----

|                                                         | Page    |
|--------------------------------------------------------------|---------|
| Glossary                                                     | 1  |
| Independent Auditors’ Report                           | 2  |
| Consolidated Statements of Operations                        | 3  |
| Consolidated Balance Sheets                                  | 4  |
| Consolidated Statements of Cash Flows                        | 6  |
| Consolidated Statements of Changes in Members’ Capital | 7  |
| Consolidated Statements of Comprehensive (Loss)              | 8  |
| Notes to Consolidated Financial Statements                   | 9       |

----

| AOCI..........................................         |   | Accumulated Other Comprehensive Income (Loss)                                                     |
|----------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------|
| Altura Cogen.................................                      |   | Optim Energy Altura Cogen, LLC, formerly Altura Cogen, LLC, subsidiary of Optim Energy Generation |
| CAIR.............................................  |   | U.S. Environmental Protection Agency’s Clear Air Interstate Rule                            |
| Cascade........................................            |   | Cascade Investment, LLC                                                                           |
| ECJV.............................................  |   | ECJV Holdings, LLC                                                                                |
| ERCOT..........................................        |   | Electric Reliability Council of Texas                                                             |
| FASB............................................       |   | Financial Accounting Standards Board                                                              |
| GAAP...........................................        |   | Generally Accepted Accounting Principles in the United States of America                          |
| LCC.............................................   |   | Lyondell Chemical Company                                                                         |
| LIBOR...........................................       |   | London Interbank Offered Rate                                                                     |
| MMbtu........................................              |   | One Million British Thermal Units                                                                 |
| MW.............................................    |   | Megawatt                                                                                          |
| MWh..........................................          |   | Megawatt Hour                                                                                     |
| NOx.............................................   |   | Nitrogen Oxide                                                                                    |
| NRG..............................................  |   | NRG Energy Inc. and Subsidiaries                                                                  |
| NRG Cedar Bayou...........................                                 |   | NRG Cedar Bayou Development Company, LLC                                                          |
| NRG Texas......................................                |   | NRG Texas Power, LLC, plant operator of Cedar Bayou 4, subsidiary of NRG Energy Inc.              |
| OCI............................................... |   | Other Comprehensive Income (Loss)                                                                 |
| Optim Energy.................................                      |   | Optim Energy, LLC and Subsidiaries, formerly EnergyCo, LLC and Subsidiaries                       |
| Optim Energy Cedar Bayou...............                                                    |   | Optim Energy Cedar Bayou 4, LLC, formerly EnergyCo Cedar Bayou 4, LLC                             |
| Optim Energy Generation..................                                              |   | Optim Energy Generation, LLC and Subsidiaries, formerly Altura Energy, LLC and Subsidiaries       |
| Optim Energy Marketing..................                                               |   | Optim Energy Marketing, LLC, formerly EnergyCo Marketing and Trading, LLC or ECMT                 |
| PNMR..........................................         |   | PNM Resources, Inc.                                                                               |
| PNMR Services...............................                           |   | PNMR Services Company, a wholly-owned subsidiary of PNMR                                          |
| SEPSA..........................................        |   | Steam and Electric Power Sales Agreement, an agreement with LCC                                   |
| SO2.............................................   |   | Sulfur Dioxide                                                                                    |
| Twin Oaks....................................                  |   | Optim Energy Twin Oaks, LP, formerly Altura Power LP, subsidiary of Optim Energy Generation       |

----

----

|                                             |   | Year Ended December 31, |    |
|--------------------------------------------------|--------|-------------------------|---------|
|                                             |   | 2010                    |    |   | 2009 |   |   | 2008 |   |
|                                             |   | (In thousands)          |    |
|                                             |   |                    |    |   |   |   |   |   |   |
| Operating revenues                               |   | $                       | 374,358 |   |   | $ | 319,507 |   |   | $ | 472,665 |   |
|                                             |   |                    |    |   |   |   |   |   |   |   |   |   |
| Cost of energy                                   |   |                    | 264,378 |   |   |   | 201,547 |   |   |   | 366,477 |   |
|                                             |   |                    |    |   |   |   |   |   |   |   |   |   |
|                                             |   |                    | 109,980 |   |   |   | 117,960 |   |   |   | 106,188 |   |
|                                             |   |                    |    |   |   |   |   |   |   |   |   |   |
| Operating expenses:                              |   |                    |    |   |   |   |   |   |   |   |   |   |
|    Non-fuel operations and maintenance |   |                    | 31,254  |   |   |   | 33,118 |   |   |   | 26,053 |   |
|    Administrative and general          |   |                    | 24,332  |   |   |   | 27,910 |   |   |   | 26,232 |   |
|    Depreciation                        |   |                    | 50,621  |   |   |   | 37,171 |   |   |   | 30,545 |   |
|    Impairment of intangible asset      |   |                    | -       |   |   |   | - |   |   |   | 21,794 |   |
|    Emission allowances write off       |   |                    | 2,287   |   |   |   | 51,586 |   |   |   | 31,739 |   |
|    Taxes other than income taxes       |   |                    | 7,902   |   |   |   | 11,089 |   |   |   | 11,954 |   |
| Total Operating Expenses                         |   |                    | 116,396 |   |   |   | 160,874 |   |   |   | 148,317 |   |
|                                             |   |                    |    |   |   |   |   |   |   |   |   |   |
| Operating (Loss)                                 |   |                    | (6,416  | ) |   |   | (42,914 | ) |   |   | (42,129 | ) |
|                                             |   |                    |    |   |   |   |   |   |   |   |   |   |
| Other income and (deductions), net               |   |                    | 382     |   |   |   | (318 | ) |   |   | 740 |   |
| Interest expense                                 |   |                    | (18,650 | ) |   |   | (13,755 | ) |   |   | (19,183 | ) |
|                                             |   |                    |    |   |   |   |   |   |   |   |   |   |
| (Loss) Before Income Taxes                       |   |                    | (24,684 | ) |   |   | (56,987 | ) |   |   | (60,572 | ) |
|                                             |   |                    |    |   |   |   |   |   |   |   |   |   |
| Income taxes (benefit)                           |   |                    | 406     |   |   |   | (161 | ) |   |   | (88 | ) |
|                                             |   |                    |    |   |   |   |   |   |   |   |   |   |
| Net (Loss)                                       |   | $                       | (25,090 | ) |   | $ | (56,826 | ) |   | $ | (60,484 | ) |
|                                             |   |                    |    |   |   |   |   |   |   |   |   |   |

----

|                                                                   |   | December 31,   |      |
|------------------------------------------------------------------------|--------|----------------|-----------|
|                                                                   |   | 2010           |      |   | 2009 |   |
|                                                                   |   | (In thousands) |      |
| ASSETS                                                                 |   |           |      |   |   |   |
| Current Assets:                                                        |   |           |      |   |   |   |
|    Cash and cash equivalents                                 |   | $              | 29,466    |   |   | $ | 14,953 |   |
|    Accounts receivable                                       |   |           | 28,699    |   |   |   | 24,512 |   |
|    Inventory                                                 |   |           | 22,683    |   |   |   | 25,070 |   |
|    Intangible assets, net of amortization                    |   |           | 14,675    |   |   |   | 16,303 |   |
|    Derivative instruments                                    |   |           | 1,220     |   |   |   | 37,116 |   |
|    Other current assets                                      |   |           | 8,670     |   |   |   | 10,665 |   |
|       Total current assets                    |   |           | 105,413   |   |   |   | 128,619 |   |
|                                                                   |   |           |      |   |   |   |   |   |
| Property, Plant and Equipment:                                         |   |           |      |   |   |   |   |   |
|    Plant in service                                          |   |           | 1,039,749 |   |   |   | 1,023,630 |   |
|    Computer hardware and software                            |   |           | 8,774     |   |   |   | 5,210 |   |
|    Less accumulated depreciation                             |   |           | 124,300   |   |   |   | 93,092 |   |
|                                                                   |   |           | 924,223   |   |   |   | 935,748 |   |
|    Construction work in progress                             |   |           | 131       |   |   |   | 16,009 |   |
|       Net property, plant and equipment       |   |           | 924,354   |   |   |   | 951,757 |   |
|                                                                   |   |           |      |   |   |   |   |   |
| Deferred Charges and Other Assets:                                     |   |           |      |   |   |   |   |   |
|    Intangible assets, net of amortization                    |   |           | 69,402    |   |   |   | 84,077 |   |
|    Inventory                                                 |   |           | 45,864    |   |   |   | 51,420 |   |
|    Derivative instruments                                    |   |           | 1,858     |   |   |   | - |   |
|    Other deferred charges                                    |   |           | 3,770     |   |   |   | 1,887 |   |
|       Total deferred charges and other assets |   |           | 120,894   |   |   |   | 137,384 |   |
|                                                                   |   |           |      |   |   |   |   |   |
| Total Assets                                                           |   | $              | 1,150,661 |   |   | $ | 1,217,760 |   |
|                                                                   |   |           |      |   |   |   |   |   |

----

|                                                                        |   | December 31,   |      |
|-----------------------------------------------------------------------------|--------|----------------|-----------|
|                                                                        |   | 2010           |      |   | 2009 |   |
|                                                                        |   | (In thousands) |      |
| LIABILITIES AND MEMBERS' CAPITAL                                            |   |           |      |   |   |   |
| Current Liabilities:                                                        |   |           |      |   |   |   |
|    Accounts payable                                               |   | $              | 24,411    |   |   | $ | 34,948 |   |
|    Related party payable                                          |   |           | 3,550     |   |   |   | 3,675 |   |
|    Accrued interest and taxes                                     |   |           | 7,814     |   |   |   | 11,430 |   |
|    Derivative instruments                                         |   |           | 10,133    |   |   |   | 6,253 |   |
|    Current portion of contract liability                          |   |           | -         |   |   |   | 2,676 |   |
|    Other current liabilities                                      |   |           | 4,318     |   |   |   | 7,208 |   |
|       Total current liabilities                    |   |           | 50,226    |   |   |   | 66,190 |   |
|                                                                        |   |           |      |   |   |   |   |   |
| Long Term Debt                                                              |   |           | 717,000   |   |   |   | 755,000 |   |
|                                                                        |   |           |      |   |   |   |   |   |
| Deferred Credits and Other Liabilities:                                     |   |           |      |   |   |   |   |   |
|    Asset retirement obligations                                   |   |           | 3,748     |   |   |   | 3,560 |   |
|    Accumulated deferred income taxes                              |   |           | 1,405     |   |   |   | 1,286 |   |
|    Other deferred credits                                         |   |           | 2,362     |   |   |   | 864 |   |
|       Total deferred credits and other liabilities |   |           | 7,515     |   |   |   | 5,710 |   |
|                                                                        |   |           |      |   |   |   |   |   |
| Members' Capital:                                                           |   |           |      |   |   |   |   |   |
|    Accumulated other comprehensive income                         |   |           | (46       | ) |   |   | 30,364 |   |
|    Other members' capital                                         |   |           | 375,966   |   |   |   | 360,496 |   |
|       Total members' capital                       |   |           | 375,920   |   |   |   | 390,860 |   |
|                                                                        |   |           |      |   |   |   |   |   |
| Total Liabilities and Members' Capital                                      |   | $              | 1,150,661 |   |   | $ | 1,217,760 |   |
|                                                                        |   |           |      |   |   |   |   |   |

----

|                                                                                                       |   | Year Ended December 31, |    |
|------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                                                       |   | 2010                    |    |   | 2009 |   |   | 2008 |   |
|                                                                                                       |   | (In thousands)          |    |
| Cash Flows From Operating Activities:                                                                      |   |                    |    |   |   |   |   |   |   |
| Net (loss)                                                                                                 |   | $                       | (25,090 | ) |   | $ | (56,826 | ) |   | $ | (60,484 | ) |
| Adjustments to reconcile net (loss) to net cash                                                            |   |                    |    |   |   |   |   |   |   |   |   |   |
|  flows from operating activities:                                                                     |   |                    |    |   |   |   |   |   |   |   |   |   |
|    Depreciation                                                                                  |   |                    | 50,621  |   |   |   | 37,171 |   |   |   | 30,545 |   |
|    Contract amortization                                                                         |   |                    | 13,627  |   |   |   | 6,639 |   |   |   | (2,225 | ) |
|    Emission allowances expense                                                                   |   |                    | 5,366   |   |   |   | 4,710 |   |   |   | 11,214 |   |
|    Net unrealized (losses) gains on derivatives                                                  |   |                    | (1,356  | ) |   |   | 7,005 |   |   |   | (5,477 | ) |
|    Impairment of intangible asset                                                                |   |                    | -       |   |   |   | - |   |   |   | 21,794 |   |
|    Emission allowances write off                                                                 |   |                    | 2,287   |   |   |   | 51,586 |   |   |   | 31,739 |   |
|    Other, net                                                                                    |   |                    | (40     | ) |   |   | 609 |   |   |   | 3 |   |
|    Changes in certain assets and liabilities:                                                    |   |                    |    |   |   |   |   |   |   |   |   |   |
|         Accounts receivable                                             |   |                    | (4,187  | ) |   |   | (1,492 | ) |   |   | 7,627 |   |
|         Inventory                                                       |   |                    | (3,741  | ) |   |   | (4,941 | ) |   |   | (8 | ) |
|         Other current assets                                            |   |                    | 3,350   |   |   |   | (6,279 | ) |   |   | (3,175 | ) |
|         Other assets                                                    |   |                    | 9       |   |   |   | (1,286 | ) |   |   | (346 | ) |
|         Accounts payable                                                |   |                    | (10,224 | ) |   |   | 6,256 |   |   |   | 1,687 |   |
|         Related party payable                                           |   |                    | (125    | ) |   |   | 1,873 |   |   |   | 447 |   |
|         Accrued interest and taxes                                      |   |                    | (3,616  | ) |   |   | (3,647 | ) |   |   | 1,205 |   |
|         Other current liabilities                                       |   |                    | 2,602   |   |   |   | (5,092 | ) |   |   | 7,434 |   |
|         Other liabilities                                               |   |                    | 1,373   |   |   |   | (382 | ) |   |   | 2,006 |   |
|            Net cash flows from operating activities |   |                    | 30,856  |   |   |   | 35,904 |   |   |   | 43,986 |   |
|                                                                                                       |   |                    |    |   |   |   |   |   |   |   |   |   |
| Cash Flows From Investing Activities:                                                                      |   |                    |    |   |   |   |   |   |   |   |   |   |
|    Additions to property, plant and equipment                                                    |   |                    | (18,903 | ) |   |   | (59,137 | ) |   |   | (119,939 | ) |
|         Net cash flows used in investing activities                     |   |                    | (18,903 | ) |   |   | (59,137 | ) |   |   | (119,939 | ) |
|                                                                                                       |   |                    |    |   |   |   |   |   |   |   |   |   |
| Cash Flows From Financing Activities:                                                                      |   |                    |    |   |   |   |   |   |   |   |   |   |
|    Long-term debt borrowings                                                                     |   |                    | 15,000  |   |   |   | 45,000 |   |   |   | 80,000 |   |
|    Long-term debt repayments                                                                     |   |                    | (53,000 | ) |   |   | (20,778 | ) |   |   | - |   |
|    Member contributions                                                                          |   |                    | 40,560  |   |   |   | - |   |   |   | - |   |
|         Net cash flows from financing activities                        |   |                    | 2,560   |   |   |   | 24,222 |   |   |   | 80,000 |   |
|                                                                                                       |   |                    |    |   |   |   |   |   |   |   |   |   |
| Change in Cash and Cash Equivalents                                                                        |   |                    | 14,513  |   |   |   | 989 |   |   |   | 4,047 |   |
| Cash and Cash Equivalents at Beginning of   Year                                            |   |                    | 14,953  |   |   |   | 13,964 |   |   |   | 9,917 |   |
|                                                                                                       |   |                    |    |   |   |   |   |   |   |   |   |   |
| Cash and Cash Equivalents at End of Year                                                                   |   | $                       | 29,466  |   |   | $ | 14,953 |   |   | $ | 13,964 |   |
|                                                                                                       |   |                    |    |   |   |   |   |   |   |   |   |   |
| Supplemental Cash Flow Disclosures:                                                                        |   |                    |    |   |   |   |   |   |   |   |   |   |
|    Interest paid, net of capitalized interest and      guarantee fees   |   | $                       | 10,873  |   |   | $ | 8,036 |   |   | $ | 19,440 |   |
|                                                                                                       |   |                    |    |   |   |   |   |   |   |   |   |   |
|    Income taxes paid, net of refunds                                                             |   | $                       | 190     |   |   | $ | 79 |   |   | $ | - |   |
|                                                                                                       |   |                    |    |   |   |   |   |   |   |   |   |   |

----

|                                      |   | Class A        |    |   | Class B |   |    | Total  |   |
|-------------------------------------------|--------|----------------|---------|--------|---------|--------|---------|--------|--------|
|                                      |   | (In thousands) |    |
| Balance at December 31, 2007              |   | $              | 248,005 |   |    | $      | 248,005 |   |   | $ | 496,010 |   |
|                                      |   |           |    |   |    |   |    |   |   |   |   |   |
| Allocations of other comprehensive income |   |           | 21,990  |   |    |   | 21,990  |   |   |   | 43,980 |   |
| Allocations of net (loss)                 |   |           | (30,242 | )      |    |   | (30,242 | )      |   |   | (60,484 | ) |
|                                      |   |           |    |   |    |   |    |   |   |   |   |   |
| Balance at December 31, 2008              |   | $              | 239,753 |   |    | $      | 239,753 |   |   | $ | 479,506 |   |
|                                      |   |           |    |   |    |   |    |   |   |   |   |   |
| Allocations of other comprehensive (loss) |   |           | (15,910 | )      |    |   | (15,910 | )      |   |   | (31,820 | ) |
| Allocations of net (loss)                 |   |           | (28,413 | )      |    |   | (28,413 | )      |   |   | (56,826 | ) |
|                                      |   |           |    |   |    |   |    |   |   |   |   |   |
| Balance at December 31, 2009              |   | $              | 195,430 |   |    | $      | 195,430 |   |   | $ | 390,860 |   |
|                                      |   |           |    |   |    |   |    |   |   |   |   |   |
| Allocations of other comprehensive (loss) |   |           | (15,205 | )      |    |   | (15,205 | )      |   |   | (30,410 | ) |
| Member contributions                      |   |           | 20,280  |   |    |   | 20,280  |   |   |   | 40,560 |   |
| Allocations of net (loss)                 |   |           | (12,545 | )      |    |   | (12,545 | )      |   |   | (25,090 | ) |
|                                      |   |           |    |   |    |   |    |   |   |   |   |   |
| Balance at December 31, 2010              |   | $              | 187,960 |   |    | $      | 187,960 |   |   | $ | 375,920 |   |
|                                      |   |           |    |   |    |   |    |   |   |   |   |   |

----

|                                                                         |   | Year Ended December 31, |    |
|------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                         |   | 2010                    |    |   | 2009 |   |   | 2008 |   |
|                                                                         |   | (In thousands)          |    |
|                                                                         |   |                    |    |   |   |   |   |   |   |
| Net (Loss)                                                                   |   | $                       | (25,090 | ) |   | $ | (56,826 | ) |   | $ | (60,484 | ) |
|                                                                         |   |                    |    |   |   |   |   |   |   |   |   |   |
| Other Comprehensive (Loss) Income:                                           |   |                    |    |   |   |   |   |   |   |   |   |   |
|    Change in fair market value of designated                       |   |                    |    |   |   |   |   |   |   |   |   |   |
|       cash flow hedges, net of income tax (expense) |   |                    |    |   |   |   |   |   |   |   |   |   |
|       of ($156), ($392) and ($695)                  |   |                    | 13,270  |   |   |   | 38,860 |   |   |   | 68,780 |   |
|    Reclassification adjustment for (gains)                         |   |                    |    |   |   |   |   |   |   |   |   |   |
|       on designated cash flow hedges included       |   |                    |    |   |   |   |   |   |   |   |   |   |
|       in net (loss), net of income tax expense      |   |                    |    |   |   |   |   |   |   |   |   |   |
|       of $463, $714 and $250                        |   |                    | (43,680 | ) |   |   | (70,680 | ) |   |   | (24,800 | ) |
|                                                                         |   |                    |    |   |   |   |   |   |   |   | . |   |
| Total Other Comprehensive (Loss) Income                                      |   |                    | (30,410 | ) |   |   | (31,820 | ) |   |   | 43,980 |   |
|                                                                         |   |                    |    |   |   |   |   |   |   |   |   |   |
| Comprehensive (Loss)                                                         |   | $                       | (55,500 | ) |   | $ | (88,646 | ) |   | $ | (16,504 | ) |
|                                                                         |   |                    |    |   |   |   |   |   |   |   |   |   |

----

----

|                                              |   | December 31,   |   |
|---------------------------------------------------|--------|----------------|--------|
|                                              |   | 2010           |   |   | 2009 |   |
|                                              |   | (In thousands) |   |
|                                              |   |           |   |   |   |   |
| Emission allowances - current                     |   | $              | 5,970  |   |   | $ | 8,068 |   |
| Materials and supplies                            |   |           | 12,926 |   |   |   | 14,998 |   |
| Fuel                                              |   |           | 3,787  |   |   |   | 2,004 |   |
|     Total current inventories |   |           | 22,683 |   |   |   | 25,070 |   |
|  Emission allowances - deferred              |   |           | 45,864 |   |   |   | 51,420 |   |
|     Total inventories              |   | $              | 68,547 |   |   | $ | 76,490 |   |
|                                              |   |           |   |   |   |   |   |   |

----

|                             |   | December 31,   |    |
|----------------------------------|--------|----------------|---------|
|                             |   | 2010           |    |   | 2009 |   |
|                             |   | (In thousands) |    |
|                             |   |           |    |   |   |   |
| Altura Cogen acquisition - SEPSA |   | $              | 134,893 |   |   | $ | 134,893 |   |
| Accumulated amortization         |   |           | 50,816  |   |   |   | 34,513 |   |
|                             |   | $              | 84,077  |   |   | $ | 100,380 |   |
|                             |   |           |    |   |   |   |   |   |

| Structures, fixtures & improvements | 4 to 40 years  |
|-----------------------------------------|----------------|
| Generation equipment                    | 1 to 35 years  |
| Transportation equipment                | 12 to 17 years |
| Computer software                       | 5 years        |

----

----

----

----

----

|                                                                                               |   | Mark-to-Market Instruments |    |   | Hedge Instruments |   |
|----------------------------------------------------------------------------------------------------|--------|----------------------------|---------|--------|-------------------|--------|
|                                                                                               |   | Economic Hedges            |    |   | Cash Flow Hedges  |   |
|                                                                                               |   | December 31,               |    |   | December 31,      |   |
|                                                                                               |   | 2010                       |    |   | 2009              |   |   | 2010 |   |   | 2009 |   |
|                                                                                               |   |                       |    |   |              |   |   |   |   |   |   |   |
|                                                                                               |   | (In thousands)             |    |
|     Current assets                                                                  |   | $                          | 1,220   |   |              | $      | 6,447 |   |   | $ | - |   |   | $ | 30,669 |   |
|                                                                                               |   |                       |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
|     Deferred charges and       other assets |   |                       | 1,858   |   |              |   | - |   |   |   | - |   |   |   | - |   |
|                                                                                               |   |                       |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
|     Current liabilities                                                        |   |                       | (10,087 | )      |              |   | (6,253 | ) |   |   | - |   |   |   | - |   |
|                                                                                               |   |                       |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                               |   | $                          | (7,009  | )      |              | $      | 194 |   |   | $ | - |   |   | $ | 30,669 |   |
|                                                                                               |   |                       |    |   |              |   |   |   |   |   |   |   |   |   |   |   |

----

|                                      |   | Natural Gas (in MMbtu) |       |   |   | Power (in MWh) |     |
|-------------------------------------------|--------|------------------------|------------|--------|--------|----------------|----------|
|                                      |   |                   |       |   |   |           |     |   |   | Qualified  |   |
|                                      |   | Economic               |       |   |   |           | Economic |   |   | Cash Flow  |   |
|                                      |   | Hedges                 |       |   |   |           | Hedges   |   |   | Hedges |   |
|                                      |   |                   |       |   |   |           |     |   |   |   |   |
|     December 31, 2010 |   |                   | 23,092,500 |   | (1     | )              |     |   | (4,548,840 | ) |   |   | - |   |
|                                      |   |                   |       |   |   |           |     |   |   |   |   |   |   |   |
|     December 31, 2009 |   |                   | 62,970,000 |   | (1     | )              |     |   | (2,979,714 | ) |   |   | (2,006,040 | ) |
|                                      |   |                   |       |   |   |           |     |   |   |   |   |   |   |   |

|                                                   |   | Economic Hedges         |   |   | Cash Flow Hedges        |   |
|--------------------------------------------------------|--------|-------------------------|--------|--------|-------------------------|--------|
|                                                   |   | Year Ended December 31, |   |   | Year Ended December 31, |   |
|                                                   |   | 2010                    |   |   | 2009                    |   |   | 2010 |   |   | 2009 |   |
|                                                   |   | (In thousands)          |   |
|                                                   |   |                    |   |   |                    |   |   |   |   |   |   |   |
|     Operating revenues             |   | $                       | 9,619  |   |                    | $      | (587 | ) |   | $ | 46,299 |   |   | $ | 71,387 |   |
|     Cost of energy                 |   |                    | (2,888 | )      |                    |   | (1,369 | ) |   |   | - |   |   |   | 7 |   |
|     Interest expense               |   |                    | -      |   |                    |   | - |   |   |   | (2,156 | ) |   |   | - |   |
|        Total gain (loss) |   | $                       | 6,731  |   |                    | $      | (1,956 | ) |   | $ | 44,143 |   |   | $ | 71,394 |   |
|                                                   |   |                    |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |
|     Recognized in OCI              |   |                    |   |   |                    |   |   |   |   | $ | (30,717 | ) |   | $ | (32,142 | ) |
|                                                   |   |                    |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |

----

|                                                                                                                            |   | Total          |    |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
|---------------------------------------------------------------------------------------------------------------------------------|--------|----------------|---------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
|                                                                                                                            |   | (In thousands) |    |
|    December 31, 2010                                                                                                  |   |           |    |   |    |   |   |    |   |   |    |   |
|    Commodity derivative assets                                                                                        |   | $              | 3,078   |   |    | $      | 128    |    |   | $      | 1,365   |   |   | $ | 1,585 |   |
|    Commodity derivative liabilities                                                                                   |   |           | (10,087 | )      |    |   | (2,415 | )       |   |   | (7,302  | )      |   |   | (370 | ) |
|    Interest rate liabilities                                                                                          |   |           | (46     | )      |    |   | -      |    |   |   | (46     | )      |   |   | - |   |
|        Net assets (liabilities)                                                                   |   | $              | (7,055  | )      |    | $      | (2,287 | )       |   | $      | (5,983  | )      |   | $ | 1,215 |   |
|                                                                                                                            |   |           |    |   |    |   |   |    |   |   |    |   |   |   |   |   |
|   December 31, 2009                                                                                                   |   |           |    |   |    |   |   |    |   |   |    |   |   |   |   |   |
|    Commodity derivative assets                                                                                        |   | $              | 37,116  |   |    | $      | 3,698  |    |   | $      | 2,115   |   |   | $ | 31,303 |   |
|    Commodity derivative liabilities                                                                                   |   |           | (6,253  | )      |    |   | (3,771 | )       |   |   | (1,841  | )      |   |   | (641 | ) |
|                   Net assets (liabilities) |   | $              | 30,863  |   |    | $      | (73    | )       |   | $      | 274     |   |   | $ | 30,662 |   |
|                                                                                                                            |   |           |    |   |    |   |   |    |   |   |    |   |   |   |   |   |

|                                                                                                                                                                                                 |   | Year Ended December 31, |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                                                                                                                                                 |   | 2010                    |    |   | 2009 |   |
|                                                                                                                                                                                                 |   | (In thousands)          |    |
|                                                                                                                                                                                                 |   |                    |    |   |   |   |
|  Beginning balance                                                                                                                                                                              |   | $                       | 30,662  |   |   | $ | 57,350 |   |
|  Total gains included in operating revenues                                                                                                                                                     |   |                    | 7,364   |   |   |   | 230 |   |
|  Total gains included in OCI pre-tax                                                                                                                                                            |   |                    | 15,631  |   |   |   | 36,351 |   |
|  Purchases, issuances and settlements of cash flow hedges                                                                                                                                       |   |                    |    |   |   |   |   |   |
|      reclassified from other comprehensive (loss) (1)                                                                                                                            |   |                    | (46,300 | ) |   |   | (63,036 | ) |
|  Purchases, issuances and settlements of economic hedges(1)                                                                                                                                |   |                    | (6,142  | ) |   |   | (233 | ) |
|                                                                                                                                                                                                 |   |                    |    |   |   |   |   |   |
|  Ending balance                                                                                                                                                                                 |   | $                       | 1,215   |   |   | $ | 30,662 |   |
|                                                                                                                                                                                                 |   |                    |    |   |   |   |   |   |
|   Total gains (losses) included in operating revenues attributable   to the change in unrealized gains or losses related to assets still   held at the end of the year |   | $                       | 1,215   |   |   | $ | (6 | ) |
|                                                                                                                                                                                                 |   |                    |    |   |   |   |   |   |

| (1)   | Represents fair value reversal of contracts settled during the period and unearned and prepaid option premiums received and paid during the year for contracts still held at end of year. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                               |   | Year Ended December 31, |   |
|------------------------------------|--------|-------------------------|--------|
|                               |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
|                               |   | (In thousands)          |   |
|                               |   |                    |   |   |   |   |   |   |   |
| Current state income tax expense   |   |                    |   |   |   |   |   |   |   |
|    (benefit)        |   | $                       | (20    | ) |   | $ | 162 |   |   | $ | 99 |   |
| Deferred state income tax expense  |   |                    |   |   |   |   |   |   |   |   |   |   |
|    (benefit)        |   |                    | 426    |   |   |   | (323 | ) |   |   | (187 | ) |
|                               |   |                    |   |   |   |   |   |   |   |   |   |   |
| Total income tax expense (benefit) |   | $                       | 406    |   |   | $ | (161 | ) |   | $ | (88 | ) |
|                               |   |                    |   |   |   |   |   |   |   |   |   |   |

|                                |   | December 31,   |   |
|-------------------------------------|--------|----------------|--------|
|                                |   | 2010           |   |   | 2009 |   |
|                                |   | (In thousands) |   |
| Deferred Tax Assets:                |   |           |   |   |   |   |
|    Inventory              |   | $              | 517    |   |   | $ | 589 |   |
|    Intangible assets      |   |           | 205    |   |   |   | 65 |   |
|    Other                  |   |           | 24     |   |   |   | 59 |   |
| Total deferred tax assets           |   |           | 746    |   |   |   | 713 |   |
|                                |   |           |   |   |   |   |   |   |
| Deferred Tax Liabilities:           |   |           |   |   |   |   |   |   |
|    Plant in service       |   |           | (2,067 | ) |   |   | (1,674 | ) |
|    Derivative instruments |   |           | (5     | ) |   |   | (298 | ) |
|    Other                  |   |           | (79    | ) |   |   | (27 | ) |
| Total deferred tax liabilities      |   |           | (2,151 | ) |   |   | (1,999 | ) |
|                                |   |           |   |   |   |   |   |   |
| Net deferred taxes                  |   | $              | (1,405 | ) |   | $ | (1,286 | ) |
|                                |   |           |   |   |   |   |   |   |

|                               |   | December 31,   |   |
|------------------------------------|--------|----------------|--------|
|                               |   | 2010           |   |   | 2009 |   |
|                               |   | (In thousands) |   |
|                               |   |           |   |   |   |   |
| Current deferred tax asset         |   | $              | 24     |   |   | $ | 123 |   |
| Non-current deferred tax asset     |   |           | 722    |   |   |   | 591 |   |
| Current deferred tax liability     |   |           | (84    | ) |   |   | (326 | ) |
| Non-current deferred tax liability |   |           | (2,067 | ) |   |   | (1,674 | ) |
|                               |   |           |   |   |   |   |   |   |
| Net deferred taxes                 |   | $              | (1,405 | ) |   | $ | (1,286 | ) |
|                               |   |           |   |   |   |   |   |   |

----

|                                                                     |   | Year Ended        |   |
|--------------------------------------------------------------------------|--------|-------------------|--------|
|                                                                     |   | December 31, 2010 |   |
|                                                                     |   | (In thousands)    |   |
|                                                                     |   |              |   |
| Net change in deferred income tax liability per above table              |   | $                 | 119    |   |
| Tax effect of change in fair market value of designated cash flow hedges |   |              | 307    |   |
|                                                                     |   |              |   |   |
| Deferred income tax                                                      |   | $                 | 426    |   |
|                                                                     |   |              |   |   |

|                                                                    |   | Year Ended December 31, |    |
|-------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                    |   | 2010                    |    |   | 2009 |   |   | 2008 |   |
|                                                                    |   | (In thousands)          |    |
|                                                                    |   |                    |    |   |   |   |   |   |   |
| Beginning AOCI                                                          |   | $                       | 30,364  |   |   | $ | 62,184 |   |   | $ | 18,204 |   |
|    Change in fair market value of designated                  |   |                    |    |   |   |
|       cash flow hedges, net of income tax      |   |                    |    |   |   |
|       (expense) of ($156), ($392) and ($695)   |   |                    | 13,270  |   |   |   | 38,860 |   |   |   | 68,780 |   |
|    Reclassification adjustment for (gain) on                  |   |                    |    |   |   |
|       designated cash flow hedges included     |   |                    |    |   |   |
|       in net (loss), net of income tax expense |   |                    |    |   |   |
|       of $463, $714 and $250                   |   |                    | (43,680 | ) |   |   | (70,680 | ) |   |   | (24,800 | ) |
|                                                                    |   |                    |    |   |   |   |   |   |   |   |   |   |
| Ending AOCI                                                             |   | $                       | (46     | ) |   | $ | 30,364 |   |   | $ | 62,184 |   |
|                                                                    |   |                    |    |   |   |   |   |   |   |   |   |   |

----

----

|                                     |   | 2010           |   |   | 2009   |   |   | 2008   |   |
|------------------------------------------|--------|----------------|--------|--------|--------|--------|--------|--------|--------|
|                                     |   | (In thousands) |   |
|                                     |   |           |   |   |   |   |   |   |   |
| Optim Energy to PNMR Services            |   | $              | 82     |   |   | $      | -      |   |   | $ | 9 |   |
| Optim Energy to First Choice Power, L.P. |   |           | 93     |   |   |   | 314    |   |   |   | 652 |   |
| PNMR Services to Optim Energy            |   |           | 4,953  |   |   |   | 5,989  |   |   |   | 11,316 |   |
| First Choice Power, L.P. to Optim Energy |   |           | 310    |   |   |   | 476    |   |   |   | 230 |   |
|                                     |   |           |   |   |   |   |   |   |   |   |   |   |

----

----