 45,181  |   |   |   | 5,099 |   |
|                                                         |   |                                 |    |   |   |   |   |   |
| Cash      Flows From Investing Activities -                  |   |                                 |    |   |   |   |   |   |
|         Utility plant additions                    |   |                                 | (33,073 | ) |   |   | (26,837 | ) |

----

|                                                                                                                                                                                                                                                                            |   | Nine      Months Ended September 30, |     |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|----------|
|                                                                                                                                                                                                                                                                            |   | 2008                                 |     |   | 2007 |   |
|                                                                                                                                                                                                                                                                            |   | (In      thousands)                  |     |
| Cash      Flow From Financing Activities:                                                                                                                                                                                                                                       |   |                                 |     |   |   |   |
| Short-term      borrowings                                                                                                                                                                                                                                                      |   |                                 | 150,000  |   |   |   | - |   |
| Short-term      borrowings (repayments), net – affiliate                                                                                                                                                                                                                  |   |                                 | (3,404   | ) |   |   | 18,500 |   |
| Redemption      of long-term debt                                                                                                                                                                                                                                               |   |                                 | (148,935 | ) |   |   | (100,500 | ) |
| Equity      contribution by parent                                                                                                                                                                                                                                              |   |                                 | -        |   |   |   | 101,249 |   |
| Other,      net                                                                                                                                                                                                                                                                 |   |                                 | (939     | ) |   |   | 1 |   |
| Net      cash flows from financing activities                                                                                                                                                                                                                                   |   |                                 | (3,278   | ) |   |   | 19,250 |   |
|                                                                                                                                                                                                                                                                            |   |                                 |     |   |   |   |   |   |
| Change      in Cash and Cash Equivalents                                                                                                                                                                                                                                        |   |                                 | 8,830    |   |   |   | (2,488 | ) |
| Cash      and Cash Equivalents at Beginning of Period                                                                                                                                                                                                                           |   |                                 | 187      |   |   |   | 2,542 |   |
| Cash      and Cash Equivalents at End of Period                                                                                                                                                                                                                                 |   | $                                    | 9,017    |   |   | $ | 54 |   |
|                                                                                                                                                                                                                                                                            |   |                                 |     |   |   |   |   |   |
| Supplemental      Cash Flow Disclosures:                                                                                                                                                                                                                                        |   |                                 |     |   |   |   |   |   |
| Interest      paid, net of capitalized interest                                                                                                                                                                                                                                 |   | $                                    | 16,724   |   |   | $ | 19,693 |   |
| Income      taxes paid (refunded), net                                                                                                                                                                                                                                          |   | $                                    | (858     | ) |   | $ | - |   |
|                                                                                                                                                                                                                                                                            |   |                                 |     |   |   |   |   |   |
| Supplemental      schedule of noncash investing and financing activities:                                                                                                                                                                                                       |   |
| As      of January 1, 2007, TNMP transferred its New Mexico operational assets and      liabilities to PNMR through a redemption of TNMP’s common stock. PNMR      contemporaneously contributed the TNMP New Mexico operational assets and      liabilities to PNM. |   |
| Current      assets                                                                                                                                                                                                                                                             |   | $                                    | 15,444   |   |   |   |   |   |
| Other      property and investments                                                                                                                                                                                                                                             |   |                                 | 10       |   |   |   |   |   |
| Utility      plant, net                                                                                                                                                                                                                                                         |   |                                 | 96,468   |   |   |   |   |   |
| Goodwill                                                                                                                                                                                                                                                                        |   |                                 | 102,775  |   |   |   |   |   |
| Deferred      charges                                                                                                                                                                                                                                                           |   |                                 | 1,377    |   |   |   |   |   |
| Total      assets transferred to PNM                                                                                                                                                                                                                                            |   |                                 | 216,074  |   |   |   |   |   |
|                                                                                                                                                                                                                                                                            |   |                                 |     |   |   |   |   |   |
| Current      liabilities                                                                                                                                                                                                                                                        |   |                                 | 17,313   |   |   |   |   |   |
| Long-term      debt                                                                                                                                                                                                                                                             |   |                                 | 1,065    |   |   |   |   |   |
| Deferred      credits and other liabilities                                                                                                                                                                                                                                     |   |                                 | 30,673   |   |   |   |   |   |
| Total      liabilities transferred to PNM                                                                                                                                                                                                                                       |   |                                 | 49,051   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                            |   |                                 |     |   |   |   |   |   |
| Net      assets transferred – common stock redeemed                                                                                                                                                                                                                       |   | $                                    | 167,023  |   |   |   |   |   |

----

|                               |   |              |   |   |      |   |   | Accumulated                 |   |   |          |   |   | Total                   |   |
|------------------------------------|--------|-------------------|--------|--------|-----------|--------|--------|-----------------------------|--------|--------|---------------|--------|--------|-------------------------|--------|
|                               |   | Common      Stock |   |   |      |   |   | Other                       |   |   |          |   |   | Common                  |   |
|                               |   | Number      of    |   |   | Aggregate |   |   | Paid-in                     |   |   | Comprehensive |   |   | Retained                |   |   | Stockholder’s |   |
|                               |   | Shares            |   |   | Value     |   |   | Capital                     |   |   | Income        |   |   | Earnings      (Deficit) |   |   | Equity |   |
|                               |   |              |   |   |      |   |   | (Dollars      in thousands) |   |   |          |   |   |                    |   |
|                               |   |              |   |   |      |   |   |                        |   |   |          |   |   |                    |   |   |   |   |
| Balance      at December 31, 2007  |   |              | 6,358  |   |      | $      | 64     |                        |   | $      | 427,320       |   |   | $                       | 823    |   |   | $ | 5,241 |   |   | $ | 433,448 |   |
| Net      earnings (loss)           |   |              | -      |   |      |   | -      |                        |   |   | -             |   |   |                    | -      |   |   |   | (16,930 | ) |   |   | (16,930 | ) |
| Balance      at September 30, 2008 |   |              | 6,358  |   |      | $      | 64     |                        |   | $      | 427,320       |   |   | $                       | 823    |   |   | $ | (11,689 | ) |   | $ | 416,518 |   |

----

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(LOSS)

|                                                     |   | Three      Months Ended September 30, |   |   | Nine      Months Ended September 30, |   |
|----------------------------------------------------------|--------|---------------------------------------|--------|--------|--------------------------------------|--------|
|                                                     |   | 2008                                  |   |   | 2007                                 |   |   | 2008 |   |   | 2007 |   |
|                                                     |   | (In      thousands)                   |   |
| Net      Earnings (Loss) and Comprehensive Income (Loss) |   | $                                     | 8,093  |   |                                 | $      | 10,228 |   |   | $ | (16,930 | ) |   | $ | 15,400 |   |

----

| (1)   | Significant      Accounting Policies and Responsibility for Financial      Statements |
|-----------------|---------------------------------------------------------------------------------------|

----

| (2)   | Acquisitions      and Dispositions |
|-----------------|------------------------------------|

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

----

----

----

|                                                        |   | PNM      |      |   | TNMP     |   |    | First               |   |   | Corporate      |   |   |         |    |
|-------------------------------------------------------------|--------|----------|-----------|--------|----------|--------|---------|---------------------|--------|--------|----------------|--------|--------|--------------|---------|
| 2008                                                        |   | Electric |      |   | Electric |   |    | Choice              |   |   | and      Other |   |   | Consolidated |    |
|                                                        |   |     |      |   |     |   |    | (In      thousands) |   |   |           |   |   |         |    |
| Three Months Ended      September 30, 2008                  |   |     |      |   |     |   |    |                |   |   |           |   |   |         |    |
| Operating      revenues                                     |   | $        | 356,367   |   |     | $      | 35,865  |                |   | $      | 215,009        |   |   | $            | (165    | ) |   | $ | 607,076 |   |
| Intersegment      revenues                                  |   |     | 30        |   |     |   | 15,232  |                |   |   | -              |   |   |         | (15,262 | ) |   |   | - |   |
| Total      revenues                                         |   |     | 356,397   |   |     |   | 51,097  |                |   |   | 215,009        |   |   |         | (15,427 | ) |   |   | 607,076 |   |
| Cost      of energy                                         |   |     | 194,478   |   |     |   | 8,423   |                |   |   | 205,954        |   |   |         | (15,232 | ) |   |   | 393,623 |   |
| Gross      margin                                           |   |     | 161,919   |   |     |   | 42,674  |                |   |   | 9,055          |   |   |         | (195    | ) |   |   | 213,453 |   |
| Other      operating expenses                               |   |     | 92,868    |   |     |   | 17,267  |                |   |   | 30,542         |   |   |         | 2,360   |   |   |   | 143,037 |   |
| Depreciation      and amortization                          |   |     | 21,666    |   |     |   | 9,901   |                |   |   | 630            |   |   |         | 4,555   |   |   |   | 36,752 |   |
| Operating      income (loss)                                |   |     | 47,385    |   |     |   | 15,506  |                |   |   | (22,117        | )      |   |         | (7,110  | ) |   |   | 33,664 |   |
|                                                        |   |     |      |   |     |   |    |                |   |   |           |   |   |         |    |   |   |   |   |   |
| Interest      income                                        |   |     | 7,227     |   |     |   | 20      |                |   |   | 448            |   |   |         | (447    | ) |   |   | 7,248 |   |
| Equity      in net earnings (loss) of EnergyCo              |   |     | -         |   |     |   | -       |                |   |   | -              |   |   |         | (1,485  | ) |   |   | (1,485 | ) |
| Other      income (deductions)                              |   |     | (8,823    | )      |     |   | 1,708   |                |   |   | 183            |   |   |         | (1,167  | ) |   |   | (8,099 | ) |
| Net      interest charges                                   |   |     | (20,315   | )      |     |   | (4,231  | )                   |   |   | (1,846         | )      |   |         | (12,760 | ) |   |   | (39,152 | ) |
|                                                        |   |     |      |   |     |   |    |                |   |   |           |   |   |         |    |   |   |   |   |   |
| Segment      earnings (loss) before income taxes            |   |     | 25,474    |   |     |   | 13,003  |                |   |   | (23,332        | )      |   |         | (22,969 | ) |   |   | (7,824 | ) |
|                                                        |   |     |      |   |     |   |    |                |   |   |           |   |   |         |    |   |   |   |   |   |
| Income      tax expense (benefit)                           |   |     | 9,540     |   |     |   | 4,910   |                |   |   | (6,796         | )      |   |         | (10,763 | ) |   |   | (3,109 | ) |
| Preferred      stock dividend requirements                  |   |     | 132       |   |     |   | -       |                |   |   | -              |   |   |         | -       |   |   |   | 132 |   |
|                                                        |   |     |      |   |     |   |    |                |   |   |           |   |   |         |    |   |   |   |   |   |
| Segment      net earnings (loss) from continuing operations |   | $        | 15,802    |   |     | $      | 8,093   |                |   | $      | (16,536        | )      |   | $            | (12,206 | ) |   | $ | (4,847 | ) |
|                                                        |   |     |      |   |     |   |    |                |   |   |           |   |   |         |    |   |   |   |   |   |
| Nine Months Ended      September 30, 2008                   |   |     |      |   |     |   |    |                |   |   |           |   |   |         |    |   |   |   |   |   |
| Operating      revenues                                     |   | $        | 995,040   |   |     | $      | 95,892  |                |   | $      | 461,402        |   |   | $            | (445    | ) |   | $ | 1,551,889 |   |
| Intersegment      revenues                                  |   |     | 79        |   |     |   | 44,550  |                |   |   | -              |   |   |         | (44,629 | ) |   |   | - |   |
| Total      revenues                                         |   |     | 995,119   |   |     |   | 140,442 |                |   |   | 461,402        |   |   |         | (45,074 | ) |   |   | 1,551,889 |   |
| Cost      of energy                                         |   |     | 577,762   |   |     |   | 24,170  |                |   |   | 469,305        |   |   |         | (44,535 | ) |   |   | 1,026,702 |   |
| Gross      margin                                           |   |     | 417,357   |   |     |   | 116,272 |                |   |   | (7,903         | )      |   |         | (539    | ) |   |   | 525,187 |   |
| Other      operating expenses                               |   |     | 366,659   |   |     |   | 84,709  |                |   |   | 118,800        |   |   |         | (2,352  | ) |   |   | 567,816 |   |
| Depreciation      and amortization                          |   |     | 63,532    |   |     |   | 27,037  |                |   |   | 1,679          |   |   |         | 13,190  |   |   |   | 105,438 |   |
| Operating      income (loss)                                |   |     | (12,834   | )      |     |   | 4,526   |                |   |   | (128,382       | )      |   |         | (11,377 | ) |   |   | (148,067 | ) |
|                                                        |   |     |      |   |     |   |    |                |   |   |           |   |   |         |    |   |   |   |   |   |
| Interest      income                                        |   |     | 18,197    |   |     |   | 25      |                |   |   | 1,318          |   |   |         | (2,350  | ) |   |   | 17,190 |   |
| Equity      in net earnings (loss) of EnergyCo              |   |     | -         |   |     |   | -       |                |   |   | -              |   |   |         | (29,091 | ) |   |   | (29,091 | ) |
| Other      income (deductions)                              |   |     | (16,481   | )      |     |   | 2,700   |                |   |   | 110            |   |   |         | (4,776  | ) |   |   | (18,447 | ) |
| Net      interest charges                                   |   |     | (52,041   | )      |     |   | (13,584 | )                   |   |   | (2,459         | )      |   |         | (30,922 | ) |   |   | (99,006 | ) |
|                                                        |   |     |      |   |     |   |    |                |   |   |           |   |   |         |    |   |   |   |   |   |
| Segment      earnings (loss) before income taxes            |   |     | (63,159   | )      |     |   | (6,333  | )                   |   |   | (129,413       | )      |   |         | (78,516 | ) |   |   | (277,421 | ) |
|                                                        |   |     |      |   |     |   |    |                |   |   |           |   |   |         |    |   |   |   |   |   |
| Income      tax expense (benefit)                           |   |     | (5,108    | )      |     |   | 10,597  |                |   |   | (28,393        | )      |   |         | (32,683 | ) |   |   | (55,587 | ) |
| Preferred      stock dividend requirements                  |   |     | 396       |   |     |   | -       |                |   |   | -              |   |   |         | -       |   |   |   | 396 |   |
|                                                        |   |     |      |   |     |   |    |                |   |   |           |   |   |         |    |   |   |   |   |   |
| Segment      net earnings (loss) from continuing operations |   | $        | (58,447   | )      |     | $      | (16,930 | )                   |   | $      | (101,020       | )      |   | $            | (45,833 | ) |   | $ | (222,230 | ) |
|                                                        |   |     |      |   |     |   |    |                |   |   |           |   |   |         |    |   |   |   |   |   |
| At      September 30, 2008:                                 |   |     |      |   |     |   |    |                |   |   |           |   |   |         |    |   |   |   |   |   |
| Total      assets*                                          |   | $        | 3,605,604 |   |     | $      | 984,549 |                |   | $      | 412,941        |   |   | $            | 536,596 |   |   | $ | 5,539,690 |   |
| Goodwill                                                    |   | $        | 51,632    |   |     | $      | 226,665 |                |   | $      | 82,310         |   |   | $            | -       |   |   | $ | 360,607 |   |

----

|                                                    |   | PNM      |      |   | TNMP     |   |      |                |   |   | First  |   |   | Corporate      |    |   |         |   |
|---------------------------------------------------------|--------|----------|-----------|--------|----------|--------|-----------|---------------------|--------|--------|--------|--------|--------|----------------|---------|--------|--------------|--------|
| 2007                                                    |   | Electric |      |   | Electric |   |      | Altura              |   |   | Choice |   |   | and      Other |    |   | Consolidated |   |
| Three Months Ended      September 30, 2007              |   |     |      |   |     |   |      | (In      thousands) |   |   |   |   |   |           |    |
| Operating      revenues                                 |   | $        | 360,455   |   |     | $      | 31,405    |                |   | $      | -      |   |   | $              | 177,694 |   |         | $      | 355 |   |   | $ | 569,909 |   |
| Intersegment      revenues                              |   |     | -         |   |     |   | 21,275    |                |   |   | -      |   |   |           | -       |   |         |   | (21,275 | ) |   |   | - |   |
| Total      revenues                                     |   |     | 360,455   |   |     |   | 52,680    |                |   |   | -      |   |   |           | 177,694 |   |         |   | (20,920 | ) |   |   | 569,909 |   |
| Cost      of energy                                     |   |     | 229,248   |   |     |   | 7,544     |                |   |   | -      |   |   |           | 159,180 |   |         |   | (20,966 | ) |   |   | 375,006 |   |
| Gross      margin                                       |   |     | 131,207   |   |     |   | 45,136    |                |   |   | -      |   |   |           | 18,514  |   |         |   | 46 |   |   |   | 194,903 |   |
| Other      operating expenses                           |   |     | 110,175   |   |     |   | 16,992    |                |   |   | -      |   |   |           | 13,583  |   |         |   | (520 | ) |   |   | 140,230 |   |
| Depreciation      and amortization                      |   |     | 20,731    |   |     |   | 7,082     |                |   |   | -      |   |   |           | 470     |   |         |   | 3,158 |   |   |   | 31,441 |   |
| Operating      income (loss)                            |   |     | 301       |   |     |   | 21,062    |                |   |   | -      |   |   |           | 4,461   |   |         |   | (2,592 | ) |   |   | 23,232 |   |
|                                                    |   |     |      |   |     |   |      |                |   |   |   |   |   |           |    |   |         |   |   |   |   |   |   |   |
| Interest      income                                    |   |     | 10,477    |   |     |   | 25        |                |   |   | -      |   |   |           | 489     |   |         |   | (847 | ) |   |   | 10,144 |   |
| Equity      in net earnings of EnergyCo                 |   |     | -         |   |     |   | -         |                |   |   | -      |   |   |           | -       |   |         |   | 10,556 |   |   |   | 10,556 |   |
| Other      income (deductions)                          |   |     | 4,126     |   |     |   | 372       |                |   |   | -      |   |   |           | 101     |   |         |   | (1,165 | ) |   |   | 3,434 |   |
| Net      interest charges                               |   |     | (13,021   | )      |     |   | (5,768    | )                   |   |   | -      |   |   |           | (638    | )      |         |   | (11,959 | ) |   |   | (31,386 | ) |
|                                                    |   |     |      |   |     |   |      |                |   |   |   |   |   |           |    |   |         |   |   |   |   |   |   |   |
| Segment      earnings (loss) before income taxes        |   |     | 1,883     |   |     |   | 15,691    |                |   |   | -      |   |   |           | 4,413   |   |         |   | (6,007 | ) |   |   | 15,980 |   |
|                                                    |   |     |      |   |     |   |      |                |   |   |   |   |   |           |    |   |         |   |   |   |   |   |   |   |
| Income      tax expense (benefit)                       |   |     | 377       |   |     |   | 5,463     |                |   |   | -      |   |   |           | 1,668   |   |         |   | (3,296 | ) |   |   | 4,212 |   |
| Preferred      stock dividend requirements              |   |     | 132       |   |     |   | -         |                |   |   | -      |   |   |           | -       |   |         |   | - |   |   |   | 132 |   |
|                                                    |   |     |      |   |     |   |      |                |   |   |   |   |   |           |    |   |         |   |   |   |   |   |   |   |
| Segment      earnings (loss) from continuing operations |   | $        | 1,374     |   |     | $      | 10,228    |                |   | $      | -      |   |   | $              | 2,745   |   |         | $      | (2,711 | ) |   | $ | 11,636 |   |
|                                                    |   |     |      |   |     |   |      |                |   |   |   |   |   |           |    |   |         |   |   |   |   |   |   |   |
| Nine Months Ended      September 30, 2007               |   |     |      |   |     |   |      |                |   |   |   |   |   |           |    |   |         |   |   |   |   |   |   |   |
| Operating      revenues                                 |   | $        | 901,137   |   |     | $      | 82,046    |                |   | $      | 65,395 |   |   | $              | 463,214 |   |         | $      | 730 |   |   | $ | 1,512,522 |   |
| Intersegment      revenues                              |   |     | -         |   |     |   | 55,098    |                |   |   | -      |   |   |           | 78      |   |         |   | (55,176 | ) |   |   | - |   |
| Total      revenues                                     |   |     | 901,137   |   |     |   | 137,144   |                |   |   | 65,395 |   |   |           | 463,292 |   |         |   | (54,446 | ) |   |   | 1,512,522 |   |
| Cost      of energy                                     |   |     | 517,767   |   |     |   | 21,936    |                |   |   | 22,063 |   |   |           | 395,858 |   |         |   | (54,341 | ) |   |   | 903,283 |   |
| Gross      margin                                       |   |     | 383,370   |   |     |   | 115,208   |                |   |   | 43,332 |   |   |           | 67,434  |   |         |   | (105 | ) |   |   | 609,239 |   |
| Other      operating expenses                           |   |     | 288,085   |   |     |   | 53,361    |                |   |   | 17,326 |   |   |           | 41,701  |   |         |   | 10,679 |   |   |   | 411,152 |   |
| Depreciation      and amortization                      |   |     | 62,215    |   |     |   | 21,123    |                |   |   | 7,684  |   |   |           | 1,411   |   |         |   | 8,071 |   |   |   | 100,504 |   |
| Operating      income (loss)                            |   |     | 33,070    |   |     |   | 40,724    |                |   |   | 18,322 |   |   |           | 24,322  |   |         |   | (18,855 | ) |   |   | 97,583 |   |
|                                                    |   |     |      |   |     |   |      |                |   |   |   |   |   |           |    |   |         |   |   |   |   |   |   |   |
| Interest      income                                    |   |     | 25,375    |   |     |   | 888       |                |   |   | 146    |   |   |           | 1,506   |   |         |   | (396 | ) |   |   | 27,519 |   |
| Equity      in net earnings of EnergyCo                 |   |     | -         |   |     |   | -         |                |   |   | -      |   |   |           | -       |   |         |   | 12,166 |   |   |   | 12,166 |   |
| Other      income (deductions)                          |   |     | 6,668     |   |     |   | 1,345     |                |   |   | -      |   |   |           | 66      |   |         |   | (4,404 | ) |   |   | 3,675 |   |
| Net      interest charges                               |   |     | (38,908   | )      |     |   | (19,717   | )                   |   |   | (8,564 | )      |   |           | (1,814  | )      |         |   | (24,278 | ) |   |   | (93,281 | ) |
|                                                    |   |     |      |   |     |   |      |                |   |   |   |   |   |           |    |   |         |   |   |   |   |   |   |   |
| Segment      earnings (loss) before income taxes        |   |     | 26,205    |   |     |   | 23,240    |                |   |   | 9,904  |   |   |           | 24,080  |   |         |   | (35,767 | ) |   |   | 47,662 |   |
|                                                    |   |     |      |   |     |   |      |                |   |   |   |   |   |           |    |   |         |   |   |   |   |   |   |   |
| Income      tax expense (benefit)                       |   |     | 9,565     |   |     |   | 7,840     |                |   |   | 3,921  |   |   |           | 9,086   |   |         |   | (31,752 | ) |   |   | (1,340 | ) |
| Preferred      stock dividend requirements              |   |     | 396       |   |     |   | -         |                |   |   | -      |   |   |           | -       |   |         |   | - |   |   |   | 396 |   |
|                                                    |   |     |      |   |     |   |      |                |   |   |   |   |   |           |    |   |         |   |   |   |   |   |   |   |
| Segment      earnings (loss) from continuing operations |   | $        | 16,244    |   |     | $      | 15,400    |                |   | $      | 5,983  |   |   | $              | 14,994  |   |         | $      | (4,015 | ) |   | $ | 48,606 |   |
|                                                    |   |     |      |   |     |   |      |                |   |   |   |   |   |           |    |   |         |   |   |   |   |   |   |   |
| At      September 30, 2007:                             |   |     |      |   |     |   |      |                |   |   |   |   |   |           |    |   |         |   |   |   |   |   |   |   |
| Total      Assets*                                      |   | $        | 3,452,680 |   |     | $      | 1,004,509 |                |   | $      | -      |   |   | $              | 370,440 |   |         | $      | 415,197 |   |   | $ | 5,242,826 |   |
| Goodwill                                                |   | $        | 102,775   |   |     | $      | 261,121   |                |   | $      | -      |   |   | $              | 131,768 |   |         | $      | - |   |   | $ | 495,664 |   |

----

| (4)   | Energy      Related Derivative Contracts and Fair Value  Disclosures |
|-----------------|----------------------------------------------------------------------|

----

----

|                                  |   | September      30,              |    |   | December      31,      |   |     | September      30, |   |   | December      31, |   |
|---------------------------------------|--------|---------------------------------|---------|--------|------------------------|--------|----------|--------------------|--------|--------|-------------------|--------|
|                                  |   | 2008                            |    |   | 2007                   |   |     | 2008               |   |   | 2007              |   |
| Type      of Derivative               |   | Mark-to-Market      Instruments |    |   | Hedge      Instruments |   |
|                                  |   |                            |    |   | (In      thousands)    |   |     |               |   |
| Current      Assets                   |   |                            |    |   |                   |   |     |               |   |   |              |   |
| Energy      contracts                 |   | $                               | 42,843  |   |                   | $      | 14,486   |               |   | $      | 18,525            |   |   | $ | 864 |   |
| Swaps      and futures                |   |                            | 15,282  |   |                   |   | 25,653   |               |   |   | 772               |   |   |   | 524 |   |
| Options                               |   |                            | 6,621   |   |                   |   | 7,372    |               |   |   | 363               |   |   |   | 358 |   |
| Total      current assets             |   |                            | 64,746  |   |                   |   | 47,511   |               |   |   | 19,660            |   |   |   | 1,746 |   |
|                                  |   |                            |    |   |                   |   |     |               |   |   |              |   |   |   |   |   |
| Deferred      Charges                 |   |                            |    |   |                   |   |     |               |   |   |              |   |   |   |   |   |
| Energy      contracts                 |   |                            | 8,908   |   |                   |   | 14,133   |               |   |   | 11,860            |   |   |   | - |   |
| Swaps      and futures                |   |                            | 2,563   |   |                   |   | 26,898   |               |   |   | -                 |   |   |   | - |   |
| Options                               |   |                            | -       |   |                   |   | 4,663    |               |   |   | -                 |   |   |   | - |   |
| Total      deferred charges           |   |                            | 11,471  |   |                   |   | 45,694   |               |   |   | 11,860            |   |   |   | - |   |
|                                  |   |                            |    |   |                   |   |     |               |   |   |              |   |   |   |   |   |
| Total      Assets                     |   |                            | 76,217  |   |                   |   | 93,205   |               |   |   | 31,520            |   |   |   | 1,746 |   |
|                                  |   |                            |    |   |                   |   |     |               |   |   |              |   |   |   |   |   |
| Current      Liabilities              |   |                            |    |   |                   |   |     |               |   |   |              |   |   |   |   |   |
| Energy      contracts                 |   |                            | (50,987 | )      |                   |   | (19,842  | )                  |   |   | -                 |   |   |   | - |   |
| Swaps      and futures                |   |                            | (27,854 | )      |                   |   | (25,308  | )                  |   |   | (2,314            | )      |   |   | (1,058 | ) |
| Options                               |   |                            | (6,238  | )      |                   |   | (7,594   | )                  |   |   | (781              | )      |   |   | (30 | ) |
| Total      current liabilities        |   |                            | (85,079 | )      |                   |   | (52,744  | )                  |   |   | (3,095            | )      |   |   | (1,088 | ) |
|                                  |   |                            |    |   |                   |   |     |               |   |   |              |   |   |   |   |   |
| Long-term      Liabilities            |   |                            |    |   |                   |   |     |               |   |   |              |   |   |   |   |   |
| Energy      contracts                 |   |                            | (2,675  | )      |                   |   | (42,009  | )                  |   |   | -                 |   |   |   | - |   |
| Swaps      and futures                |   |                            | (3,798  | )      |                   |   | (4,465   | )                  |   |   | (136              | )      |   |   | (32 | ) |
| Options                               |   |                            | -       |   |                   |   | (8,700   | )                  |   |   | -                 |   |   |   | - |   |
| Total      long-term liabilities      |   |                            | (6,473  | )      |                   |   | (55,174  | )                  |   |   | (136              | )      |   |   | (32 | ) |
|                                  |   |                            |    |   |                   |   |     |               |   |   |              |   |   |   |   |   |
| Total      Liabilities                |   |                            | (91,552 | )      |                   |   | (107,918 | )                  |   |   | (3,231            | )      |   |   | (1,120 | ) |
|                                  |   |                            |    |   |                   |   |     |               |   |   |              |   |   |   |   |   |
| Net      Total Assets and Liabilities |   | $                               | (15,335 | )      |                   | $      | (14,713  | )                  |   | $      | 28,289            |   |   | $ | 626 |   |

|   | First      Choice Trading Activities |
|--------|--------------------------------------|

----

|                                        |   | September      30,              |    |   | December      31,      |   |    | September      30, |   |   | December      31, |   |
|---------------------------------------------|--------|---------------------------------|---------|--------|------------------------|--------|---------|--------------------|--------|--------|-------------------|--------|
|                                        |   | 2008                            |    |   | 2007                   |   |    | 2008               |   |   | 2007              |   |
| Type      of Derivative                     |   | Mark-to-Market      Instruments |    |   | Hedge      Instruments |   |
|                                        |   |                            |    |   | (In      thousands)    |   |    |               |   |
| Current      Assets                         |   |                            |    |   |                   |   |    |               |   |   |              |   |
| Energy      contracts                       |   | $                               | 656     |   |                   | $      | 2,587   |               |   | $      | 18,525            |   |   | $ | 864 |   |
| Swaps      and futures                      |   |                            | 6,396   |   |                   |   | 6,650   |               |   |   | 744               |   |   |   | 422 |   |
| Options                                     |   |                            | 8       |   |                   |   | 4,336   |               |   |   | -                 |   |   |   | - |   |
| Total      current assets                   |   |                            | 7,060   |   |                   |   | 13,573  |               |   |   | 19,269            |   |   |   | 1,286 |   |
|                                        |   |                            |    |   |                   |   |    |               |   |   |              |   |   |   |   |   |
| Deferred      Charges                       |   |                            |    |   |                   |   |    |               |   |   |              |   |   |   |   |   |
| Energy      contracts                       |   |                            | 2,804   |   |                   |   | 9,443   |               |   |   | 11,860            |   |   |   | - |   |
| Swaps      and futures                      |   |                            | 1,279   |   |                   |   | 23,253  |               |   |   | -                 |   |   |   | - |   |
| Options                                     |   |                            | -       |   |                   |   | 4,663   |               |   |   | -                 |   |   |   | - |   |
| Total      deferred charges                 |   |                            | 4,083   |   |                   |   | 37,359  |               |   |   | 11,860            |   |   |   | - |   |
|                                        |   |                            |    |   |                   |   |    |               |   |   |              |   |   |   |   |   |
| Total      Assets                           |   |                            | 11,143  |   |                   |   | 50,932  |               |   |   | 31,129            |   |   |   | 1,286 |   |
|                                        |   |                            |    |   |                   |   |    |               |   |   |              |   |   |   |   |   |
| Current      Liabilities                    |   |                            |    |   |                   |   |    |               |   |   |              |   |   |   |   |   |
| Energy      contracts                       |   |                            | (5,092  | )      |                   |   | (6,872  | )                  |   |   | -                 |   |   |   | - |   |
| Swaps      and futures                      |   |                            | (8,409  | )      |                   |   | (6,037  | )                  |   |   | (293              | )      |   |   | (868 | ) |
| Options                                     |   |                            | -       |   |                   |   | (4,119  | )                  |   |   | -                 |   |   |   | - |   |
| Total      current liabilities              |   |                            | (13,501 | )      |                   |   | (17,028 | )                  |   |   | (293              | )      |   |   | (868 | ) |
|                                        |   |                            |    |   |                   |   |    |               |   |   |              |   |   |   |   |   |
| Long-term      Liabilities                  |   |                            |    |   |                   |   |    |               |   |   |              |   |   |   |   |   |
| Energy      contracts                       |   |                            | -       |   |                   |   | (38,172 | )                  |   |   | -                 |   |   |   | - |   |
| Swaps      and futures                      |   |                            | -       |   |                   |   | (693    | )                  |   |   | (15               | )      |   |   | (32 | ) |
| Options                                     |   |                            | -       |   |                   |   | (8,700  | )                  |   |   | -                 |   |   |   | - |   |
| Total      long-term liabilities            |   |                            | -       |   |                   |   | (47,565 | )                  |   |   | (15               | )      |   |   | (32 | ) |
|                                        |   |                            |    |   |                   |   |    |               |   |   |              |   |   |   |   |   |
| Total      Liabilities                      |   |                            | (13,501 | )      |                   |   | (64,593 | )                  |   |   | (308              | )      |   |   | (900 | ) |
|                                        |   |                            |    |   |                   |   |    |               |   |   |              |   |   |   |   |   |
| Net      Total Assets and Total Liabilities |   | $                               | (2,358  | )      |                   | $      | (13,661 | )                  |   | $      | 30,821            |   |   | $ | 386 |   |

----

|   | Fair      Value Disclosures |
|--------|-----------------------------|

|                                        |   | Total(1) |    |   | Quoted      Prices in Active Market for Identical Assets(Level      1) |   |    | Significant      Other Observable Inputs(Level      2) |   |   | Significant      Unobservable Inputs(Level      3) |   |
|---------------------------------------------|--------|----------|---------|--------|------------------------------------------------------------------------|--------|---------|--------------------------------------------------------|--------|--------|----------------------------------------------------|--------|
|                                        |   |     |    |   | (In      thousands)                                                    |   |    |                                                   |   |
| PNMR                                        |   |     |    |   |                                                                   |   |    |                                                   |   |   |                                               |   |
| Assets                                      |   |     |    |   |                                                                   |   |    |                                                   |   |   |                                               |   |
| Commodity      derivatives                  |   | $        | 107,737 |   |                                                                   | $      | 13,893  |                                                   |   | $      | 91,061                                             |   |   | $ | 1,442 |   |
| NDT                                         |   |     | 120,424 |   |                                                                   |   | 79,255  |                                                   |   |   | 41,169                                             |   |   |   | - |   |
| Rabbi      Trust                            |   |     | 1,378   |   |                                                                   |   | 1,368   |                                                   |   |   | 10                                                 |   |   |   | - |   |
| Total      Assets                           |   |     | 229,539 |   |                                                                   |   | 94,516  |                                                   |   |   | 132,240                                            |   |   |   | 1,442 |   |
|                                        |   |     |    |   |                                                                   |   |    |                                                   |   |   |                                               |   |   |   |   |   |
| Liabilities                                 |   |     |    |   |                                                                   |   |    |                                                   |   |   |                                               |   |   |   |   |   |
| Commodity      derivatives                  |   |     | (94,783 | )      |                                                                   |   | (26,536 | )                                                      |   |   | (64,906                                            | )      |   |   | (2,000 | ) |
| Net      Total Assets and Total Liabilities |   | $        | 134,756 |   |                                                                   | $      | 67,980  |                                                   |   | $      | 67,334                                             |   |   | $ | (558 | ) |
|                                        |   |     |    |   |                                                                   |   |    |                                                   |   |   |                                               |   |   |   |   |   |

----

| PNM                                         |   |   |    |   |   |   |   |   |   |   |    |   |
|---------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|---------|--------|
| Assets                                      |   |   |    |   |   |   |   |   |   |   |    |   |
| Commodity      derivatives                  |   | $      | 42,272  |   |   | $      | 745    |   |   | $      | 40,238  |   |   | $ | 1,022 |   |
| NDT                                         |   |   | 120,424 |   |   |   | 79,255 |   |   |   | 41,169  |   |   |   | - |   |
| Rabbi      Trust                            |   |   | 1,378   |   |   |   | 1,368  |   |   |   | 10      |   |   |   | - |   |
| Total      Assets                           |   |   | 164,074 |   |   |   | 81,368 |   |   |   | 81,417  |   |   |   | 1,022 |   |
|                                        |   |   |    |   |   |   |   |   |   |   |    |   |   |   |   |   |
| Liabilities                                 |   |   |    |   |   |   |   |   |   |   |    |   |   |   |   |   |
| Commodity      derivatives                  |   |   | (13,809 | )      |   |   | (1,034 | )      |   |   | (10,508 | )      |   |   | (2,000 | ) |
| Net      Total Assets and Total Liabilities |   | $      | 150,265 |   |   | $      | 80,334 |   |   | $      | 70,909  |   |   | $ | (978 | ) |

|   | (1) | The Level 1, 2 and 3 columns in      the above table are presented based on the nature of each      instrument.  The total column is presented based on the balance      sheet classification of the instruments and reflect unit of account      reclassifications between commodity derivative assets and commodity      derivative liabilities of $1.3 million for PNMR and $0.3 million for      PNM. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                                                                     |   | Three      Months Ended |    |   | Nine      Months Ended  |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|--------|-------------------------|--------|
|                                                                                                                                                                     |   | September      30, 2008 |    |   | September      30, 2008 |   |
|                                                                                                                                                                     |   | PNMR                    |    |   | PNM                     |   |   | PNMR |   |   | PNM |   |
|                                                                                                                                                                     |   |                    |    |   | (In      thousands)     |   |   |   |   |
| Level      3 Fair Value Assets and Liabilities                                                                                                                           |   |                    |    |   |                    |   |   |   |   |   |   |   |
| Balance      at December 31, 2007                                                                                                                                        |   |                    |    |   |                    |   |   | $ | 2,061 |   |   | $ | 2,679 |   |
| Adoption      of SFAS 157                                                                                                                                                |   |                    |    |   |                    |   |   |   | 16,407 |   |   |   | 16,407 |   |
| Balance      at beginning of period                                                                                                                                      |   | $                       | 19,863  |   |                    | $      | 19,666 |   |   |   | 18,468 |   |   |   | 19,086 |   |
| Total      gains (losses) included in earnings                                                                                                                           |   |                    | (19,503 | )      |                    |   | (19,117 | ) |   |   | (1,859 | ) |   |   | (2,200 | ) |
| Total      gains (losses) included in other comprehensive income                                                                                                         |   |                    | (60     | )      |                    |   | - |   |   |   | 28 |   |   |   | - |   |
| Purchases,      issuances, and settlements(1)                                                                                                                            |   |                    | 669     |   |                    |   | - |   |   |   | (15,668 | ) |   |   | (16,337 | ) |
| Transfers      into Level 3(2)                                                                                                                                           |   |                    | (1,527  | )      |                    |   | (1,527 | ) |   |   | (1,527 | ) |   |   | (1,527 | ) |
| Balance      at September 30, 2008                                                                                                                                       |   | $                       | (558    | )      |                    | $      | (978 | ) |   | $ | (558 | ) |   | $ | (978 | ) |
| Total      gains (losses) included in earnings attributable to the change in      unrealized gains or losses relating to assets still held at the end of the      period |   | $                       | (9,925  | )      |                    | $      | (10,256 | ) |   | $ | (3,097 | ) |   | $ | (2,821 | ) |

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

| (2)   | Transfers      in to Level 3 from Level 2 are at the fair value as of August 29,      2008. |
|-----------------|---------------------------------------------------------------------------------------------|

----

|                                                                                           |   | Three      Months Ended |   |   | Nine      Months Ended  |   |
|------------------------------------------------------------------------------------------------|--------|-------------------------|--------|--------|-------------------------|--------|
|                                                                                           |   | September      30, 2008 |   |   | September      30, 2008 |   |
| PNMR                                                                                           |   | OperatingRevenues       |   |   | Cost      ofEnergy      |   |   | Total |   |   | OperatingRevenues |   |   | Cost      ofEnergy |   |   | Total |   |
|                                                                                           |   | (In      thousands)     |   |
| Total      gains (losses) included in earnings                                                 |   | $                       | 2      |   |                    | $      | (19,505 | ) |   | $ | (19,503 | ) |   | $ | 21,800 |   |   | $ | (23,659 | ) |   | $ | (1,859 | ) |
| Change      in unrealized gains or losses relating to assets still held at reporting      date |   | $                       | 2      |   |                    | $      | (9,927 | ) |   | $ | (9,925 | ) |   | $ | 2 |   |   | $ | (3,099 | ) |   | $ | (3,097 | ) |
|                                                                                           |   |                    |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| PNM                                                                                            |   |                    |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      gains (losses) included in earnings                                                 |   | $                       | 2      |   |                    | $      | (19,119 | ) |   | $ | (19,117 | ) |   | $ | 21,183 |   |   | $ | (23,383 | ) |   | $ | (2,200 | ) |
| Change      in unrealized gains or losses relating to assets still held at reporting      date |   | $                       | 2      |   |                    | $      | (10,258 | ) |   | $ | (10,256 | ) |   | $ | 2 |   |   | $ | (2,823 | ) |   | $ | (2,821 | ) |

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

|                                                   |   | Three      Months Ended                       |   |   | Nine      Months Ended |   |
|--------------------------------------------------------|--------|-----------------------------------------------|--------|--------|------------------------|--------|
|                                                   |   | September      30,                            |   |   | September      30,     |   |
|                                                   |   | 2008                                          |   |   | 2007                   |   |   | 2008 |   |   | 2007 |   |
|                                                   |   | (In      thousands, except per share amounts) |   |
| Earnings      (Loss):                                  |   |                                          |   |   |                   |   |   |   |   |   |   |   |
| Earnings      (loss) from continuing operations        |   | $                                             | (4,847 | )      |                   | $      | 11,636 |   |   | $ | (222,230 | ) |   | $ | 48,606 |   |
| Earnings      (loss) from discontinued operations      |   |                                          | (638   | )      |                   |   | (3,264 | ) |   |   | 24,622 |   |   |   | 9,671 |   |
|         Net Earnings (Loss)                  |   | $                                             | (5,485 | )      |                   | $      | 8,372 |   |   | $ | (197,608 | ) |   | $ | 58,277 |   |
|                                                   |   |                                          |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Average      Number of Common Shares Outstanding       |   |                                          | 86,408 |   |                   |   | 76,736 |   |   |   | 81,669 |   |   |   | 76,697 |   |
| Dilutive      Effect of Common Stock Equivalents (a):  |   |                                          |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Stock      options and restricted stock                |   |                                          | -      |   |                   |   | 422 |   |   |   | - |   |   |   | 594 |   |
| Equity-linked      units                               |   |                                          | -      |   |                   |   | 403 |   |   |   | - |   |   |   | 860 |   |
|         Average Common and Common Equivalent |   |                                          |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Shares      Outstanding                                |   |                                          | 86,408 |   |                   |   | 77,561 |   |   |   | 81,669 |   |   |   | 78,151 |   |
|                                                   |   |                                          |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Per      Share of Common Stock – Basic:          |   |                                          |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      (loss) from continuing operations        |   | $                                             | (0.06  | )      |                   | $      | 0.15 |   |   | $ | (2.72 | ) |   | $ | 0.63 |   |
| Earnings      (loss) from discontinued operations      |   |                                          | -      |   |                   |   | (0.04 | ) |   |   | 0.30 |   |   |   | 0.13 |   |
|         Net Earnings (Loss)                  |   | $                                             | (0.06  | )      |                   | $      | 0.11 |   |   | $ | (2.42 | ) |   | $ | 0.76 |   |
|                                                   |   |                                          |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Per      Share of Common Stock – Diluted:        |   |                                          |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      (loss) from continuing operations        |   | $                                             | (0.06  | )      |                   | $      | 0.15 |   |   | $ | (2.72 | ) |   | $ | 0.62 |   |
| Earnings      (loss) from discontinued operations      |   |                                          | -      |   |                   |   | (0.04 | ) |   |   | 0.30 |   |   |   | 0.13 |   |
|         Net Earnings (Loss)                  |   | $                                             | (0.06  | )      |                   | $      | 0.11 |   |   | $ | (2.42 | ) |   | $ | 0.75 |   |

| (a)   | Due      to losses in the three and nine months ended September 30, 2008, no      potentially dilutive securities are reflected in the average number of      common shares used to compute earnings (loss) per share for those periods      since any impact would be anti-dilutive.  At September 30, 2008,      PNMR’s potentially dilutive securities consists of all options and      restricted stock (see Note 6) and the privately held equity-linked units      (see Note 7). |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

|                                      |   |   |      |   |      |   |   |                |   |   | Weighted-          |   |
|-------------------------------------------|--------|--------|-----------|--------|-----------|--------|--------|---------------------|--------|--------|--------------------|--------|
|                                      |   |   |      |   | Weighted- |   |   | Aggregate           |   |   | Average            |   |
|                                      |   |   |      |   | Average   |   |   | Intrinsic           |   |   | Remaining          |   |
|                                      |   |   |      |   | Exercise  |   |   | Value               |   |   | Contract      Life |   |
| Options      for PNMR Common Stock        |   | Shares |      |   | Price     |   |   | (In      thousands) |   |   | (Years)            |   |
|                                      |   |   |      |   |      |   |   |                |   |   |               |   |
| Outstanding      at beginning of period   |   |   | 3,264,898 |   |      | $      | 23.26  |                |   |   |               |   |   |   |
| Granted                                   |   |   | 558,261   |   |      |   | 11.90  |                |   |   |               |   |   |   |
| Exercised                                 |   |   | (5,001    | )      |      |   | 16.13  |                |   |   |               |   |   |   |
| Forfeited                                 |   |   | (65,073   | )      |      |   | 24.90  |                |   |   |               |   |   |   |
|                                      |   |   |      |   |      |   |   |                |   |   |               |   |   |   |
| Outstanding      at end of period         |   |   | 3,753,085 |   |      | $      | 21.53  |                |   | $      | (42,321            | )      |   |   | 6.62 |   |
|                                      |   |   |      |   |      |   |   |                |   |   |               |   |   |   |   |   |
| Options      exercisable at end of period |   |   | 2,625,886 |   |      | $      | 21.94  |                |   | $      | (30,719            | )      |   |   | 5.69 |   |
|                                      |   |   |      |   |      |   |   |                |   |   |               |   |   |   |   |   |
| Options      available for future grant   |   |   | 1,866,703 |   |      |   |   |                |   |   |               |   |   |   |   |   |

| Options      for PNMR Common Stock                                       |   | 2008                                              |   |   | 2007   |   |
|--------------------------------------------------------------------------|--------|---------------------------------------------------|--------|--------|--------|--------|
|                                                                     |   | (In      thousands,except      per share amounts) |   |
|                                                                     |   |                                              |   |   |   |   |
| Weighted-average      grant date fair value per share of options granted |   | $                                                 | 1.39   |   |   | $      | 4.70 |   |
| Total      intrinsic value of options exercised during the period        |   | $                                                 | 15     |   |   | $      | 4,854 |   |

----

|                                  |   |   |    |   | Weighted-       |   |
|---------------------------------------|--------|--------|---------|--------|-----------------|--------|
|                                  |   |   |    |   | Average         |   |
| Nonvested      Restricted             |   |   |    |   | Grant-Date      |   |
| PNMR      Common Stock                |   | Shares |    |   | Fair      Value |   |
|                                  |   |   |    |   |            |   |
| Nonvested      at beginning of period |   |   | 169,750 |   |            | $      | 26.09 |   |
| Granted                               |   |   | 129,250 |   |            | $      | 11.50 |   |
| Vested                                |   |   | (89,365 | )      |            | $      | 24.65 |   |
| Forfeited                             |   |   | (5,005  | )      |            | $      | 26.44 |   |
|                                  |   |   |    |   |            |   |   |   |
| Nonvested      at end of period       |   |   | 204,630 |   |            | $      | 17.46 |   |

| (7)   | Financing |
|-----------------|-----------|

----

----

----

|                                 |   | September      30,  |    |   | December      31, |   |
|--------------------------------------|--------|---------------------|---------|--------|-------------------|--------|
| Short-term      Debt                 |   | 2008                |    |   | 2007              |   |
|                                 |   | (In      thousands) |    |
|                                 |   |                |    |   |              |   |
| PNM                                  |   |                |    |   |              |   |
| Commercial      paper                |   | $                   | -       |   |              | $      | - |   |
| Revolving      credit facility       |   |                | 340,000 |   |              |   | 321,000 |   |
| Delayed      draw term loan facility |   |                | -       |   |              |   | - |   |
| Local      lines of credit           |   |                | -       |   |              |   | - |   |
| Total      PNM                       |   |                | 340,000 |   |              |   | 321,000 |   |
| TNMP                                 |   |                |    |   |              |   |   |   |
| Short-term      bank loan            |   |                | 150,000 |   |              |   | - |   |
| Revolving      credit facility       |   |                | -       |   |              |   | - |   |
| Total      TNMP                      |   |                | 150,000 |   |              |   | - |   |
| PNMR                                 |   |                |    |   |              |   |   |   |
| Commercial      paper                |   |                | -       |   |              |   | - |   |
| Revolving      credit facility       |   |                | 288,667 |   |              |   | 343,500 |   |
| Local      lines of credit           |   |                | -       |   |              |   | 1,400 |   |
|  Total      PNMR                |   |                | 288,667 |   |              |   | 344,900 |   |
|                                 |   |                |    |   |              |   |   |   |
| Total      PNM, TNMP and PNMR        |   | $                   | 778,667 |   |              | $      | 665,900 |   |

----

| (8)   | Pension      and Other Postretirement BenefitPlans |
|-----------------|----------------------------------------------------|

----

|                                     |   | Three      Months Ended September 30, |    |
|------------------------------------------|--------|---------------------------------------|---------|
|                                     |   | Pension      Plan                     |    |   | Other      Postretirement Benefits |   |   | Executive      Retirement Program |   |
|                                     |   | 2008                                  |    |   | 2007 |   |   | 2008 |   |   | 2007 |   |   | 2008 |   |   | 2007 |   |
|                                     |   |                                  |    |   |   |   |   | (In      thousands) |   |   |   |   |   |   |   |
|                                     |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Components      of Net Periodic          |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Benefit      Cost (Income)               |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Service      cost                        |   | $                                     | -       |   |   | $ | 36 |   |   | $ | 178 |   |   | $ | 632 |   |   | $ | 14 |   |   | $ | 14 |   |
| Interest      cost                       |   |                                  | 8,317   |   |   |   | 7,953 |   |   |   | 2,086 |   |   |   | 1,928 |   |   |   | 284 |   |   |   | 272 |   |
| Expected      long-term return on assets |   |                                  | (10,336 | ) |   |   | (10,195 | ) |   |   | (1,532 | ) |   |   | (1,464 | ) |   |   | - |   |   |   | - |   |
| Amortization      of net loss            |   |                                  | 481     |   |   |   | 972 |   |   |   | 1,204 |   |   |   | 1,461 |   |   |   | 13 |   |   |   | 24 |   |
| Amortization      of prior service cost  |   |                                  | 79      |   |   |   | 79 |   |   |   | (1,422 | ) |   |   | (1,422 | ) |   |   | 3 |   |   |   | 3 |   |
| Net      periodic benefit cost (income)  |   | $                                     | (1,459  | ) |   | $ | (1,155 | ) |   | $ | 514 |   |   | $ | 1,135 |   |   | $ | 314 |   |   | $ | 313 |   |

|                                     |   | Nine      Months Ended September 30, |    |
|------------------------------------------|--------|--------------------------------------|---------|
|                                     |   | Pension      Plan                    |    |   | Other      Postretirement Benefits |   |   | Executive      Retirement Program |   |
|                                     |   | 2008                                 |    |   | 2007 |   |   | 2008 |   |   | 2007 |   |   | 2008 |   |   | 2007 |   |
|                                     |   |                                 |    |   |   |   |   | (In      thousands) |   |   |   |   |   |   |   |
|                                     |   |                                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Components      of Net Periodic          |   |                                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Benefit      Cost (Income)               |   |                                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Service      cost                        |   | $                                    | -       |   |   | $ | 108 |   |   | $ | 535 |   |   | $ | 1,897 |   |   | $ | 42 |   |   | $ | 42 |   |
| Interest      cost                       |   |                                 | 24,951  |   |   |   | 23,858 |   |   |   | 6,258 |   |   |   | 5,784 |   |   |   | 852 |   |   |   | 816 |   |
| Expected      long-term return on assets |   |                                 | (31,009 | ) |   |   | (30,585 | ) |   |   | (4,597 | ) |   |   | (4,393 | ) |   |   | - |   |   |   | - |   |
| Amortization      of net loss            |   |                                 | 1,443   |   |   |   | 2,917 |   |   |   | 3,612 |   |   |   | 4,382 |   |   |   | 39 |   |   |   | 70 |   |
| Amortization      of prior service cost  |   |                                 | 238     |   |   |   | 238 |   |   |   | (4,265 | ) |   |   | (4,265 | ) |   |   | 10 |   |   |   | 10 |   |
| Net      periodic benefit cost (income)  |   | $                                    | (4,377  | ) |   | $ | (3,464 | ) |   | $ | 1,543 |   |   | $ | 3,405 |   |   | $ | 943 |   |   | $ | 938 |   |

----

|                                     |   | Three      Months Ended September 30, |   |
|------------------------------------------|--------|---------------------------------------|--------|
|                                     |   | Pension      Plan                     |   |   | Other      Postretirement Benefits |   |   | Executive      Retirement Program |   |
|                                     |   | 2008                                  |   |   | 2007 |   |   | 2008 |   |   | 2007 |   |   | 2008 |   |   | 2007 |   |
|                                     |   |                                  |   |   |   |   |   | (In      thousands) |   |   |   |   |   |   |   |
| Components      of Net Periodic          |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Benefit      Cost (Income)               |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Service      cost                        |   | $                                     | -      |   |   | $ | - |   |   | $ | 71 |   |   | $ | 98 |   |   | $ | - |   |   | $ | - |   |
| Interest      cost                       |   |                                  | 1,061  |   |   |   | 1,057 |   |   |   | 179 |   |   |   | 165 |   |   |   | 19 |   |   |   | 19 |   |
| Expected      long-term return on assets |   |                                  | (1,659 | ) |   |   | (1,710 | ) |   |   | (122 | ) |   |   | (114 | ) |   |   | - |   |   |   | - |   |
| Amortization      of net gain            |   |                                  | (36    | ) |   |   | (2 | ) |   |   | (68 | ) |   |   | (39 | ) |   |   | - |   |   |   | - |   |
| Amortization      of prior service cost  |   |                                  | -      |   |   |   | - |   |   |   | 15 |   |   |   | 15 |   |   |   | - |   |   |   | - |   |
| Net      Periodic Benefit Cost (Income)  |   | $                                     | (634   | ) |   | $ | (655 | ) |   | $ | 75 |   |   | $ | 125 |   |   | $ | 19 |   |   | $ | 19 |   |

|                                     |   | Nine      Months Ended September 30, |   |
|------------------------------------------|--------|--------------------------------------|--------|
|                                     |   | Pension      Plan                    |   |   | Other      Postretirement Benefits |   |   | Executive      Retirement Program |   |
|                                     |   | 2008                                 |   |   | 2007 |   |   | 2008 |   |   | 2007 |   |   | 2008 |   |   | 2007 |   |
|                                     |   |                                 |   |   |   |   |   | (In      thousands) |   |   |   |   |   |   |   |
| Components      of Net Periodic          |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Benefit      Cost (Income)               |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Service      cost                        |   | $                                    | -      |   |   | $ | - |   |   | $ | 213 |   |   | $ | 295 |   |   | $ | - |   |   | $ | - |   |
| Interest      cost                       |   |                                 | 3,182  |   |   |   | 3,171 |   |   |   | 536 |   |   |   | 496 |   |   |   | 57 |   |   |   | 57 |   |
| Expected      long-term return on assets |   |                                 | (4,976 | ) |   |   | (5,130 | ) |   |   | (365 | ) |   |   | (342 | ) |   |   | - |   |   |   | - |   |
| Amortization      of net gain            |   |                                 | (109   | ) |   |   | (5 | ) |   |   | (203 | ) |   |   | (117 | ) |   |   | - |   |   |   | - |   |
| Amortization      of prior service cost  |   |                                 | -      |   |   |   | - |   |   |   | 45 |   |   |   | 45 |   |   |   | - |   |   |   | - |   |
| Net      Periodic Benefit Cost (Income)  |   | $                                    | (1,903 | ) |   | $ | (1,964 | ) |   | $ | 226 |   |   | $ | 377 |   |   | $ | 57 |   |   | $ | 57 |   |

----

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

----

----

----

----

----

----

----

----

----

----

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

----

----

----

----

----

| Gas      Utility Assets Sale and ServiceAbandonment |
|-----------------------------------------------------|

| NMPRC      Inquiry on Fuel and Purchased Power Adjustment  Clauses |
|--------------------------------------------------------------------|

----

----

| (11)   | EnergyCo |
|------------------|----------|

----

|                                                                            |   | Three      Months Ended |    |   | Nine      Months Ended |   |
|---------------------------------------------------------------------------------|--------|-------------------------|---------|--------|------------------------|--------|
|                                                                            |   | September      30,      |    |   | September      30,     |   |
|                                                                            |   | 2008                    |    |   | 2007                   |   |   | 2008 |   |   | 2007 |   |
|                                                                            |   |                    |    |   | (In      thousands)    |   |   |   |   |
| Operating      revenues                                                         |   | $                       | 414,106 |   |                   | $      | 100,463 |   |   | $ | 892,646 |   |   | $ | 114,828 |   |
| Cost      of sales                                                              |   |                    | 357,825 |   |                   |   | 56,419 |   |   |   | 814,922 |   |   |   | 60,979 |   |
| Gross      margin                                                               |   |                    | 56,281  |   |                   |   | 44,044 |   |   |   | 77,724 |   |   |   | 53,849 |   |
| Non-fuel      operations and maintenance expenses                               |   |                    | 7,614   |   |                   |   | 4,065 |   |   |   | 17,217 |   |   |   | 4,865 |   |
| Administrative      and general expenses                                        |   |                    | 6,075   |   |                   |   | 6,353 |   |   |   | 19,876 |   |   |   | 10,000 |   |
| Impairment      of intangible assets                                            |   |                    | -       |   |                   |   | - |   |   |   | 21,795 |   |   |   | - |   |
| Write      off of emission allowances                                           |   |                    | 31,739  |   |                   |   | - |   |   |   | 31,739 |   |   |   | - |   |
| Depreciation      and amortization expense                                      |   |                    | 7,659   |   |                   |   | 5,790 |   |   |   | 22,886 |   |   |   | 7,318 |   |
| Interest      expense                                                           |   |                    | 3,662   |   |                   |   | 6,978 |   |   |   | 15,019 |   |   |   | 7,796 |   |
| Taxes      other than income tax                                                |   |                    | 1,772   |   |                   |   | 1,861 |   |   |   | 9,040 |   |   |   | 2,865 |   |
| Other      (income) and deductions                                              |   |                    | 4       |   |                   |   | (217 | ) |   |   | (702 | ) |   |   | (260 | ) |
|         Earnings (loss) before income taxes                           |   |                    | (2,244  | )      |                   |   | 19,214 |   |   |   | (59,146 | ) |   |   | 21,265 |   |
| Income      taxes (benefit)(1)                                                  |   |                    | 64      |   |                   |   | 399 |   |   |   | (229 | ) |   |   | 399 |   |
|                Net earnings (loss) |   | $                       | (2,308  | )      |                   | $      | 18,815 |   |   | $ | (58,917 | ) |   | $ | 20,866 |   |
|                                                                            |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| 50      percent of net earnings (loss)                                          |   | $                       | (1,154  | )      |                   | $      | 9,408 |   |   | $ | (29,459 | ) |   | $ | 10,433 |   |
| Amortization      of basis difference in EnergyCo                               |   |                    | (331    | )      |                   |   | 1,148 |   |   |   | 368 |   |   |   | 1,733 |   |
| PNMR      equity in net earnings (loss) of EnergyCo                             |   | $                       | (1,485  | )      |                   | $      | 10,556 |   |   | $ | (29,091 | ) |   | $ | 12,166 |   |

|                                                                               |   | September      30, 2008 |      |   | December      31, 2007 |   |
|------------------------------------------------------------------------------------|--------|-------------------------|-----------|--------|------------------------|--------|
|                                                                               |   | (In      thousands)     |      |
|                                                                               |   |                    |      |   |                   |   |
| Current      assets                                                                |   | $                       | 174,645   |   |                   | $      | 119,255 |   |
| Net      property, plant and equipment                                             |   |                    | 933,426   |   |                   |   | 853,492 |   |
| Deferred      assets                                                               |   |                    | 221,697   |   |                   |   | 297,197 |   |
|         Total assets                                                     |   |                    | 1,329,768 |   |                   |   | 1,269,944 |   |
|                                                                               |   |                    |      |   |                   |   |   |   |
| Current      liabilities                                                           |   |                    | 158,747   |   |                   |   | 88,812 |   |
| Long-term      debt                                                                |   |                    | 700,778   |   |                   |   | 650,778 |   |
| Other      long-term liabilities                                                   |   |                    | 15,129    |   |                   |   | 34,344 |   |
|         Total liabilities                                                |   |                    | 874,654   |   |                   |   | 773,934 |   |
|                                                                               |   |                    |      |   |                   |   |   |   |
| Owners’      equity                                                          |   | $                       | 455,114   |   |                   | $      | 496,010 |   |
|                                                                               |   |                    |      |   |                   |   |   |   |
|             50 percent of owners’ equity       |   | $                       | 227,557   |   |                   | $      | 248,005 |   |
|             Unamortized PNMR basis difference in EnergyCo |   |                    | 183       |   |                   |   | 89 |   |
|         PNMR equity investment in EnergyCo                               |   | $                       | 227,740   |   |                   | $      | 248,094 |   |

----

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

----

|                                                           |   | Three      Months Ended |   |   | Nine      Months Ended |   |
|----------------------------------------------------------------|--------|-------------------------|--------|--------|------------------------|--------|
|                                                           |   | September      30,      |   |   | September      30,     |   |
|                                                           |   | 2008                    |   |   | 2007                   |   |   | 2008 |   |   | 2007 |   |
|                                                           |   | (In      thousands)     |   |
| Transmission,      distribution and related services billings: |   |                    |   |   |                   |   |   |   |   |   |   |   |
| PNM      to TNMP                                               |   | $                       | -      |   |                   | $      | - |   |   | $ | - |   |   | $ | 126 |   |
| TNMP      to PNMR                                              |   |                    | 15,232 |   |                   |   | 21,057 |   |   |   | 44,550 |   |   |   | 55,444 |   |
|                                                           |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Shared      services billings from PNMR to:                    |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| PNM*                                                           |   | $                       | 32,108 |   |                   | $      | 21,350 |   |   | $ | 102,845 |   |   | $ | 70,945 |   |
| TNMP                                                           |   |                    | 7,420  |   |                   |   | 3,888 |   |   |   | 21,881 |   |   |   | 14,006 |   |
|                                                           |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Services      billings from PNMR to EnergyCo                   |   | $                       | 2,130  |   |                   | $      | 4,580 |   |   | $ | 9,354 |   |   | $ | 7,994 |   |
|                                                           |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Income      tax sharing payments from:                         |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| PNMR      to PNM                                               |   | $                       | -      |   |                   | $      | - |   |   | $ | 1,855 |   |   | $ | - |   |
| PNMR      to TNMP                                              |   |                    | -      |   |                   |   | - |   |   |   | 858 |   |   |   | - |   |
|                                                           |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Capital      expenditure billings from PNMR to:                |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| PNM                                                            |   | $                       | -      |   |                   | $      | - |   |   | $ | - |   |   | $ | 99 |   |
| TNMP                                                           |   |                    | -      |   |                   |   | - |   |   |   | - |   |   |   | 18 |   |
| EnergyCo                                                       |   |                    | 140    |   |                   |   | - |   |   |   | 2,783 |   |   |   | - |   |
|                                                           |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      payments:                                        |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| TNMP      to PNMR                                              |   | $                       | 13     |   |                   | $      | 396 |   |   | $ | 130 |   |   | $ | 987 |   |

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

----

| (14)   | Discontinued      Operations |
|------------------|------------------------------|

|                                             |   | Three      Months Ended |   |   | Nine      Months Ended |   |
|--------------------------------------------------|--------|-------------------------|--------|--------|------------------------|--------|
|                                             |   | September      30,      |   |   | September      30,     |   |
|                                             |   | 2008                    |   |   | 2007                   |   |   | 2008 |   |   | 2007 |   |
|                                             |   |                    |   |   | (In      thousands)    |   |   |   |   |
| Operating      revenues                          |   | $                       | 63,301 |   |                   | $      | 59,527 |   |   | $ | 379,325 |   |   | $ | 351,097 |   |
| Cost      of energy                              |   |                    | 37,498 |   |                   |   | 33,975 |   |   |   | 263,244 |   |   |   | 240,751 |   |
| Gross      margin                                |   |                    | 25,803 |   |                   |   | 25,552 |   |   |   | 116,081 |   |   |   | 110,346 |   |
| Operating      expenses                          |   |                    | 22,852 |   |                   |   | 21,815 |   |   |   | 67,286 |   |   |   | 68,905 |   |
| Depreciation      and amortization               |   |                    | -      |   |                   |   | 5,273 |   |   |   | - |   |   |   | 16,347 |   |
| Operating      income (loss)                     |   |                    | 2,951  |   |                   |   | (1,536 | ) |   |   | 48,795 |   |   |   | 25,094 |   |
| Other      income (deductions)                   |   |                    | 614    |   |                   |   | 2 |   |   |   | 2,057 |   |   |   | 627 |   |
| Net      interest charges                        |   |                    | (3,383 | )      |                   |   | (3,869 | ) |   |   | (9,931 | ) |   |   | (9,713 | ) |
| Segment      earnings (loss) before income taxes |   |                    | 182    |   |                   |   | (5,403 | ) |   |   | 40,921 |   |   |   | 16,008 |   |
| Income      taxes (benefit)                      |   |                    | 820    |   |                   |   | (2,139 | ) |   |   | 16,299 |   |   |   | 6,337 |   |
| Segment      earnings (loss)                     |   | $                       | (638   | )      |                   | $      | (3,264 | ) |   | $ | 24,622 |   |   | $ | 9,671 |   |

----

|                                                |   | September      30,  |     |   | December      31, |   |
|-----------------------------------------------------|--------|---------------------|----------|--------|-------------------|--------|
|                                                |   | 2008                |     |   | 2007              |   |
|                                                |   | (In      thousands) |     |
| ASSETS                                              |   |                |     |   |              |   |
| Cash      and cash equivalents                      |   | $                   | 26       |   |              | $      | 28 |   |
| Accounts      receivable and unbilled revenues, net |   |                | 29,076   |   |              |   | 89,699 |   |
| Regulatory      and other current assets            |   |                | 44,352   |   |              |   | 30,334 |   |
| Total      current assets                           |   |                | 73,454   |   |              |   | 120,061 |   |
| Gas      plant in service                           |   |                | 766,117  |   |              |   | 743,664 |   |
| Accumulated      depreciation and amortization      |   |                | (240,426 | )      |              |   | (245,741 | ) |
| Construction      work in progress                  |   |                | 21,689   |   |              |   | 22,411 |   |
| Net      utility utility plant                      |   |                | 547,380  |   |              |   | 520,334 |   |
| Regulatory      and other assets                    |   |                | 5,130    |   |              |   | 6,205 |   |
|                                                |   | $                   | 625,964  |   |              | $      | 646,600 |   |
|                                                |   |                |     |   |              |   |   |   |
| LIABILITIES      AND EQUITY                         |   |                |     |   |              |   |   |   |
| Accounts      payable and accrued expenses          |   | $                   | 10,512   |   |              | $      | 68,458 |   |
| Regulatory      and other current liabilities       |   |                | 35,470   |   |              |   | 27,545 |   |
| Total      current liabilities                      |   |                | 45,982   |   |              |   | 96,003 |   |
| Regulatory      liabilities                         |   |                | 74,551   |   |              |   | 72,727 |   |
| Deferred      credits and other liabilities         |   |                | 15,526   |   |              |   | 17,121 |   |
| Total      deferred credits and other liabilities   |   |                | 90,077   |   |              |   | 89,848 |   |
| Equity                                              |   |                | 489,905  |   |              |   | 460,749 |   |
|                                                |   | $                   | 625,964  |   |              | $      | 646,600 |   |

| (15)   | Business      Improvement Plan |
|------------------|--------------------------------|

----

| (16)   | Variable      Interest Entities |
|------------------|---------------------------------|

|                                                            |   | Three      months ended |   |   | May      30, 2008      to |   |
|-----------------------------------------------------------------|--------|-------------------------|--------|--------|---------------------------|--------|
|                                                            |   | September 30, 2008      |   |   | September 30, 2008        |   |
|                                                            |   | (In      thousands)     |   |
|                                                            |   |                    |   |   |                      |   |
| Operating      revenues                                         |   | $                       | 4,641  |   |                      | $      | 6,058 |   |
| Operating      expenses                                         |   |                    | (1,190 | )      |                      |   | (1,381 | ) |
| Interest      expense                                           |   |                    | -      |   |                      |   | ( 225 | ) |
|    Income      attributable to minority interest |   | $                       | 3,451  |   |                      | $      | 4,452 |   |
|                                                            |   |                    |   |   |                      |   |   |   |

----

|                                                |   |                |   |
|-----------------------------------------------------|--------|---------------------|--------|
|                                                |   | September 30, 2008  |   |
|                                                |   | (In      thousands) |   |
|                                                |   |                |   |
| Current      assets                                 |   | $                   | 7,300  |   |
| Net      property, plant and equipment              |   |                | 89,716 |   |
|    Total      assets                 |   |                | 97,016 |   |
|                                                |   |                |   |   |
|                                                |   |                |   |   |
|                                                |   |                |   |   |
| Current      liabilities                            |   |                | 1,067  |   |
|                                                |   |                |   |   |
|                                                |   |                |   |   |
| Owners’      equity – minority interest |   | $                   | 95,949 |   |

| (17)   | Impairment      of Goodwill and Other IntangibleAssets |
|------------------|--------------------------------------------------------|

----

|                                                   |   | Balance    |    |   | Balance             |   |    |       |   |
|--------------------------------------------------------|--------|------------|---------|--------|---------------------|--------|---------|------------|--------|
|                                                   |   | before     |    |   | after               |   |    |       |   |
|                                                   |   | Impairment |    |   | Impairment          |   |    | Impairment |   |
|                                                   |   |       |    |   | (In      thousands) |   |    |       |   |
| Goodwill:                                              |   |       |    |   |                |   |    |       |   |
| First      Choice                                      |   | $          | 131,768 |   |                | $      | 82,310  |       |   | $ | 49,458 |   |
| PNM                                                    |   |       | 102,775 |   |                |   | 51,632  |       |   |   | 51,143 |   |
| TNMP                                                   |   |       | 261,121 |   |                |   | 226,665 |       |   |   | 34,456 |   |
| Total      PNMR                                        |   | $          | 495,664 |   |                | $      | 360,607 |       |   |   | 135,057 |   |
|                                                   |   |       |    |   |                |   |    |       |   |   |   |   |
| Other      intangible assets - First Choice trade name |   | $          | 68,774  |   |                | $      | 59,746  |       |   |   | 9,028 |   |
|                                                   |   |       |    |   |                |   |    |       |   |   |   |   |
| Total      impairment                                  |   |       |    |   |                |   |    |       |   | $ | 144,085 |   |
|                                                   |   |       |    |   |                |   |    |       |   |   |   |   |

----

|   |   |
|--------|--------|

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

----

----

| ·   | Competitive      retail energy sales |
|--------------------|--------------------------------------|

| ·   | Development,      ownership, and active management of diverse generation    fleet |
|--------------------|-----------------------------------------------------------------------------------|

| ·   | Wholesale      marketing to capture the extrinsic value of the generating      fleet |
|--------------------|--------------------------------------------------------------------------------------|

| ·   | Multi-year      hedging program to minimize price volatility and maximize cash flow      predictability |
|--------------------|---------------------------------------------------------------------------------------------------------|

----

|                                                              |   | Three      Months Ended September 30,         |   |   | Nine      Months Ended September 30, |   |
|-------------------------------------------------------------------|--------|-----------------------------------------------|--------|--------|--------------------------------------|--------|
|                                                              |   | 2008                                          |   |   | 2007                                 |   |   | Change |   |   | 2008 |   |   | 2007 |   |   | Change |   |
|                                                              |   | (In      millions, except earnings per share) |   |
| Earnings      (loss) from continuing operations                   |   | $                                             | (4.8   | )      |                                 | $      | 11.6 |   |   | $ | (16.5 | ) |   | $ | (222.2 | ) |   | $ | 48.6 |   |   | $ | (270.8 | ) |
| Earnings      from discontinued operations, net of income taxes   |   |                                          | (0.6   | )      |                                 |   | (3.3 | ) |   |   | 2.7 |   |   |   | 24.6 |   |   |   | 9.7 |   |   |   | 15.0 |   |
|             Net earnings (loss)     |   | $                                             | (5.5   | )      |                                 | $      | 8.4 |   |   | $ | (13.9 | ) |   | $ | (197.6 | ) |   | $ | 58.3 |   |   | $ | (255.9 | ) |
| Average      common and common equivalent shares outstanding      |   |                                          | 86.4   |   |                                 |   | 77.6 |   |   |   | 8.8 |   |   |   | 81.7 |   |   |   | 78.2 |   |   |   | 3.5 |   |
| Earnings      (loss) from continuing operations per diluted share |   | $                                             | (0.06  | )      |                                 | $      | 0.15 |   |   | $ | (0.21 | ) |   | $ | (2.72 | ) |   | $ | 0.62 |   |   | $ | (3.34 | ) |
| Net      earnings (loss) per diluted share                        |   | $                                             | (0.06  | )      |                                 | $      | 0.11 |   |   | $ | (0.17 | ) |   | $ | (2.42 | ) |   | $ | 0.75 |   |   | $ | (3.17 | ) |

|                     |   | Three      MonthsEnded  |   |   | Nine      Months Ended  |   |
|--------------------------|--------|-------------------------|--------|--------|-------------------------|--------|
|                     |   | September      30, 2008 |   |   | September      30, 2008 |   |
|                     |   | (In      millions)      |   |
| PNM      Electric        |   | $                       | 14.4   |   |                    | $      | (74.6 | ) |
| TNMP      Electric       |   |                    | (2.1   | )      |                    |   | (32.3 | ) |
| Altura                   |   |                    | -      |   |                    |   | (6.0 | ) |
| First      Choice        |   |                    | (19.2  | )      |                    |   | (116.0 | ) |
| Corporate      and Other |   |                    | (2.2   | )      |                    |   | (16.9 | ) |
| EnergyCo                 |   |                    | (7.3   | )      |                    |   | (24.9 | ) |
| Net      change          |   | $                       | (16.5  | )      |                    | $      | (270.8 | ) |

----

|                                                          |   | Three      Months Ended September 30, |   |   | Nine      Months Ended September 30, |   |
|---------------------------------------------------------------|--------|---------------------------------------|--------|--------|--------------------------------------|--------|
|                                                          |   | 2008                                  |   |   | 2007                                 |   |   | Change |   |   | % |   |   | 2008 |   |   | 2007 |   |   | Change |   |   | % |   |
|                                                          |   | (Dollars      in millions)            |   |
| Total      operating revenues                                 |   | $                                     | 356.4  |   |                                 | $      | 360.5 |   |   | $ | (4.1 | ) |   |   | (1.1 | ) |   | $ | 995.1 |   |   | $ | 901.1 |   |   | $ | 94.0 |   |   |   | 10.4 |   |
| Cost      of energy                                           |   |                                  | 194.5  |   |                                 |   | 229.2 |   |   |   | (34.7 | ) |   |   | (15.1 | ) |   |   | 577.8 |   |   |   | 517.8 |   |   |   | 60.0 |   |   |   | 11.6 |   |
| Gross      margin                                             |   |                                  | 161.9  |   |                                 |   | 131.2 |   |   |   | 30.7 |   |   |   | 23.4 |   |   |   | 417.4 |   |   |   | 383.4 |   |   |   | 34.0 |   |   |   | 8.9 |   |
| Other      operating expenses                                 |   |                                  | 92.9   |   |                                 |   | 110.2 |   |   |   | (17.3 | ) |   |   | (15.7 | ) |   |   | 366.7 |   |   |   | 288.1 |   |   |   | 78.6 |   |   |   | 27.3 |   |
| Depreciation      and amortization                            |   |                                  | 21.7   |   |                                 |   | 20.7 |   |   |   | 1.0 |   |   |   | 4.8 |   |   |   | 63.5 |   |   |   | 62.2 |   |   |   | 1.3 |   |   |   | 2.1 |   |
| Operating      income (loss)                                  |   |                                  | 47.4   |   |                                 |   | 0.3 |   |   |   | 47.1 |   |   |   | 15,700.0 |   |   |   | (12.8 | ) |   |   | 33.1 |   |   |   | (45.9 | ) |   |   | (138.7 | ) |
|                                                          |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      income                                          |   |                                  | 7.2    |   |                                 |   | 10.5 |   |   |   | (3.3 | ) |   |   | (31.4 | ) |   |   | 18.2 |   |   |   | 25.4 |   |   |   | (7.2 | ) |   |   | (28.3 | ) |
| Other      income (deductions)                                |   |                                  | (8.8   | )      |                                 |   | 4.1 |   |   |   | (12.9 | ) |   |   | (314.6 | ) |   |   | (16.5 | ) |   |   | 6.7 |   |   |   | (23.2 | ) |   |   | (346.3 | ) |
| Net      interest charges                                     |   |                                  | (20.3  | )      |                                 |   | (13.0 | ) |   |   | (7.3 | ) |   |   | 56.2 |   |   |   | (52.0 | ) |   |   | (38.9 | ) |   |   | (13.1 | ) |   |   | 33.7 |   |
|                                                          |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|          Earnings (loss) before income taxes   |   |                                  | 25.5   |   |                                 |   | 1.9 |   |   |   | 23.6 |   |   |   | 1,242.1 |   |   |   | (63.2 | ) |   |   | 26.2 |   |   |   | (89.4 | ) |   |   | (341.2 | ) |
| Income      taxes (benefit)                                   |   |                                  | 9.5    |   |                                 |   | 0.4 |   |   |   | 9.1 |   |   |   | 2,275.0 |   |   |   | (5.1 | ) |   |   | 9.6 |   |   |   | (14.7 | ) |   |   | (153.1 | ) |
|          Preferred stock dividend requirements |   |                                  | 0.1    |   |                                 |   | 0.1 |   |   |   | - |   |   |   | - |   |   |   | 0.4 |   |   |   | 0.4 |   |   |   | - |   |   |   | - |   |
| Segment      earnings (loss)                                  |   | $                                     | 15.8   |   |                                 | $      | 1.4 |   |   | $ | 14.4 |   |   |   | 1,028.6 |   |   | $ | (58.4 | ) |   | $ | 16.2 |   |   | $ | (74.6 | ) |   |   | (460.5 | ) |

|                                                                 |   | Three      Months Ended September 30, 2008 |   |   | Nine      Months Ended September 30, 2008 |   |
|----------------------------------------------------------------------|--------|--------------------------------------------|--------|--------|-------------------------------------------|--------|
|                                                                 |   |                                       |   |   |                                      |   |   | Earnings      (Loss) |   |   |   |   |   |   |   |   |   |   |   | Earnings      (Loss) |   |   |   |   |
|                                                                 |   |                                       |   |   |                                      |   |   | Before |   |   | Segment |   |   |   |   |   |   |   |   | Before |   |   | Segment |   |
|                                                                 |   | Total                                      |   |   | Gross                                     |   |   | Income |   |   | Earnings |   |   | Total |   |   | Gross |   |   | Income |   |   | Earnings |   |
|                                                                 |   | Revenues                                   |   |   | Margin                                    |   |   | Taxes |   |   | (Loss) |   |   | Revenues |   |   | Margin |   |   | Taxes |   |   | (Loss) |   |
|                                                                 |   | (In      millions)                         |   |
| Increased      rate recovery including Emergency FPPAC               |   | $                                          | 44.1   |   |                                      | $      | 44.1 |   |   | $ | 44.1 |   |   | $ | 26.6 |   |   | $ | 56.0 |   |   | $ | 56.0 |   |   | $ | 56.0 |   |   | $ | 33.8 |   |
| Customer      growth/usage                                           |   |                                       | (8.3   | )      |                                      |   | (1.3 | ) |   |   | (1.3 | ) |   |   | (0.8 | ) |   |   | (1.1 | ) |   |   | 0.6 |   |   |   | 0.6 |   |   |   | 0.4 |   |
| Generation      and purchased power         cost increases |   |                                       | -      |   |                                      |   | (17.6 | ) |   |   | (17.6 | ) |   |   | (10.6 | ) |   |   | - |   |   |   | (26.9 | ) |   |   | (26.9 | ) |   |   | (16.3 | ) |
| Regulated      plant availability                                    |   |                                       | 11.5   |   |                                      |   | 2.8 |   |   |   | (1.3 | ) |   |   | (0.8 | ) |   |   | 20.8 |   |   |   | (10.5 | ) |   |   | (29.5 | ) |   |   | (17.8 | ) |
| Sales      of SO2      allowances                                    |   |                                       | -      |   |                                      |   | - |   |   |   | - |   |   |   | - |   |   |   | (13.2 | ) |   |   | (13.2 | ) |   |   | (13.2 | ) |   |   | (8.0 | ) |
| Unregulated      margins                                             |   |                                       | (61.8  | )      |                                      |   | 5.5 |   |   |   | 5.5 |   |   |   | 3.3 |   |   |   | (32.3 | ) |   |   | 8.3 |   |   |   | 8.3 |   |   |   | 5.0 |   |
| Gain      on sale of merchant portfolio                              |   |                                       | -      |   |                                      |   | - |   |   |   | - |   |   |   | - |   |   |   | 5.1 |   |   |   | 5.1 |   |   |   | 5.1 |   |   |   | 3.1 |   |
| Net      unrealized economic hedges                                  |   |                                       | 16.8   |   |                                      |   | (6.9 | ) |   |   | (6.9 | ) |   |   | (4.2 | ) |   |   | 58.0 |   |   |   | 10.5 |   |   |   | 10.5 |   |   |   | 6.3 |   |
| Operational      costs                                               |   |                                       | -      |   |                                      |   | - |   |   |   | (6.3 | ) |   |   | (3.8 | ) |   |   | - |   |   |   | - |   |   |   | (8.5 | ) |   |   | (5.1 | ) |
| NDT                                                                  |   |                                       | -      |   |                                      |   | - |   |   |   | (9.5 | ) |   |   | (5.7 | ) |   |   | - |   |   |   | - |   |   |   | (16.4 | ) |   |   | (9.9 | ) |
| Regulatory      disallowances                                        |   |                                       | -      |   |                                      |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (30.2 | ) |   |   | (18.2 | ) |
| Afton      impairment                                                |   |                                       | -      |   |                                      |   | - |   |   |   | 19.5 |   |   |   | 11.8 |   |   |   | - |   |   |   | - |   |   |   | 17.5 |   |   |   | 10.6 |   |
| Impairment      of goodwill                                          |   |                                       | -      |   |                                      |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (51.1 | ) |   |   | (51.1 | ) |
| Other                                                                |   |                                       | (6.4   | )      |                                      |   | 4.1 |   |   |   | (2.6 | ) |   |   | (1.4 | ) |   |   | 0.7 |   |   |   | 4.1 |   |   |   | (11.6 | ) |   |   | (7.4 | ) |
| Total      increase (decrease)                                       |   | $                                          | (4.1   | )      |                                      | $      | 30.7 |   |   | $ | 23.6 |   |   | $ | 14.4 |   |   | $ | 94.0 |   |   | $ | 34.0 |   |   | $ | (89.4 | ) |   | $ | (74.6 | ) |

----

|                                      |   | Three      Months Ended September 30, |   |   | Nine      Months Ended September 30, |   |
|-------------------------------------------|--------|---------------------------------------|--------|--------|--------------------------------------|--------|
|                                      |   | 2008                                  |   |   | 2007                                 |   |   | Change |   |   | % |   |   | 2008 |   |   | 2007 |   |   | Change |   |   | % |   |
|                                      |   | (Dollars      in millions)            |   |
| Residential                               |   | $                                     | 89.3   |   |                                 | $      | 78.0 |   |   | $ | 11.3 |   |   |   | 14.5 |   |   | $ | 227.1 |   |   | $ | 204.2 |   |   | $ | 22.9 |   |   |   | 11.2 |   |
| Commercial                                |   |                                  | 98.9   |   |                                 |   | 85.7 |   |   |   | 13.2 |   |   |   | 15.4 |   |   |   | 248.0 |   |   |   | 223.6 |   |   |   | 24.4 |   |   |   | 10.9 |   |
| Industrial                                |   |                                  | 27.3   |   |                                 |   | 25.7 |   |   |   | 1.6 |   |   |   | 6.2 |   |   |   | 78.4 |   |   |   | 74.9 |   |   |   | 3.5 |   |   |   | 4.7 |   |
| Transmission                              |   |                                  | 7.7    |   |                                 |   | 7.2 |   |   |   | 0.5 |   |   |   | 6.9 |   |   |   | 19.2 |   |   |   | 20.4 |   |   |   | (1.2 | ) |   |   | (5.9 | ) |
| Other      retail                         |   |                                  | 11.5   |   |                                 |   | 9.5 |   |   |   | 2.0 |   |   |   | 21.1 |   |   |   | 27.2 |   |   |   | 23.8 |   |   |   | 3.4 |   |   |   | 14.3 |   |
| Wholesale      long-term sales            |   |                                  | 43.7   |   |                                 |   | 50.5 |   |   |   | (6.8 | ) |   |   | (13.5 | ) |   |   | 126.3 |   |   |   | 112.4 |   |   |   | 13.9 |   |   |   | 12.4 |   |
| Wholesale      short-term sales           |   |                                  | 78.0   |   |                                 |   | 103.9 |   |   |   | (25.9 | ) |   |   | (24.9 | ) |   |   | 268.9 |   |   |   | 241.8 |   |   |   | 27.1 |   |   |   | 11.2 |   |
|                                      |   | $                                     | 356.4  |   |                                 | $      | 360.5 |   |   | $ | (4.1 | ) |   |   | (1.1 | ) |   | $ | 995.1 |   |   | $ | 901.1 |   |   | $ | 94.0 |   |   |   | 10.4 |   |
| Average      retail customers (thousands) |   |                                  | 495.6  |   |                                 |   | 490.0 |   |   |   | 5.6 |   |   |   | 1.1 |   |   |   | 494.7 |   |   |   | 488.3 |   |   |   | 6.4 |   |   |   | 1.3 |   |

|                            |   | Three      Months Ended September 30, |    |   | Nine      Months Ended September 30, |   |
|---------------------------------|--------|---------------------------------------|---------|--------|--------------------------------------|--------|
|                            |   | 2008                                  |    |   | 2007                                 |   |   | Change |   |   | % |   |   | 2008 |   |   | 2007 |   |   | Change |   |   | % |   |
|                            |   | (Gigawatt      hours)                 |    |
| Residential                     |   |                                  | 898.8   |   |                                 |   | 945.9 |   |   |   | (47.1 | ) |   |   | (5.0 | ) |   |   | 2,474.7 |   |   |   | 2,471.5 |   |   |   | 3.2 |   |   |   | 0.1 |   |
| Commercial                      |   |                                  | 1,142.6 |   |                                 |   | 1,181.3 |   |   |   | (38.7 | ) |   |   | (3.3 | ) |   |   | 3,069.2 |   |   |   | 3,050.9 |   |   |   | 18.3 |   |   |   | 0.6 |   |
| Industrial                      |   |                                  | 408.1   |   |                                 |   | 488.6 |   |   |   | (80.5 | ) |   |   | (16.5 | ) |   |   | 1,260.4 |   |   |   | 1,453.1 |   |   |   | (192.7 | ) |   |   | (13.3 | ) |
| Other      retail               |   |                                  | 80.6    |   |                                 |   | 79.9 |   |   |   | 0.7 |   |   |   | 0.9 |   |   |   | 211.4 |   |   |   | 199.7 |   |   |   | 11.7 |   |   |   | 5.9 |   |
| Wholesale      long-term sales  |   |                                  | 740.5   |   |                                 |   | 867.8 |   |   |   | (127.3 | ) |   |   | (14.7 | ) |   |   | 2,167.7 |   |   |   | 2,042.5 |   |   |   | 125.2 |   |   |   | 6.1 |   |
| Wholesale      short-term sales |   |                                  | 764.7   |   |                                 |   | 1,601.8 |   |   |   | (837.1 | ) |   |   | (52.3 | ) |   |   | 2,883.9 |   |   |   | 4,055.7 |   |   |   | (1,171.8 | ) |   |   | (28.9 | ) |
|                            |   |                                  | 4,035.3 |   |                                 |   | 5,165.3 |   |   |   | (1,130.0 | ) |   |   | (21.9 | ) |   |   | 12,067.3 |   |   |   | 13,273.4 |   |   |   | (1,206.1 | ) |   |   | (9.1 | ) |

----

|                                                                                                 |   | Three      Months Ended September 30, |   |   | Nine      Months Ended September 30, |   |
|------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------|--------------------------------------|--------|
|                                                                                                 |   | 2008                                  |   |   | 2007                                 |   |   | Change |   |   | % |   |   | 2008 |   |   | 2007 |   |   | Change |   |   | % |   |
|                                                                                                 |   | (Dollars      in millions)            |   |
| Total      operating revenues                                                                        |   | $                                     | 51.1   |   |                                 | $      | 52.7 |   |   | $ | (1.6 | ) |   |   | (3.0 | ) |   | $ | 140.4 |   |   | $ | 137.1 |   |   | $ | 3.3 |   |   |   | 2.4 |   |
| Cost      of energy                                                                                  |   |                                  | 8.4    |   |                                 |   | 7.5 |   |   |   | 0.9 |   |   |   | 12.0 |   |   |   | 24.2 |   |   |   | 21.9 |   |   |   | 2.3 |   |   |   | 10.5 |   |
| Gross      margin                                                                                    |   |                                  | 42.7   |   |                                 |   | 45.1 |   |   |   | (2.4 | ) |   |   | (5.3 | ) |   |   | 116.3 |   |   |   | 115.2 |   |   |   | 1.1 |   |   |   | 1.0 |   |
| Other      operating expenses                                                                        |   |                                  | 17.3   |   |                                 |   | 17.0 |   |   |   | 0.3 |   |   |   | 1.8 |   |   |   | 84.7 |   |   |   | 53.4 |   |   |   | 31.3 |   |   |   | 58.6 |   |
| Depreciation      and amortization                                                                   |   |                                  | 9.9    |   |                                 |   | 7.1 |   |   |   | 2.8 |   |   |   | 39.4 |   |   |   | 27.0 |   |   |   | 21.1 |   |   |   | 5.9 |   |   |   | 28.0 |   |
| Operating      income (loss)                                                                         |   |                                  | 15.5   |   |                                 |   | 21.1 |   |   |   | (5.6 | ) |   |   | (26.5 | ) |   |   | 4.5 |   |   |   | 40.7 |   |   |   | (36.2 | ) |   |   | (88.9 | ) |
| Interest      income                                                                                 |   |                                  | -      |   |                                 |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 0.9 |   |   |   | (0.9 | ) |   |   | (100.0 | ) |
| Other      income (deductions)                                                                       |   |                                  | 1.7    |   |                                 |   | 0.4 |   |   |   | 1.3 |   |   |   | 325.0 |   |   |   | 2.7 |   |   |   | 1.3 |   |   |   | 1.4 |   |   |   | 107.7 |   |
| Net      interest charges                                                                            |   |                                  | (4.2   | )      |                                 |   | (5.8 | ) |   |   | 1.6 |   |   |   | (27.6 | ) |   |   | (13.6 | ) |   |   | (19.7 | ) |   |   | 6.1 |   |   |   | (31.0 | ) |
|          Earnings (loss) before income       taxes |   |                                  | 13.0   |   |                                 |   | 15.7 |   |   |   | (2.7 | ) |   |   | (17.2 | ) |   |   | (6.3 | ) |   |   | 23.2 |   |   |   | (29.6 | ) |   |   | (127.2 | ) |
| Income      taxes                                                                                    |   |                                  | 4.9    |   |                                 |   | 5.5 |   |   |   | (0.6 | ) |   |   | (10.9 | ) |   |   | 10.6 |   |   |   | 7.8 |   |   |   | 2.8 |   |   |   | 35.9 |   |
| Segment      earnings (loss)                                                                         |   | $                                     | 8.1    |   |                                 | $      | 10.2 |   |   | $ | (2.1 | ) |   |   | (20.6 | ) |   | $ | (16.9 | ) |   | $ | 15.4 |   |   | $ | (32.3 | ) |   |   | (209.7 | ) |

----

|                             |   | Three      Months Ended September 30, 2008 |   |   | Nine      Months Ended September 30, 2008 |   |
|----------------------------------|--------|--------------------------------------------|--------|--------|-------------------------------------------|--------|
|                             |   |                                       |   |   |                                      |   |   | Earnings      (Loss) |   |   |   |   |   |   |   |   |   |   |   | Earnings      (Loss) |   |   |   |   |
|                             |   |                                       |   |   |                                      |   |   | Before |   |   | Segment |   |   |   |   |   |   |   |   | Before |   |   | Segment |   |
|                             |   | Total                                      |   |   | Gross                                     |   |   | Income |   |   | Earnings |   |   | Total |   |   | Gross |   |   | Income |   |   | Earnings |   |
|                             |   | Revenues                                   |   |   | Margin                                    |   |   | Taxes |   |   | (Loss) |   |   | Revenues |   |   | Margin |   |   | Taxes |   |   | (Loss) |   |
|                             |   | (In      millions)                         |   |
| Customer      growth/usage       |   | $                                          | (0.5   | )      |                                      | $      | (0.5 | ) |   | $ | (0.5 | ) |   | $ | (0.3 | ) |   | $ | 2.4 |   |   | $ | 2.4 |   |   | $ | 2.4 |   |   | $ | 1.6 |   |
| Hurricane      Ike margin impact |   |                                       | (1.6   | )      |                                      |   | (1.6 | ) |   |   | (1.6 | ) |   |   | (1.0 | ) |   |   | (1.6 | ) |   |   | (1.6 | ) |   |   | (1.6 | ) |   |   | (1.0 | ) |
| PUCT      order                  |   |                                       | -      |   |                                      |   | - |   |   |   | (2.7 | ) |   |   | (1.8 | ) |   |   | 1.0 |   |   |   | 1.0 |   |   |   | (4.4 | ) |   |   | (2.9 | ) |
| Synergy      savings credits     |   |                                       | -      |   |                                      |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1.6 |   |   |   | 1.0 |   |
| Financing      costs             |   |                                       | -      |   |                                      |   | - |   |   |   | 1.3 |   |   |   | 0.8 |   |   |   | - |   |   |   | - |   |   |   | 5.1 |   |   |   | 3.3 |   |
| Operational      costs           |   |                                       | -      |   |                                      |   | - |   |   |   | (0.3 | ) |   |   | (0.2 | ) |   |   | - |   |   |   | - |   |   |   | 1.0 |   |   |   | 0.7 |   |
| Impairment      of goodwill      |   |                                       | -      |   |                                      |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (34.5 | ) |   |   | (34.5 | ) |
| Other                            |   |                                       | 0.5    |   |                                      |   | (0.3 | ) |   |   | 1.1 |   |   |   | 0.4 |   |   |   | 1.5 |   |   |   | (0.7 | ) |   |   | 0.8 |   |   |   | (0.5 | ) |
| Total      increase              |   | $                                          | (1.6   | )      |                                      | $      | (2.4 | ) |   | $ | (2.7 | ) |   | $ | (2.1 | ) |   | $ | 3.3 |   |   | $ | 1.1 |   |   | $ | (29.6 | ) |   | $ | (32.3 | ) |

|                                  |   | Three      Months Ended September 30, |   |   | Nine      Months Ended September 30, |   |
|---------------------------------------|--------|---------------------------------------|--------|--------|--------------------------------------|--------|
|                                  |   | 2008                                  |   |   | 2007                                 |   |   | Change |   |   | % |   |   | 2008 |   |   | 2007 |   |   | Change |   |   | % |   |
|                                  |   | (Dollars      in millions)            |   |
| Residential                           |   | $                                     | 22.3   |   |                                 | $      | 23.4 |   |   | $ | (1.1 | ) |   |   | (4.7 | ) |   | $ | 55.4 |   |   | $ | 53.8 |   |   | $ | 1.6 |   |   |   | 3.0 |   |
| Commercial                            |   |                                  | 18.0   |   |                                 |   | 19.2 |   |   |   | (1.2 | ) |   |   | (6.3 | ) |   |   | 53.5 |   |   |   | 52.9 |   |   |   | 0.6 |   |   |   | 1.1 |   |
| Industrial                            |   |                                  | 3.5    |   |                                 |   | 2.1 |   |   |   | 1.4 |   |   |   | 66.7 |   |   |   | 10.0 |   |   |   | 5.6 |   |   |   | 4.4 |   |   |   | 78.6 |   |
| Other                                 |   |                                  | 7.3    |   |                                 |   | 8.0 |   |   |   | (0.7 | ) |   |   | (8.8 | ) |   |   | 21.5 |   |   |   | 24.8 |   |   |   | (3.3 | ) |   |   | (13.3 | ) |
|                                  |   | $                                     | 51.1   |   |                                 | $      | 52.7 |   |   | $ | (1.6 | ) |   |   | (3.0 | ) |   | $ | 140.4 |   |   | $ | 137.1 |   |   | $ | 3.3 |   |   |   | 2.4 |   |
| Average      customers (thousands(1)) |   |                                  | 230.3  |   |                                 |   | 226.8 |   |   |   | 3.5 |   |   |   | 1.5 |   |   |   | 229.0 |   |   |   | 225.8 |   |   |   | 3.2 |   |   |   | 1.4 |   |

| (1)   | Under      TECA, customers of TNMP Electric in Texas have the ability to choose First      Choice or any other REP to provide energy.  The average      customers reported above include (in thousands) 111.0 and 135.3 and      customers of TNMP Electric for the three months ended September 30, 2008      and 2007 and 118.3 and 139.4 customers for the nine months ended September      30, 2008 and 2007 who have chosen First Choice as their      REP.  These customers are also included in the First Choice      segment. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|        |   | Three      Months Ended September 30, |    |   | Nine      Months Ended September 30, |   |
|-------------|--------|---------------------------------------|---------|--------|--------------------------------------|--------|
|        |   | 2008                                  |    |   | 2007                                 |   |   | Change |   |   | % |   |   | 2008 |   |   | 2007 |   |   | Change |   |   | % |   |
|        |   | (Gigawatt      hours      (1))        |    |
| Residential |   |                                  | 811.3   |   |                                 |   | 860.4 |   |   |   | (49.1 | ) |   |   | (5.7 | ) |   |   | 1,987.2 |   |   |   | 1,978.7 |   |   |   | 8.5 |   |   |   | 0.4 |   |
| Commercial  |   |                                  | 618.6   |   |                                 |   | 664.8 |   |   |   | (46.2 | ) |   |   | (6.9 | ) |   |   | 1,679.5 |   |   |   | 1,687.6 |   |   |   | (8.1 | ) |   |   | (0.5 | ) |
| Industrial  |   |                                  | 482.9   |   |                                 |   | 543.7 |   |   |   | (60.8 | ) |   |   | (11.2 | ) |   |   | 1,542.5 |   |   |   | 1,424.9 |   |   |   | 117.6 |   |   |   | 8.3 |   |
| Other       |   |                                  | 28.8    |   |                                 |   | 26.4 |   |   |   | 2.4 |   |   |   | 9.1 |   |   |   | 81.5 |   |   |   | 74.5 |   |   |   | 7.0 |   |   |   | 9.4 |   |
|        |   |                                  | 1,941.6 |   |                                 |   | 2,095.3 |   |   |   | (153.7 | ) |   |   | (7.3 | ) |   |   | 5,290.7 |   |   |   | 5,165.7 |   |   |   | 125.0 |   |   |   | 2.4 |   |

| (1)   | The      GWh sales reported above include 467.2 and 651.4 GWhs for the three months      ended September 30, 2008 and 2007 and 1,295.2 and 1,611.7 GWhs for the      nine months ended September 30, 2008 and 2007 used by customers of TNMP      Electric, who have chosen First Choice as their REP.  These GWhs      are also included below in the First Choice  segment. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                                   |   | Three      Months Ended September 30, |   |   | Nine      Months Ended September 30, |   |
|------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------|--------------------------------------|--------|
|                                                                                                                   |   | 2008                                  |   |   | 2007                                 |   |   | Change |   |   | % |   |   | 2008 |   |   | 2007 |   |   | Change |   |   | % |   |
|                                                                                                                   |   | (Dollars      in millions)            |   |
| Total      operating revenues                                                                                          |   | $                                     | 63.3   |   |                                 | $      | 59.5 |   |   | $ | 3.8 |   |   |   | 6.4 |   |   | $ | 379.3 |   |   | $ | 351.1 |   |   | $ | 28.2 |   |   |   | 8.0 |   |
| Cost      of energy                                                                                                    |   |                                  | 37.5   |   |                                 |   | 34.0 |   |   |   | 3.5 |   |   |   | 10.3 |   |   |   | 263.2 |   |   |   | 240.8 |   |   |   | 22.4 |   |   |   | 9.3 |   |
|         Gross margin                                                                                         |   |                                  | 25.8   |   |                                 |   | 25.6 |   |   |   | 0.2 |   |   |   | 0.8 |   |   |   | 116.1 |   |   |   | 110.3 |   |   |   | 5.8 |   |   |   | 5.3 |   |
| Other      operating expenses                                                                                          |   |                                  | 22.9   |   |                                 |   | 21.8 |   |   |   | 1.1 |   |   |   | 5.0 |   |   |   | 67.3 |   |   |   | 68.9 |   |   |   | (1.6 | ) |   |   | (2.3 | ) |
| Depreciation      and amortization                                                                                     |   |                                  | -      |   |                                 |   | 5.3 |   |   |   | (5.3 | ) |   |   | (100.0 | ) |   |   | - |   |   |   | 16.3 |   |   |   | (16.3 | ) |   |   | (100.0 | ) |
|         Operating income                                                                                     |   |                                  | 3.0    |   |                                 |   | (1.5 | ) |   |   | 4.5 |   |   |   | (300.0 | ) |   |   | 48.8 |   |   |   | 25.1 |   |   |   | 23.7 |   |   |   | 94.4 |   |
| Interest      income                                                                                                   |   |                                  | 0.6    |   |                                 |   | (0.1 | ) |   |   | 0.7 |   |   |   | (700.0 | ) |   |   | 1.9 |   |   |   | 0.4 |   |   |   | 1.5 |   |   |   | 375.0 |   |
| Other      income (deductions)                                                                                         |   |                                  | 0.1    |   |                                 |   | 0.1 |   |   |   | - |   |   |   | - |   |   |   | 0.2 |   |   |   | 0.3 |   |   |   | (0.1 | ) |   |   | (33.3 | ) |
| Net      interest charges                                                                                              |   |                                  | (3.4   | )      |                                 |   | (3.9 | ) |   |   | 0.5 |   |   |   | (12.8 | ) |   |   | (9.9 | ) |   |   | (9.7 | ) |   |   | (0.2 | ) |   |   | 2.1 |   |
|             Earnings (loss) before            income taxes |   |                                  | 0.2    |   |                                 |   | (5.4 | ) |   |   | 5.6 |   |   |   | (103.7 | ) |   |   | 40.9 |   |   |   | 16.0 |   |   |   | 24.9 |   |   |   | 155.6 |   |
| Income      taxes                                                                                                      |   |                                  | 0.8    |   |                                 |   | (2.1 | ) |   |   | 2.9 |   |   |   | (138.1 | ) |   |   | 16.3 |   |   |   | 6.3 |   |   |   | 10.0 |   |   |   | 158.7 |   |
|         Segment earnings (loss)                                                                              |   | $                                     | (0.6   | )      |                                 | $      | (3.3 | ) |   | $ | 2.7 |   |   |   | (81.8 | ) |   | $ | 24.6 |   |   | $ | 9.7 |   |   | $ | 14.9 |   |   |   | 153.6 |   |

|                                                             |   | Three      Months Ended September 30, 2008 |   |   | Nine      Months Ended September 30, 2008 |   |
|------------------------------------------------------------------|--------|--------------------------------------------|--------|--------|-------------------------------------------|--------|
|                                                             |   |                                       |   |   |                                      |   |   | Earnings      (Loss) |   |   |   |   |   |   |   |   |   |   |   | Earnings      (Loss) |   |   |   |   |
|                                                             |   |                                       |   |   |                                      |   |   | Before |   |   | Segment |   |   |   |   |   |   |   |   | Before |   |   | Segment |   |
|                                                             |   | Total                                      |   |   | Gross                                     |   |   | Income |   |   | Earnings |   |   | Total |   |   | Gross |   |   | Income |   |   | Earnings |   |
|                                                             |   | Revenues                                   |   |   | Margin                                    |   |   | Taxes |   |   | (Loss) |   |   | Revenues |   |   | Margin |   |   | Taxes |   |   | (Loss) |   |
|                                                             |   | (In      millions)                         |   |
| Retail      gas prices                                           |   | $                                          | 14.7   |   |                                      | $      | - |   |   | $ | - |   |   | $ | - |   |   | $ | 15.4 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Rate      increase                                               |   |                                       | -      |   |                                      |   | - |   |   |   | - |   |   |   | - |   |   |   | 5.1 |   |   |   | 5.1 |   |   |   | 5.1 |   |   |   | 3.1 |   |
| Customer      growth/usage                                       |   |                                       | (1.9   | )      |                                      |   | (0.2 | ) |   |   | (0.2 | ) |   |   | (0.1 | ) |   |   | 13.1 |   |   |   | 1.8 |   |   |   | 1.8 |   |   |   | 1.1 |   |
| Off-system      activities                                       |   |                                       | (9.7   | )      |                                      |   | (0.4 | ) |   |   | (0.4 | ) |   |   | (0.2 | ) |   |   | (4.4 | ) |   |   | (0.2 | ) |   |   | (0.2 | ) |   |   | (0.1 | ) |
| Operational      costs                                           |   |                                       | -      |   |                                      |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 2.4 |   |   |   | 1.4 |   |
| Discontinuation      of depreciation         on assets |   |                                       | -      |   |                                      |   | - |   |   |   | 5.4 |   |   |   | 3.3 |   |   |   | - |   |   |   | - |   |   |   | 16.0 |   |   |   | 9.7 |   |
| Other                                                            |   |                                       | 0.7    |   |                                      |   | 0.8 |   |   |   | 0.8 |   |   |   | (0.3 | ) |   |   | (1.0 | ) |   |   | (0.9 | ) |   |   | (0.2 | ) |   |   | (0.3 | ) |
| Total      increase (decrease)                                   |   | $                                          | 3.8    |   |                                      | $      | 0.2 |   |   | $ | 5.6 |   |   | $ | 2.7 |   |   | $ | 28.2 |   |   | $ | 5.8 |   |   | $ | 24.9 |   |   | $ | 14.9 |   |

----

|                               |   | Three      Months Ended September 30, |   |   | Nine      Months Ended September 30, |   |
|------------------------------------|--------|---------------------------------------|--------|--------|--------------------------------------|--------|
|                               |   | 2008                                  |   |   | 2007                                 |   |   | Change |   |   | % |   |   | 2008 |   |   | 2007 |   |   | Change |   |   | % |   |
|                               |   | (Dollars      in millions)            |   |
| Residential                        |   | $                                     | 39.5   |   |                                 | $      | 31.4 |   |   | $ | 8.1 |   |   |   | 25.8 |   |   | $ | 255.4 |   |   | $ | 232.1 |   |   | $ | 23.3 |   |   |   | 10.0 |   |
| Commercial                         |   |                                  | 14.1   |   |                                 |   | 10.4 |   |   |   | 3.7 |   |   |   | 35.6 |   |   |   | 77.8 |   |   |   | 71.0 |   |   |   | 6.8 |   |   |   | 9.6 |   |
| Industrial                         |   |                                  | 0.6    |   |                                 |   | 0.5 |   |   |   | 0.1 |   |   |   | 20.0 |   |   |   | 2.8 |   |   |   | 1.5 |   |   |   | 1.3 |   |   |   | 86.7 |   |
| Transportation(1)                  |   |                                  | 2.5    |   |                                 |   | 2.5 |   |   |   | - |   |   |   | - |   |   |   | 12.3 |   |   |   | 10.9 |   |   |   | 1.4 |   |   |   | 12.8 |   |
| Other                              |   |                                  | 6.6    |   |                                 |   | 14.7 |   |   |   | (8.1 | ) |   |   | (55.1 | ) |   |   | 31.0 |   |   |   | 35.6 |   |   |   | (4.6 | ) |   |   | (12.9 | ) |
|                               |   | $                                     | 63.3   |   |                                 | $      | 59.5 |   |   | $ | 3.8 |   |   |   | 6.4 |   |   | $ | 379.3 |   |   | $ | 351.1 |   |   | $ | 28.2 |   |   |   | 8.0 |   |
| Average      customers (thousands) |   |                                  | 494.4  |   |                                 |   | 489.9 |   |   |   | 4.5 |   |   |   | 0.9 |   |   |   | 496.3 |   |   |   | 490.8 |   |   |   | 5.5 |   |   |   | 1.1 |   |

| (1)   | Customer-owned      gas. |
|-----------------|--------------------------|

|              |   | Three      Months Ended September 30, |     |   | Nine      Months Ended September 30, |   |
|-------------------|--------|---------------------------------------|----------|--------|--------------------------------------|--------|
|              |   | 2008                                  |     |   | 2007                                 |   |   | Change |   |   | % |   |   | 2008 |   |   | 2007 |   |   | Change |   |   | % |   |
|              |   | (Thousands      of Decatherms)        |     |
| Residential       |   |                                  | 2,170.6  |   |                                 |   | 2,244.2 |   |   |   | (73.6 | ) |   |   | (3.3 | ) |   |   | 20,205.7 |   |   |   | 20,015.1 |   |   |   | 190.6 |   |   |   | 1.0 |   |
| Commercial        |   |                                  | 1,059.9  |   |                                 |   | 1,138.3 |   |   |   | (78.4 | ) |   |   | (6.9 | ) |   |   | 7,131.2 |   |   |   | 7,287.7 |   |   |   | (156.5 | ) |   |   | (2.1 | ) |
| Industrial        |   |                                  | 52.2     |   |                                 |   | 65.0 |   |   |   | (12.8 | ) |   |   | (19.7 | ) |   |   | 280.1 |   |   |   | 178.3 |   |   |   | 101.8 |   |   |   | 57.1 |   |
| Transportation(1) |   |                                  | 8,175.2  |   |                                 |   | 9,784.0 |   |   |   | (1,608.8 | ) |   |   | (16.4 | ) |   |   | 28,744.5 |   |   |   | 30,733.0 |   |   |   | (1,988.5 | ) |   |   | (6.5 | ) |
| Other             |   |                                  | 348.1    |   |                                 |   | 1,773.7 |   |   |   | (1,425.6 | ) |   |   | (80.4 | ) |   |   | 2,338.1 |   |   |   | 3,598.7 |   |   |   | (1,260.6 | ) |   |   | (35.0 | ) |
|              |   |                                  | 11,806.0 |   |                                 |   | 15,005.2 |   |   |   | (3,199.2 | ) |   |   | (21.3 | ) |   |   | 58,699.6 |   |   |   | 61,812.8 |   |   |   | (3,113.2 | ) |   |   | (5.0 | ) |

| (1)   | Customer-owned      gas. |
|-----------------|--------------------------|

----

|                                     |   | Three      Months Ended September 30, |   |   | Nine      Months Ended September 30, |   |
|------------------------------------------|--------|---------------------------------------|--------|--------|--------------------------------------|--------|
|                                     |   | 2008                                  |   |   | 2007                                 |   |   | Change |   |   | % |   |   | 2008 |   |   | 2007 |   |   | Change |   |   | % |   |
|                                     |   | (Dollars      in millions)            |   |
| Total      operating revenues            |   | $                                     | 215.0  |   |                                 | $      | 177.7 |   |   | $ | 37.3 |   |   |   | 21.0 |   |   | $ | 461.4 |   |   | $ | 463.3 |   |   | $ | (1.9 | ) |   |   | (0.4 | ) |
| Cost      of energy                      |   |                                  | 206.0  |   |                                 |   | 159.2 |   |   |   | 46.8 |   |   |   | 29.4 |   |   |   | 469.3 |   |   |   | 395.9 |   |   |   | 73.4 |   |   |   | 18.5 |   |
| Gross      margin                        |   |                                  | 9.1    |   |                                 |   | 18.5 |   |   |   | (9.4 | ) |   |   | (50.8 | ) |   |   | (7.9 | ) |   |   | 67.4 |   |   |   | (75.3 | ) |   |   | (111.7 | ) |
| Other      operating expenses            |   |                                  | 30.5   |   |                                 |   | 13.6 |   |   |   | 16.9 |   |   |   | 124.3 |   |   |   | 118.8 |   |   |   | 41.7 |   |   |   | 77.1 |   |   |   | 184.9 |   |
| Depreciation      and amortization       |   |                                  | 0.6    |   |                                 |   | 0.5 |   |   |   | 0.1 |   |   |   | 20.0 |   |   |   | 1.7 |   |   |   | 1.4 |   |   |   | 0.3 |   |   |   | 21.4 |   |
| Operating      income (loss)             |   |                                  | (22.1  | )      |                                 |   | 4.5 |   |   |   | (26.6 | ) |   |   | (591.1 | ) |   |   | (128.4 | ) |   |   | 24.3 |   |   |   | (152.7 | ) |   |   | (628.4 | ) |
| Interest      income                     |   |                                  | 0.4    |   |                                 |   | 0.5 |   |   |   | (0.1 | ) |   |   | (20.0 | ) |   |   | 1.3 |   |   |   | 1.5 |   |   |   | (0.2 | ) |   |   | (13.3 | ) |
| Other      income (deductions)           |   |                                  | 0.2    |   |                                 |   | 0.1 |   |   |   | 0.1 |   |   |   | - |   |   |   | 0.1 |   |   |   | 0.1 |   |   |   | - |   |   |   | - |   |
| Net      interest charges                |   |                                  | (1.8   | )      |                                 |   | (0.6 | ) |   |   | (1.2 | ) |   |   | 200.0 |   |   |   | (2.5 | ) |   |   | (1.8 | ) |   |   | (0.7 | ) |   |   | 38.9 |   |
| Earnings      (loss) before income taxes |   |                                  | (23.3  | )      |                                 |   | 4.4 |   |   |   | (27.7 | ) |   |   | (629.5 | ) |   |   | (129.4 | ) |   |   | 24.1 |   |   |   | (153.5 | ) |   |   | (636.9 | ) |
| Income      taxes (benefit)              |   |                                  | (6.8   | )      |                                 |   | 1.7 |   |   |   | (8.5 | ) |   |   | (500.0 | ) |   |   | (28.4 | ) |   |   | 9.1 |   |   |   | (37.5 | ) |   |   | (412.1 | ) |
| Segment      earnings (loss)             |   | $                                     | (16.5  | )      |                                 | $      | 2.7 |   |   | $ | (19.2 | ) |   |   | (711.1 | ) |   | $ | (101.0 | ) |   | $ | 15.0 |   |   | $ | (116.0 | ) |   |   | (773.3 | ) |

|                                                    |   | Three      Months Ended September 30, 2008 |   |   | Nine      Months Ended September 30, 2008 |   |
|---------------------------------------------------------|--------|--------------------------------------------|--------|--------|-------------------------------------------|--------|
|                                                    |   |                                       |   |   |                                      |   |   | Earnings      (Loss) |   |   |   |   |   |   |   |   |   |   |   | Earnings      (Loss) |   |   |   |   |
|                                                    |   |                                       |   |   |                                      |   |   | Before |   |   | Segment |   |   |   |   |   |   |   |   | Before |   |   | Segment |   |
|                                                    |   | Total                                      |   |   | Gross                                     |   |   | Income |   |   | Earnings |   |   | Total |   |   | Gross |   |   | Income |   |   | Earnings |   |
|                                                    |   | Revenues                                   |   |   | Margin                                    |   |   | Taxes |   |   | (Loss) |   |   | Revenues |   |   | Margin |   |   | Taxes |   |   | (Loss) |   |
|                                                    |   | (In      millions)                         |   |
| Customer      growth/usage                              |   | $                                          | (19.0  | )      |                                      | $      | (2.1 | ) |   | $ | (2.1 | ) |   | $ | (1.3 | ) |   | $ | (25.0 | ) |   | $ | (8.2 | ) |   | $ | (8.2 | ) |   | $ | (5.3 | ) |
| Hurricane      Ike                                      |   |                                       | (4.2   | )      |                                      |   | (3.3 | ) |   |   | (3.3 | ) |   |   | (2.1 | ) |   |   | (4.2 | ) |   |   | (3.3 | ) |   |   | (3.3 | ) |   |   | (2.1 | ) |
| Retail      margins                                     |   |                                       | 54.2   |   |                                      |   | 3.3 |   |   |   | 3.3 |   |   |   | 2.1 |   |   |   | 69.7 |   |   |   | (16.9 | ) |   |   | (16.9 | ) |   |   | (11.0 | ) |
| LBCS      bankruptcy                                    |   |                                       | -      |   |                                      |   | (3.9 | ) |   |   | (3.9 | ) |   |   | (2.5 | ) |   |   | - |   |   |   | (3.9 | ) |   |   | (3.9 | ) |   |   | (2.5 | ) |
| Trading      margin                                     |   |                                       | 5.7    |   |                                      |   | 5.7 |   |   |   | 5.7 |   |   |   | 3.7 |   |   |   | (41.6 | ) |   |   | (41.6 | ) |   |   | (41.6 | ) |   |   | (26.8 | ) |
| Unrealized      economic hedges                         |   |                                       | 0.6    |   |                                      |   | (9.1 | ) |   |   | (9.1 | ) |   |   | (5.9 | ) |   |   | (0.8 | ) |   |   | (1.4 | ) |   |   | (1.4 | ) |   |   | (0.9 | ) |
| Bad      debt expense                                   |   |                                       | -      |   |                                      |   | - |   |   |   | (6.4 | ) |   |   | (4.2 | ) |   |   | - |   |   |   | - |   |   |   | (11.0 | ) |   |   | (7.2 | ) |
| Other      operational costs                            |   |                                       | -      |   |                                      |   | - |   |   |   | (2.6 | ) |   |   | (1.7 | ) |   |   | - |   |   |   | - |   |   |   | (7.6 | ) |   |   | (4.9 | ) |
| Impairment      of goodwill and other intangible assets |   |                                       | -      |   |                                      |   | - |   |   |   | (7.9 | ) |   |   | (7.3 | ) |   |   | - |   |   |   | - |   |   |   | (58.5 | ) |   |   | (55.3 | ) |
| Other                                                   |   |                                       | -      |   |                                      |   | - |   |   |   | (1.4 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (1.1 | ) |   |   | - |   |
| Total      increase (decrease)                          |   | $                                          | 37.3   |   |                                      | $      | (9.4 | ) |   | $ | (27.7 | ) |   | $ | (19.2 | ) |   | $ | (1.9 | ) |   | $ | (75.3 | ) |   | $ | (153.5 | ) |   | $ | (116.0 | ) |

----

|                                   |   | Three      Months Ended September 30, |   |   | Nine      Months Ended September 30, |   |
|----------------------------------------|--------|---------------------------------------|--------|--------|--------------------------------------|--------|
|                                   |   | 2008                                  |   |   | 2007                                 |   |   | Change |   |   | % |   |   | 2008 |   |   | 2007 |   |   | Change |   |   | % |   |
|                                   |   | (Dollars      in millions)            |   |
| Residential                            |   | $                                     | 144.9  |   |                                 | $      | 124.1 |   |   | $ | 20.8 |   |   |   | 16.8 |   |   | $ | 331.3 |   |   | $ | 298.1 |   |   | $ | 33.2 |   |   |   | 11.1 |   |
| Mass-market                            |   |                                  | 16.7   |   |                                 |   | 16.2 |   |   |   | 0.5 |   |   |   | 3.1 |   |   |   | 46.3 |   |   |   | 50.5 |   |   |   | (4.2 | ) |   |   | (8.3 | ) |
| Mid-market                             |   |                                  | 42.7   |   |                                 |   | 40.5 |   |   |   | 2.2 |   |   |   | 5.4 |   |   |   | 116.1 |   |   |   | 109.5 |   |   |   | 6.6 |   |   |   | 6.0 |   |
| Trading      gains (losses)            |   |                                  | 0.1    |   |                                 |   | (5.7 | ) |   |   | 5.8 |   |   |   | (101.8 | ) |   |   | (48.9 | ) |   |   | (7.3 | ) |   |   | (41.6 | ) |   |   | 569.9 |   |
| Other                                  |   |                                  | 10.6   |   |                                 |   | 2.6 |   |   |   | 8.0 |   |   |   | 307.7 |   |   |   | 16.6 |   |   |   | 12.5 |   |   |   | 4.1 |   |   |   | 32.8 |   |
|                                   |   | $                                     | 215.0  |   |                                 | $      | 177.7 |   |   | $ | 37.3 |   |   |   | 21.0 |   |   | $ | 461.4 |   |   | $ | 463.3 |   |   | $ | (1.9 | ) |   |   | (0.4 | ) |
| Actual      customers (thousands)(1,2) |   |                                  | 233.8  |   |                                 |   | 258.6 |   |   |   | (24.8 | ) |   |   | (9.6 | ) |   |   | 233.8 |   |   |   | 258.6 |   |   |   | (24.8 | ) |   |   | (9.6 | ) |

| (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 than average  customers. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|        |   | Three      Months Ended September 30, |    |   | Nine      Months Ended September 30, |   |
|-------------|--------|---------------------------------------|---------|--------|--------------------------------------|--------|
|        |   | 2008                                  |    |   | 2007                                 |   |   | Change |   |   | % |   |   | 2008 |   |   | 2007 |   |   | Change |   |   | % |   |
|        |   | (Gigawatt      hours) (1)             |    |
| Residential |   |                                  | 772.9   |   |                                 |   | 886.5 |   |   |   | (113.6 | ) |   |   | (12.8 | ) |   |   | 2,045.8 |   |   |   | 2,139.5 |   |   |   | (93.7 | ) |   |   | (4.4 | ) |
| Mass-market |   |                                  | 73.1    |   |                                 |   | 101.3 |   |   |   | (28.2 | ) |   |   | (27.8 | ) |   |   | 236.1 |   |   |   | 312.7 |   |   |   | (76.6 | ) |   |   | (24.5 | ) |
| Mid-market  |   |                                  | 340.8   |   |                                 |   | 348.9 |   |   |   | (8.1 | ) |   |   | (2.3 | ) |   |   | 924.1 |   |   |   | 944.5 |   |   |   | (20.4 | ) |   |   | (2.2 | ) |
| Other       |   |                                  | 2.7     |   |                                 |   | 11.3 |   |   |   | (8.6 | ) |   |   | (76.1 | ) |   |   | 12.5 |   |   |   | 21.6 |   |   |   | (9.1 | ) |   |   | (42.1 | ) |
|        |   |                                  | 1,189.5 |   |                                 |   | 1,348.0 |   |   |   | (158.5 | ) |   |   | (11.8 | ) |   |   | 3,218.5 |   |   |   | 3,418.3 |   |   |   | (199.8 | ) |   |   | (5.8 | ) |

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

----

|                                |   | Three      Months Ended September 30, 2008 |   |   | Nine      Months Ended September 30, 2008 |   |
|-------------------------------------|--------|--------------------------------------------|--------|--------|-------------------------------------------|--------|
|                                |   |                                       |   |   |                                      |   |   | Earnings      (Loss) |   |   |   |   |   |   |   |   |   |   |   | Earnings      (Loss) |   |   |   |   |
|                                |   |                                       |   |   |                                      |   |   | Before |   |   | Segment |   |   |   |   |   |   |   |   | Before |   |   | Segment |   |
|                                |   | Total                                      |   |   | Gross                                     |   |   | Income |   |   | Earnings |   |   | Total |   |   | Gross |   |   | Income |   |   | Earnings |   |
|                                |   | Revenues                                   |   |   | Margin                                    |   |   | Taxes |   |   | (Loss) |   |   | Revenues |   |   | Margin |   |   | Taxes |   |   | (Loss) |   |
|                                |   | (In      millions)                         |   |
| Intercompany      eliminations      |   | $                                          | 5.8    |   |                                      | $      | - |   |   | $ | - |   |   | $ | - |   |   | $ | 9.9 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| EnergyCo      formation costs       |   |                                       | -      |   |                                      |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 4.2 |   |   |   | 2.5 |   |
| Loss      on contribution of Altura |   |                                       | -      |   |                                      |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 7.0 |   |   |   | 4.2 |   |
| Equity      in earnings of EnergyCo |   |                                       | -      |   |                                      |   | - |   |   |   | (12.1 | ) |   |   | (7.3 | ) |   |   | - |   |   |   | - |   |   |   | (41.3 | ) |   |   | (24.9 | ) |
| Business      improvement plan      |   |                                       | -      |   |                                      |   | - |   |   |   | 2.1 |   |   |   | 1.3 |   |   |   | - |   |   |   | - |   |   |   | (2.0 | ) |   |   | (1.2 | ) |
| Divestiture      related costs      |   |                                       | -      |   |                                      |   | - |   |   |   | (4.1 | ) |   |   | (2.5 | ) |   |   | - |   |   |   | - |   |   |   | (4.5 | ) |   |   | (2.7 | ) |
| Financing                           |   |                                       | -      |   |                                      |   | - |   |   |   | (1.1 | ) |   |   | (0.7 | ) |   |   | - |   |   |   | - |   |   |   | (3.7 | ) |   |   | (2.2 | ) |
| Effects      of settlement with IRS |   |                                       | -      |   |                                      |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (4.7 | ) |   |   | (18.8 | ) |
| Altura      property tax true up    |   |                                       | -      |   |                                      |   | - |   |   |   | (2.1 | ) |   |   | (1.3 | ) |   |   | - |   |   |   | - |   |   |   | (2.1 | ) |   |   | (1.3 | ) |
| Other                               |   |                                       | (0.3   | )      |                                      |   | (0.2 | ) |   |   | 0.3 |   |   |   | 1.0 |   |   |   | (0.6 | ) |   |   | (0.4 | ) |   |   | 4.4 |   |   |   | 2.6 |   |
| Total      increase (decrease)      |   | $                                          | 5.5    |   |                                      | $      | (0.2 | ) |   | $ | (17.0 | ) |   | $ | (9.5 | ) |   | $ | 9.3 |   |   | $ | (0.4 | ) |   | $ | (42.7 | ) |   | $ | (41.8 | ) |
|                                |   |                                       |   |   |                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                                                                      |   | Three      Months Ended September 30, |   |   | Nine      Months Ended September 30, |   |
|---------------------------------------------------------------------------|--------|---------------------------------------|--------|--------|--------------------------------------|--------|
|                                                                      |   | 2008                                  |   |   | 2007                                 |   |   | Change |   |   | 2008 |   |   | 2007 |   |   | Change |   |
|                                                                      |   | (In      millions)                    |   |
| Total      operating revenues                                             |   | $                                     | 414.1  |   |                                 | $      | 100.5 |   |   | $ | 313.6 |   |   | $ | 892.6 |   |   | $ | 114.8 |   |   | $ | 777.8 |   |
| Cost      of energy                                                       |   |                                  | 357.8  |   |                                 |   | 56.4 |   |   |   | 301.4 |   |   |   | 814.9 |   |   |   | 61.0 |   |   |   | 753.9 |   |
|         Gross margin                                            |   |                                  | 56.3   |   |                                 |   | 44.0 |   |   |   | 12.3 |   |   |   | 77.7 |   |   |   | 53.8 |   |   |   | 23.9 |   |
| Other      operating expenses                                             |   |                                  | 47.2   |   |                                 |   | 12.2 |   |   |   | 35.0 |   |   |   | 99.7 |   |   |   | 17.7 |   |   |   | 82.0 |   |
| Depreciation      and amortization                                        |   |                                  | 7.7    |   |                                 |   | 5.8 |   |   |   | 1.9 |   |   |   | 22.9 |   |   |   | 7.3 |   |   |   | 15.6 |   |
|         Operating income (loss)                                 |   |                                  | 1.4    |   |                                 |   | 26.0 |   |   |   | (24.6 | ) |   |   | (44.8 | ) |   |   | 28.8 |   |   |   | (73.6 | ) |
| Other      income (deductions)                                            |   |                                  | -      |   |                                 |   | 0.2 |   |   |   | (0.2 | ) |   |   | 0.7 |   |   |   | 0.3 |   |   |   | 0.4 |   |
| Net      interest charges                                                 |   |                                  | (3.7   | )      |                                 |   | (7.0 | ) |   |   | 3.3 |   |   |   | (15.0 | ) |   |   | (7.8 | ) |   |   | (7.2 | ) |
|             Earnings (loss) before income taxes  |   |                                  | (2.2   | )      |                                 |   | 19.2 |   |   |   | (21.4 | ) |   |   | (59.1 | ) |   |   | 21.3 |   |   |   | (80.4 | ) |
| Income      tax (benefit) on margin                                       |   |                                  | 0.1    |   |                                 |   | 0.4 |   |   |   | (0.3 | ) |   |   | (0.2 | ) |   |   | 0.4 |   |   |   | (0.6 | ) |
|         Net earnings (loss)                                     |   | $                                     | (2.3   | )      |                                 | $      | 18.8 |   |   | $ | (21.1 | ) |   | $ | (58.9 | ) |   | $ | 20.9 |   |   | $ | (79.8 | ) |
|                                                                      |   |                                  |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 50      percent of net earnings (loss)                                    |   | $                                     | (1.2   | )      |                                 | $      | 9.4 |   |   | $ | (10.6 | ) |   | $ | (29.5 | ) |   | $ | 10.4 |   |   | $ | (39.9 | ) |
|          Plus amortization of basis difference in EnergyCo |   |                                  | (0.3   | )      |                                 |   | 1.1 |   |   |   | (1.4 | ) |   |   | 0.4 |   |   |   | 1.7 |   |   |   | (1.3 | ) |
|          PNMR Equity in net earnings (loss) of EnergyCo    |   | $                                     | (1.5   | )      |                                 | $      | 10.6 |   |   | $ | (12.1 | ) |   | $ | (29.1 | ) |   | $ | 12.2 |   |   | $ | (41.3 | ) |

----

|                                          |   | Nine      Months Ended September 30, |   |
|-----------------------------------------------|--------|--------------------------------------|--------|
|                                          |   | 2008                                 |   |   | 2007 |   |   | Change |   |
|                                          |   |                                 |   | (In      millions) |   |   |   |
|                                          |   |                                 |   |   |   |   |   |   |   |
| Net      cash flows from operating activities |   | $                                    | 64.1   |   |   | $ | 127.0 |   |   | $ | (62.9 | ) |
| Net      cash flows from investing activities |   |                                 | (209.9 | ) |   |   | 19.3 |   |   |   | (229.2 | ) |
| Net      cash flows from financing activities |   |                                 | 395.2  |   |   |   | (252.9 | ) |   |   | 648.1 |   |
| Net      change in cash and cash equivalents  |   | $                                    | 249.4  |   |   | $ | (106.7 | ) |   | $ | 356.0 |   |

----

----

----

|                        | PNMR   |   | PNM    |   | TNMP   |
|-----------------------------|--------|--------|--------|--------|--------|
|                        |   |   |   |   |   |
| S&P                     |   |   |   |   |   |
| Senior      unsecured notes | BB-    |   | BB+    |   | BB+    |
| Commercial      paper       | B-2    |   | B-2    |   | *      |
| Preferred      stock        | *      |   | B      |   | *      |
| Moody’s               |   |   |   |   |   |
| Senior      unsecured notes | Ba2    |   | Baa3   |   | Baa3   |
| Commercial      paper       | NP     |   | P-3    |   | *      |
| Preferred      stock        | *      |   | Ba2    |   | *      |
| Fitch      Ratings          |   |   |   |   |   |
| Senior      unsecured notes | BB     |   | BB+    |   | BBB-   |
| Secured      PCRBs          | *      |   | BBB-   |   | *      |
| Short-term      borrowings  | BB     |   | BB+    |   | BBB-   |
| Preferred      stock        | *      |   | BB     |   | *      |

----

|                                                  |   | PNMR     |   |   | PNM                |   |   | TNMP     |   |   | PNMR         |   |
|-------------------------------------------------------|--------|----------|--------|--------|--------------------|--------|--------|----------|--------|--------|--------------|--------|
|                                                  |   | Separate |   |   | Separate           |   |   | Separate |   |   | Consolidated |   |
|                                                  |   |     |   |   | (In      millions) |   |   |     |   |
| Financing      Capacity:                              |   |     |   |   |               |   |   |     |   |   |         |   |
| Revolving      credit facility                        |   | $        | 600.0  |   |               | $      | 400.0  |     |   | $      | 200.0        |   |   | $ | 1,200.0 |   |
| Local      lines of credit                            |   |     | 10.0   |   |               |   | 8.5    |     |   |   | -            |   |   |   | 18.5 |   |
| Delayed      draw term loan facility                  |   |     | -      |   |               |   | 150.0  |     |   |   | -            |   |   |   | 150.0 |   |
| Letter      of credit facility                        |   |     | -      |   |               |   | 100.0  |     |   |   | -            |   |   |   | 100.0 |   |
| Total      financing capacity                         |   | $        | 610.0  |   |               | $      | 658.5  |     |   | $      | 200.0        |   |   | $ | 1,468.5 |   |
|                                                  |   |     |   |   |               |   |   |     |   |   |         |   |   |   |   |   |
| Commercial      paper program maximum                 |   | $        | 400.0  |   |               | $      | 300.0  |     |   | $      | -            |   |   | $ | 700.0 |   |
|                                                  |   |     |   |   |               |   |   |     |   |   |         |   |   |   |   |   |
| Amounts      outstanding as of October 30, 2008:      |   |     |   |   |               |   |   |     |   |   |         |   |   |   |   |   |
| Commercial      paper program                         |   | $        | -      |   |               | $      | -      |     |   | $      | -            |   |   | $ | - |   |
| Revolving      credit facility                        |   |     | 288.7  |   |               |   | 340.0  |     |   |   | 150.0        |   |   |   | 778.7 |   |
| Local      lines of credit                            |   |     | -      |   |               |   | -      |     |   |   | -            |   |   |   | - |   |
| Delayed      draw term loan facility                  |   |     | -      |   |               |   | -      |     |   |   | -            |   |   |   | - |   |
| Total      short-term debt outstanding                |   |     | 288.7  |   |               |   | 340.0  |     |   |   | 150.0        |   |   |   | 778.7 |   |
|                                                  |   |     |   |   |               |   |   |     |   |   |         |   |   |   |   |   |
| Letters      of credit                                |   |     | 112.3  |   |               |   | 26.5   |     |   |   | 1.5          |   |   |   | 140.3 |   |
|                                                  |   |     |   |   |               |   |   |     |   |   |         |   |   |   |   |   |
| Total      short term-debt and letters of credit      |   | $        | 401.0  |   |               | $      | 366.5  |     |   | $      | 151.5        |   |   | $ | 919.0 |   |
|                                                  |   |     |   |   |               |   |   |     |   |   |         |   |   |   |   |   |
| Remaining      availability as of October 30, 2008    |   | $        | 209.0  |   |               | $      | 292.0  |     |   | $      | 48.5         |   |   | $ | 549.5 |   |
| Cash      and cash equivalents as of October 30, 2008 |   | $        | 147.4  |   |               | $      | 79.5   |     |   | $      | 8.4          |   |   | $ | 235.3 |   |

----

|                               |   | September      30, |   |   | December      31, |   |
|------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
|                               |   | 2008               |   |   | 2007              |   |
| PNMR                               |   |               |   |   |              |   |
| Common      equity                 |   |               | 50.4   | %      |              |   | 50.0 | % |
| Preferred      stock of subsidiary |   |               | 0.3    | %      |              |   | 0.3 | % |
| Long-term      debt                |   |               | 49.3   | %      |              |   | 49.7 | % |
| Total      capitalization          |   |               | 100.0  | %      |              |   | 100.0 | % |

| PNM                       |   |   |   |   |   |   |
|---------------------------|--------|--------|--------|--------|--------|--------|
| Common      equity        |   |   | 55.7   | %      |   |   | 57.8 | % |
| Preferred      stock      |   |   | 0.5    | %      |   |   | 0.5 | % |
| Long-term      debt       |   |   | 43.8   | %      |   |   | 41.7 | % |
| Total      capitalization |   |   | 100.0  | %      |   |   | 100.0 | % |

| TNMP                      |   |   |   |   |   |   |
|---------------------------|--------|--------|--------|--------|--------|--------|
| Common      equity        |   |   | 71.3   | %      |   |   | 57.8 | % |
| Long-term      debt       |   |   | 28.7   | %      |   |   | 42.2 | % |
| Total      capitalization |   |   | 100.0  | %      |   |   | 100.0 | % |

----

----

| ●  | Conditions      affecting the Company’s ability to access the financial markets or      EnergyCo’s access to additional debt financing following the utilization      of its existing credit facility, including actions by ratings agencies      affecting the Company’s credit ratings, the economic downturn, and current      turmoil in the credit markets, |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ●  | State      and federal regulatory and legislative decisions and actions, including      the PNM and TNMP electric rate cases filed in  2008, |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------|

| ●  | The      risk that the closing of the pending sale of the PNM natural gas utility      may not occur due to regulatory or other  reasons, |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------|

| ●  | The      performance of generating units and transmission systems, including PVNGS,      SJGS, Four Corners, and EnergyCo generating units, and transmission      systems, |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ●  | The      risk that EnergyCo is unable to identify and implement profitable      acquisitions,      including development of the Cedar Bayou IV Generating Station, or      that PNMR and ECJV will not agree to make additional capital contributions      to EnergyCo, |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ●  | The      potential unavailability of cash from PNMR’s subsidiaries or EnergyCo due      to regulatory, statutory or contractual  restrictions, |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------|

| ●  | The      impacts of the decline in the values of marketable equity securities on      the trust funds maintained to provide |
|---------------|-----------------------------------------------------------------------------------------------------------------------------|

----

| ●   | pension      and other postretirement benefits, including the levels of funding and      expense, |
|---------------------|---------------------------------------------------------------------------------------------------|

| ●   | 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 FirstChoice, |
|---------------------|------------------------------------------------------------|

| ●   | Collections      experience, |
|---------------------|------------------------------|

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

| ●   | Fluctuations      in interest rates, |
|---------------------|--------------------------------------|

| ●   | Weather, |
|---------------------|----------|

| ●   | Water      supply, |
|---------------------|--------------------|

| ●   | Changes      in fuel costs, |
|---------------------|-----------------------------|

| ●   | The      risk that PNM Electric may incur fuel and purchased power costs that      exceed the cap allowed under its Emergency  FPPAC, |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------|

| ●   | 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, |
|---------------------|------------------------------------------------------------------------------------------------|

| ●   | Uncertainty      regarding the ongoing validity of government programs for emission      allowances, |
|---------------------|------------------------------------------------------------------------------------------------------|

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

| ●        | The      ability to secure long-term powersales, |
|---------------------|--------------------------------------------------|

| ●        | The      risk that the Company and its subsidiaries and EnergyCo may have to commit      to substantial capital investments and additional operating costs to      comply with new environmental control requirements including possible      future requirements to address concerns about global climate      change, |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ●        | The      risks associated with completion of generation, including pollution      control equipment at SJGS, and the EnergyCo Cedar Bayou IV Generating      Station, transmission, distribution, and other projects, including      construction delays and unanticipated cost  overruns, |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ●        | The      outcome of legal proceedings, including pending appeals of PNM’s electric      and gas rate cases and the EmergencyFPPAC, |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------|

| ●        | Changes      in applicable accounting principles, and                   |
|---------------------|-------------------------------------------------------------------------|
|  ●  |  The      performance of state, regional, and national  economies. |

----

----

|                                                   |   | September      30, 2008 |    |
|--------------------------------------------------------|--------|-------------------------|---------|
|                                                   |   | Trading                 |    |   | EconomicHedges |   |   | Total |   |
|                                                   |   | (In      thousands)     |    |
| Mark-to-market      energy contracts:                  |   |                    |    |   |   |   |   |   |   |
| Current      asset                                     |   | $                       | 50,635  |   |   | $ | 14,111 |   |   | $ | 64,746 |   |
| Long-term      asset                                   |   |                    | 7,388   |   |   |   | 4,083 |   |   |   | 11,471 |   |
|         Total mark-to-market assets          |   |                    | 58,023  |   |   |   | 18,194 |   |   |   | 76,217 |   |
| Current      liability                                 |   |                    | (65,082 | ) |   |   | (19,997 | ) |   |   | (85,079 | ) |
| Long-term      liability                               |   |                    | (6,404  | ) |   |   | (69 | ) |   |   | (6,473 | ) |
|         Total mark-to-market liabilities     |   |                    | (71,486 | ) |   |   | (20,066 | ) |   |   | (91,552 | ) |
|                                                   |   |                    |    |   |   |   |   |   |   |   |   |   |
| Net      fair value of mark-to-market energy contracts |   | $                       | (13,463 | ) |   | $ | (1,872 | ) |   | $ | (15,335 | ) |

|                                                   |   | December      31, 2007 |    |
|--------------------------------------------------------|--------|------------------------|---------|
|                                                   |   | Trading                |    |   | EconomicHedges |   |   | Total |   |
|                                                   |   | (In      thousands)    |    |
| Mark-to-market      energy contracts:                  |   |                   |    |   |   |   |   |   |   |
| Current      asset                                     |   | $                      | 32,451  |   |   | $ | 15,060 |   |   | $ | 47,511 |   |
| Long-term      asset                                   |   |                   | 8,335   |   |   |   | 37,359 |   |   |   | 45,694 |   |
|         Total mark-to-market assets          |   |                   | 40,786  |   |   |   | 52,419 |   |   |   | 93,205 |   |
| Current      liability                                 |   |                   | (34,753 | ) |   |   | (17,991 | ) |   |   | (52,744 | ) |
| Long-term      liability                               |   |                   | (7,610  | ) |   |   | (47,564 | ) |   |   | (55,174 | ) |
|         Total mark-to-market liabilities     |   |                   | (42,363 | ) |   |   | (65,555 | ) |   |   | (107,918 | ) |
|                                                   |   |                   |    |   |   |   |   |   |   |   |   |   |
| Net      fair value of mark-to-market energy contracts |   | $                      | (1,577  | ) |   | $ | (13,136 | ) |   | $ | (14,713 | ) |

----

|                                                      |   | September      30, 2008 |    |
|-----------------------------------------------------------|--------|-------------------------|---------|
|                                                      |   | Trading                 |    |   | EconomicHedges |   |   | Total |   |
|                                                      |   | (In      thousands)     |    |
| Sources      of fair value gain (loss):                   |   |                    |    |   |   |   |   |   |   |
| Fair      value at beginning of year                      |   | $                       | (1,577  | ) |   | $ | (13,136 | ) |   | $ | (14,713 | ) |
| Adoption      of SFAS 157                                 |   |                    | -       |   |   |   | 17,253 |   |   |   | 17,253 |   |
| Adjusted      beginning fair value                        |   |                    | (1,577  | ) |   |   | 4,117 |   |   |   | 2,540 |   |
| Amount      realized on contracts delivered during period |   |                    | 37,539  |   |   |   | 12,985 |   |   |   | 50,524 |   |
| Changes      in fair value                                |   |                    | (45,048 | ) |   |   | (18,338 | ) |   |   | (63,386 | ) |
| Net      change recorded as mark-to-market                |   |                    | (7,509  | ) |   |   | (5,353 | ) |   |   | (12,862 | ) |
|                                                      |   |                    |    |   |   |   |   |   |   |   |   |   |
| Unearned/prepaid      option premiums                     |   |                    | (4,377  | ) |   |   | (636 | ) |   |   | (5,013 | ) |
|                                                      |   |                    |    |   |   |   |   |   |   |   |   |   |
| Net      fair value at end of period                      |   | $                       | (13,463 | ) |   | $ | (1,872 | ) |   | $ | (15,335 | ) |

|                                                      |   | September      30, 2007 |                |
|-----------------------------------------------------------|--------|-------------------------|---------------------|
|                                                      |   |                    |                |
|                                                      |   | Trading                 |                |   | EconomicHedges |   |   | Total |   |
|                                                      |   | (In      thousands)     |                |
| Sources      of fair value gain (loss):                   |   |                    |                |   |   |   |   |   |   |
| Fair      value at beginning of year                      |   | $                       | 926                 |   |   | $ | 2,540 |   |   | $ | 3,466 |   |
| Amount      realized on contracts delivered during period |   |                    | 6,683               |   |   |   | 6,270 |   |   |   | 12,953 |   |
| Changes      in valuation techniques                      |   |                    | 301            |   |   |   | (4,410)  |   |   |   | (4,109)  |   |
| Changes      in fair value                                |   |                    | (8,206              | ) |   |   | (16,256 | ) |   |   | (24,462 | ) |
|  Net      change recorded as mark-to-market          |   |                    |        (1,222) |   |   |   | (14,396) |   |   |   | (15,618) |   |
|                                                      |   |                    |                |   |   |   |   |   |   |   |   |   |
| Net      fair value at end of period                      |   | $                       | (296                | ) |   | $ | (11,856 | ) |   | $ | (12,152 | ) |

|                 |   | Less      than |    |   |                |   |   |          |   |   |   |   |
|----------------------|--------|----------------|---------|--------|---------------------|--------|--------|---------------|--------|--------|--------|--------|
|                 |   | 1      year    |    |   | 1-3      Years      |   |   | 4+      Years |   |   | Total  |   |
|                 |   |           |    |   | (In      thousands) |   |   |          |   |
| Trading              |   | $              | (14,447 | )      |                | $      | 984    |          |   | $      | -      |   |   | $ | (13,463 | ) |
| Economic      hedges |   |           | (5,886  | )      |                |   | 2,858  |          |   |   | 1,156  |   |   |   | (1,872 | ) |
| Total                |   | $              | (20,333 | )      |                | $      | 3,842  |          |   | $      | 1,156  |   |   | $ | (15,335 | ) |

----

|                                           |   | Nine      Months Ended |   |
|------------------------------------------------|--------|------------------------|--------|
|                                           |   | September      30,     |   |
|                                           |   | 2008                   |   |   | 2007 |   |
| Type      of Derivative                        |   | Hedge      Instruments |   |
|                                           |   | (In      thousands)    |   |
| Change      in fair value of energy contracts  |   | $                      | 29,520 |   |   | $ | (31,970 | ) |
| Change      in fair value of swaps and futures |   |                   | (1,110 | ) |   |   | 4,924 |   |
| Change      in the fair value of options       |   |                   | (747   | ) |   |   | (193 | ) |
| Net      change in fair value                  |   | $                      | 27,663 |   |   | $ | (27,239 | ) |

----

----

|                      |   |                        |    |   |     |   |   | Net      |   |
|---------------------------|--------|-----------------------------|---------|--------|----------|--------|--------|----------|--------|
|                      |   | (b)                         |    |   | Number   |   |   | Exposure |   |
|                      |   | Net                         |    |   | of       |   |   | of       |   |
|                      |   | Credit                      |    |   | Counter  |   |   | Counter- |   |
|                      |   | Risk                        |    |   | -parties |   |   | parties  |   |
| Rating      (a)           |   | Exposure                    |    |   | >10%  |   |   | >10%  |   |
|                      |   | (Dollars      in thousands) |    |
|                      |   |                        |    |   |     |   |   |     |   |
| External      ratings:    |   |                        |    |   |     |   |   |     |   |
| Investment      grade     |   | $                           | 138,480 |   |     |   | 3      |     |   | $ | 102,795 |   |
| Non-investment      grade |   |                        | 2,885   |   |     |   | -      |     |   |   | - |   |
| Internal      ratings:    |   |                        |    |   |     |   |   |     |   |   |   |   |
| Investment      grade     |   |                        | 2,705   |   |     |   | -      |     |   |   | - |   |
| Non-investment      grade |   |                        | 266     |   |     |   | -      |     |   |   | - |   |
| Total                     |   | $                           | 144,336 |   |     |   |   |     |   | $ | 102,795 |   |

| (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 from      operations.  This includes long-term contracts, forward sales      and short-term sales. The exposure captures the net amounts from      receivables/payables for realized transactions, delivered and unbilled      revenues, and mark-to-market gains/losses (pursuant to contract      terms).  Exposures are offset according to legally enforceable      netting arrangements 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. |
|--------|-----------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | PNMR |
|--------|------|

|   | Maturity      of Credit Risk Exposure |
|--------|---------------------------------------|

|                      |   |           |    |   |                |   |   | Greater      |   |   | Total    |   |
|---------------------------|--------|----------------|---------|--------|---------------------|--------|--------|--------------|--------|--------|----------|--------|
|                      |   | Less      than |    |   |                |   |   | than         |   |   | Net      |   |
| Rating                    |   | 2      Years   |    |   | 2-5      Years      |   |   | 5      Years |   |   | Exposure |   |
|                      |   |           |    |   | (In      thousands) |   |   |         |   |
|                      |   |           |    |   |                |   |   |         |   |   |     |   |
| External      ratings:    |   |           |    |   |                |   |   |         |   |   |     |   |
| Investment      grade     |   | $              | 133,463 |   |                | $      | 4,279  |         |   | $      | 738      |   |   | $ | 138,480 |   |
| Non-investment      grade |   |           | 2,885   |   |                |   | -      |         |   |   | -        |   |   |   | 2,885 |   |
| Internal      ratings:    |   |           |    |   |                |   |   |         |   |   |     |   |   |   |   |   |
| Investment      grade     |   |           | 2,705   |   |                |   | -      |         |   |   | -        |   |   |   | 2,705 |   |
| Non-investment      grade |   |           | 266     |   |                |   | -      |         |   |   | -        |   |   |   | 266 |   |
| Total                     |   | $              | 139,319 |   |                | $      | 4,279  |         |   | $      | 738      |   |   | $ | 144,336 |   |

----

----

| ● | PNMR      outsourced information technology backup and recovery and support services      to a third party. |
|---------|-------------------------------------------------------------------------------------------------------------|

| ●  | PNMR      outsourced customer remittance process functions to a third      party. |
|---------------|-----------------------------------------------------------------------------------|

| ●  | PNM      outsourced information technology backup and recovery and support services      to a third party. |
|---------------|------------------------------------------------------------------------------------------------------------|

| ●  | PNM      outsourced customer remittance process functions to a third      party. |
|---------------|----------------------------------------------------------------------------------|

| ·   | TNMP      outsourced information technology backup and recovery and support services      to a third party. |
|--------------------|-------------------------------------------------------------------------------------------------------------|

----

| ·   | Citizen      Suit Under the Clean Air Act |
|--------------------|-------------------------------------------|

| ·   | Navajo      Nation Environmental Issues |
|--------------------|-----------------------------------------|

| ·   | Four      Corners Federal Implementation PlanLitigation |
|--------------------|---------------------------------------------------------|

| ·   | Santa      Fe Generating Station |
|--------------------|----------------------------------|

| ·   | Legal      Proceedings discussed under the caption, “Western United States Wholesale      Power Market” |
|--------------------|---------------------------------------------------------------------------------------------------------------------|

| ·   | TNMP      True-Up Proceeding |
|--------------------|------------------------------|

| ·   | San      Juan River Adjudication |
|--------------------|----------------------------------|

| ·   | Gila      River Indian Reservation SuperfundSite |
|--------------------|--------------------------------------------------|

----

----

| 4.1    | PNMR   | Amended      and Restated Purchase Contract Agreement, dated as of August 4, 2008,      between PNMR and U.S. Bank National Association, as purchase contract      agent                                                         |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                             |
| 4.2    | PNMR   | Amended      and Restated Pledge Agreement, dated as of August 4, 2008, between PNMR      and U.S. Bank National Association                                                                                                     |
|   |   |                                                                                                                                                                                                                             |
| 4.3    | PNMR   | Supplemental      Indenture No.2, dated as of August 4, 2008 between PNMR and U.S. Bank      National Association, as trustee                                                                                                    |
|   |   |                                                                                                                                                                                                                             |
| 4.4    | PNMR   | Letter      Agreement, dated as of August 4, 2008, among PNMR, Citigroup Global      Markets Inc, and U.S. Bank National Association, amending and      supplementing the Remarketing Agreement dated as of October 7,      2005 |
|   |   |                                                                                                                                                                                                                             |
| 10.1** | PNMR   | PNM      Resources, Inc. Officer Retention Plan executed September 2,      2008                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                             |
| 10.2** | PNMR   | Second      Amendment to the PNM Resources, Inc. Executive Spending Account executed      August 28, 2008                                                                                                                        |
|   |   |                                                                                                                                                                                                                             |
| 10.3** | PNMR   | Supplemental      Employee Retirement Agreement for Patrick T. Ortiz executed October 21,      2008                                                                                                                              |
|   |   |                                                                                                                                                                                                                             |
| 12.1   | PNMR   | Ratio      of Earnings to Fixed Charges                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                             |
| 12.2   | PNM    | Ratio      of Earnings to Fixed Charges                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                             |
| 12.3   | PNM    | 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 |

----

|                                         | PNM      RESOURCES, INC.PUBLIC      SERVICE COMPANY OF NEW MEXICOTEXAS-NEW      MEXICO POWER COMPANY |
|----------------------------------------------|------------------------------------------------------------------------------------------------------|
|                                         | (Registrants)                                                                                        |
|                                         |                                                                                                 |
|                                         |                                                                                                 |
| Date:   November      5, 2008 | /s/  Thomas      G. Sategna                                                                |
|                                         | Thomas      G. Sategna                                                                               |
|                                         | Vice      President and Corporate Controller                                                         |
|                                         | (Officer      duly authorized to sign thisreport)                                                    |

----