10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2005

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

Securities Registered Pursuant To Section 12(b) Of The Act:

		Name of Each Exchange
Registrant	Title of Each Class	on Which Registered
PNM Resources, Inc.	Common Stock, no par value	New York Stock Exchange
PNM Resources, Inc.	6.75% Equity Units, $50 stated value	New York Stock Exchange

Securities Registered Pursuant To Section 12(g) Of The Act:

Registrant	Title of Each Class
Public Service Company of New Mexico	1965 Series, 4.58% Cumulative Preferred Stock
	($100 stated value without sinking fund)

Indicate by check mark whether each registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

PNM Resources, Inc. (“PNMR”)	YES	ü	NO
Public Service Company of New Mexico (“PNM”)	YES		NO	ü
Texas-New Mexico Power Company (“TNMP”)	YES		NO	ü

Indicate by check mark if each registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

PNMR	YES		NO	ü
PNM	YES		NO	ü
TNMP	YES	ü	NO

Indicate by check mark whether PNMR and PNM (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. YES ü NO

Indicate by check mark whether TNMP (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

YES NO ü

(NOTE: As a voluntary filer, not subject to the filing requirements, TNMP filed all reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months.)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

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

Large accelerated filer   ü Accelerated filer   __  Non-accelerated filer  __  

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

Large accelerated filer  __   Accelerated filer  __   Non-accelerated filer  ü

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

As of February 28, 2006, 68,786,286 shares of common stock, no par value per share, of PNMR were outstanding.

The total number of shares of Common Stock of PNM outstanding as of February 28, 2006 was 39,117,799 all held by PNMR (and none held by non-affiliates).

The total number of shares of Common Stock of TNMP outstanding as of February 28, 2006 was 9,615 all held indirectly by PNMR (and none held by non-affiliates).

On June 30, 2005 the aggregate market value of the voting stock held by non-affiliates of PNMR as computed by reference to the New York Stock Exchange composite transaction closing price of $28.81 per share reported by The Wall Street Journal, was $1,980,440,339.

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

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following document are incorporated by reference into Part III of this report:

Proxy Statement to be filed by PNMR with the SEC pursuant to Regulation 14A relating to the annual meeting of stockholders of PNMR to be held on May 16, 2006.

ii

This Form 10-K represents separate filings by PNMR, PNM and TNMP. Information herein relating to an individual registrant is filed by that registrant on its own behalf. PNM makes no representations as to the information relating to PNMR and its subsidiaries other than PNM. TNMP makes no representations as to the information relating to PNMR and its subsidiaries other than TNMP. When this Form 10-K is incorporated by reference into any filing with the SEC made by PNM or TNMP, the portions of this Form 10-K that relate to PNMR and its subsidiaries other than PNM or TNMP, respectively, are not incorporated by reference therein.

On June 6, 2005, PNMR completed its acquisition of TNP Enterprises, Inc. and Subsidiaries. See Note 2 in the Notes to Consolidated Financial Statements under Part II, Item 8. “Financial Statements and Supplementary Data,” of this report for further information. Commencing with the Form 10-Q for the quarter ended June 30, 2005, TNMP was included in the filing of PNMR and PNM.

iii

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

INDEX

		Page
GLOSSARY		vi
	PART I
ITEM  1.	BUSINESS	A-1
	THE COMPANY	A-1
	COMPANY WEBSITE	A-1
	REGULATED OPERATIONS	A-2
	PNM Electric	A-2
	TNMP Electric	A-3
	PNM Gas	A-4
	UNREGULATED OPERATIONS	A-5
	PNM Wholesale	A-5
	First Choice	A-6
	CORPORATE AND OTHER	A-6
	SOURCES OF POWER	A-7
	MARKET REACH	A-8
	FUEL AND WATER SUPPLY	A-9
	RATES AND REGULATION	A-10
	ENVIRONMENTAL MATTERS	A-13
	COMPETITION	A-13
	EMPLOYEES	A-14
ITEM  1A.	RISK FACTORS	A-15
ITEM  1B.	UNRESOLVED STAFF COMMENTS	A-24
ITEM  2.	PROPERTIES	A-25
ITEM  3.	LEGAL PROCEEDINGS	A-27
ITEM  4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	A-28
PART II
ITEM  5.	MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED
	STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
	EQUITY SECURITIES	A-30
ITEM  6.	SELECTED FINANCIAL DATA	A-32
ITEM  7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
	CONDITION AND RESULTS OF OPERATION	A-36
ITEM  7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
	MARKET RISK	A-80
ITEM  8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	B-1
ITEM  9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
	ACCOUNTING AND FINANCIAL DISCLOSURE	C-1
ITEM 9A.	CONTROLS AND PROCEDURES	C-1
ITEM 9B.	OTHER INFORMATION	C-1

iv

PART III
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY	D-1
ITEM 11.	EXECUTIVE COMPENSATION	D-1
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
	MANAGEMENTAND RELATED STOCKHOLDER MATTERS	D-1
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	D-1
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	D-1
PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	E-1
SIGNATURES		E-25

v

GLOSSARY

Afton	Afton Generating Station
ALJ	Administrative Law Judge
Altura	Altura Power L.P.
APB	Accounting Principles Board
APS	Arizona Public Service Company
ARO	Asset Retirement Obligation
Avistar	Avistar, Inc.
BLM	U.S. Department of the Interior Bureau of Land Management
BNCC	BHP Navajo Coal Company
Board	Board of Directors
BTU	British Thermal Unit
Cal PX	California Power Exchange
Cal ISO	California Independent System Operator
CCN	Certificate of Public Convenience and Necessity
Company	PNM Resources, Inc. and Subsidiaries
Congress	United States Congress
Constellation	Constellation Energy Commodities Group, Inc.
Decatherm	1,000,000 BTUs
Delta	Delta-Person Limited Partnership
DOJ	United States Department of Justice
Duke	Duke Energy Corporation
EaR	Earnings at Risk
EIP	Eastern Interconnection Project
EITF	Emerging Issues Task Force
EPE	El Paso Electric Company
EPA	United States Environmental Protection Agency
ERCOT	Electric Reliability Council of Texas
ESPP	Employee Stock Purchase Plan
FASB	Financial Accounting Standards Board
Farmington	City of Farmington, New Mexico
FCPSP	First Choice Power Special Purpose, L.P.
FERC	Federal Energy Regulatory Commission
First Choice	First Choice Power, L. P. and Subsidiaries
FIP	Federal Implementation Plan
Four Corners	Four Corners Power Plant
FPL	FPL Energy New Mexico Wind, LLC
GAAP	Generally Accepted Accounting Principles in the United
	States of America
GCT	Grand Canyon Trust
Global Electric Agreement	Signed by PNMR and other parties in 2003; provides for a five-year rate path for New Mexico jurisdictional customers that began in September 2003
Great Southwestern	Great Southwestern Construction, Inc.
IBLA	Interior Board of Land Appeals
IRS	United States Internal Revenue Service
ISO	Independent System Operator
LIBOR	London Interbank Offered Rate
Lordsburg	Lordsburg Generating Station
Luna	Luna Energy Facility
MMBTUs	Million British Thermal Units
Moody's	Moody’s Investor Services, Inc.

vi

MW	Megawatt
MWh	Megawatt Hour
Navajo Acts	Navajo Nation Air Pollution Prevention and Control Act, the
	Navajo Nation Safe Drinking Water Act, and the Navajo
	Nation Pesticide Act
Ninth Circuit	United States Court of Appeals for the Ninth Circuit
NMED	New Mexico Environment Department
NMPRC	New Mexico Public Regulation Commission
NNHPD	Navajo Nation Historic Preservation Department
NRC	United States Nuclear Regulatory Commission
NSPS	New Source Performance Standards
NSR	New Source Review
OASIS	Open Access Same Time Information System
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 Subsidiary
PNMR	PNM Resources, Inc. and Subsidiaries
PPA	Power Purchase Agreement
PRG	Power Resource Group, Inc.
PSA	Power Supply Agreement
PSD	Prevention of Significant Deterioration
PUCT	Public Utility Commission of Texas
PUHCA	The Public Utility Holding Company Act
PURPA	Public Utility Regulatory Policy Act of 1978
PVNGS	Palo Verde Nuclear Generating Station
Reeves	Reeves Generating Station
REP	Retail Electricity Provider
Restructuring Act	New Mexico Electric Utility Industry Restructuring Act of 1999,
	as amended
RMC	Risk Management Committee
RMRR	Routine Maintenance, Repair or Replacement
RTO	Regional Transmission Organization
SCE	Southern California Edison Company
SCPPA	Southern California Public Power Authority
SDG&E	San Diego Gas and Electric Company
SEC	United States Securities and Exchange Commission
Sempra	Sempra Energy
Senate Bill 7	Legislation that established retail competition in Texas
SESCO	San Angelo Electric Service Company
SFAS	Statement of Financial Accounting Standards
SJCC	San Juan Coal Company
SJGS	San Juan Generating Station
SO2	Sulfur Dioxide
S&P	Standard and Poors Ratings Services
SPS	Southwestern Public Service Company
SW Acquisition	SW Acquisition, L.P.
TCEQ	Texas Commission on Environmental Quality
TECA	Texas Electric Choice Act (also known as Senate Bill 7)
TNMP	Texas-New Mexico Power Company and Subsidiaries
TNP	TNP Enterprises, Inc. and Subsidiaries
Throughput	Volumes of gas delivered, whether or not owned by the Company
Tri-State	Tri-State Generation and Transmission Association, Inc.
Tucson	Tucson Electric Power Company

vii

Twin Oaks	Assets of Twin Oaks Power, LP and Twin Oaks Power III, LP
UAMPS	Utah Associated Municipal Power Systems
USBR	United States Bureau of Reclamation
USFS	United States Forest Service
VaR	Value at Risk
Wood River	Wood River Partners, L.P.
WSPP	Western Systems Power Pool

viii

PART I

ITEM 1.BUSINESS

THE COMPANY

PNMR was incorporated in the State of New Mexico in 2000. The Company’s three primary subsidiaries are PNM, TNMP and First Choice. PNM was incorporated in the State of New Mexico in 1917. Upon the completion in 2001 of a one-for-one share exchange between PNM and PNMR, PNMR became the parent company of PNM. Prior to the share exchange, PNMR had existed as a subsidiary of PNM. The new parent company began trading on the New York Stock Exchange under the same PNM symbol beginning in December 2001.

On June 6, 2005, PNMR completed the acquisition of TNP. Prior to the consummation of the acquisition, TNP was a privately owned holding company based in Fort Worth, Texas. TNP’s principal subsidiaries are TNMP and First Choice. TNMP’s predecessor was organized in the State of Texas in 1925 and First Choice was organized in the State of Texas in 2000. See Note 2 in the Notes to Consolidated Financial Statements for details about the acquisition of TNP.

These filings for PNMR, PNM and TNMP include disclosures for PNMR, PNM and TNMP. For discussion purposes, this report will use the term “Company” when discussing matters of common applicability to PNMR, PNM and TNMP. Discussions regarding only PNMR, PNM or TNMP will be clearly indicated as such.

In December 2004, PNMR became a registered holding company under PUHCA. As a result of the requirement to register as a holding company, PNMR created PNMR Services Company, a wholly owned services company, which began operation in January 2005. PNMR’s status as a registered holding company did not change the utility operations of the Company. Effective with the acquisition of TNP on June 6, 2005, all TNMP employees who were providing corporate support to TNP and First Choice became employees of PNMR Services Company. Energy legislation enacted in August 2005 resulted in the repeal of PUHCA effective February 2006. PNMR is in the process of evaluating the effects of that repeal, along with the other provisions of the legislation.

PNMR is an investor-owned holding company of energy and energy-related businesses. PNM is an integrated public utility with regulated and unregulated operations primarily engaged in (i) the generation, transmission and distribution of electricity, (ii) transmission, distribution and sale of natural gas within New Mexico, and (iii) unregulated operations primarily focused on the sale and marketing of electricity in the western United States. TNMP is a regulated utility operating in Texas and New Mexico. In Texas, TNMP provides regulated transmission and distribution services. In New Mexico, TNMP provides integrated electric services that include the transmission, distribution, purchase and sale of electricity. First Choice is a competitive retail electric provider operating in Texas. In addition, PNMR provides energy and technology related services through its wholly owned subsidiary, Avistar.

In January 2006, Altura, an indirect, wholly owned subsidiary of PNMR, entered into an agreement to purchase Twin Oaks no earlier than April 17, 2006. The Twin Oaks facility is a 305 MW coal-fired plant located in Texas. See Note 22 in the Notes to Consolidated Financial Statements for further details about the proposed acquisition of Twin Oaks.

Financial information relating to amounts of sales, revenue, net income and total assets of the Company’s reportable segments is contained in “Part II, Item 7. - Management’s Discussion and Analysis of Financial Condition and Results of Operation” and Note 3 in the Notes to Consolidated Financial Statements.

COMPANY WEBSITE

The Company’s Internet address is http://www.pnmresources.com. The contents of the website are not a part of this Form 10-K. The Company’s filings with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, are accessible free of charge at http://www.pnmresources.com as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. These reports are also available upon request in print from the Company free of charge. Additionally, the Company's Corporate Governance Principles, code of ethics (Do the Right Thing-

A-1

Principles of Business Conduct) and charters of the Company's Audit and Ethics Committee, Governance and Public Policy Committee, Human Resources and Compensation Committee and Finance Committee are available on the Company's website at http://www.pnmresources.com/ge/index and such information is available in print, without charge, to any shareholder who requests it.

REGULATED OPERATIONS

PNM Electric

PNM Electric is an integrated electric utility that consists of generation, transmission and distribution of electricity for retail electric customers in New Mexico and the sale of transmission to third parties as well as to PNM Wholesale and TNMP. PNM Electric provides retail electric service to a large area of north central New Mexico, including the cities of Albuquerque and Santa Fe, and certain other areas of New Mexico. PNM Electric owns or leases transmission lines, interconnected with other utilities in New Mexico, south and east into Texas, west into Arizona, and north into Colorado and Utah. The Company’s largest non-affiliated retail electric customer was served by PNM Electric and accounted for approximately 8.3% of the Company’s total retail electric revenues for the year ended December 31, 2005.

In 1990, the NMPRC established an off-system sales methodology that provided for a sharing mechanism whereby a certain amount of revenues from off-system sales were credited to reduce retail cost of service. Off-system sales above the amounts credited to retail customers accrue to the benefit of shareholders. Subsequent rate case settlements have continued to utilize this methodology.

Customer rates for retail electric service are set by the NMPRC based on the provisions of the Global Electric Agreement. In 2003, the NMPRC approved the Global Electric Agreement that set a rate path through 2007. PNM agreed to decrease retail electric rates by 6.5% in two phases over three years. The first phase of the rate reductions became effective in September 2003 and the second phase became effective September 1, 2005. (See Note 17 in the Notes to Consolidated Financial Statements.)

A-2

Weather-normalized retail electric load growth was 2.5% in 2005. PNM Electric’s system peak demands for its retail customers and firm requirements customers in the summer and the winter for the last three years are shown in the following table:

System Peak Demands

	2005	2004	2003
	(Megawatts)
Summer	1,779	1,655	1,661
Winter	1,530	1,481	1,434

PNM holds long-term, non-exclusive franchise agreements for its electric retail operations, with varying expiration dates. These franchise agreements allow PNM to access public rights-of-way for placement of PNM’s electric facilities. Franchise agreements have expired in Albuquerque, Santa Fe, Bernalillo County, Sandoval County, San Miguel County, Village of Bosque Farms, Pueblo de Cochiti, Village of Tijeras, McKinley County and the City of Las Vegas. PNM remains obligated under New Mexico state law to provide service to customers in these franchise areas despite the absence of an effective franchise agreement. The Albuquerque metropolitan area accounted for approximately 53% of PNM Electric’s 2005 electric utility operating revenues (excluding transmission revenues), and no other franchise area represents more than approximately 10%. PNM continues to collect and pay franchise fees to Albuquerque and Santa Fe, Village of Bosque Farms, Village of Tijeras and the City of Las Vegas. PNM currently does not pay franchise fees to Bernalillo County, Luna County, Sandoval County, McKinley County, Pueblo de Cochiti or San Miguel County.

PNM Electric owns or leases 2,897 circuit miles of electric transmission lines, interconnected with other utilities in New Mexico, east and south into Texas, west into Arizona, and north into Colorado and Utah. Due to rapid load growth in PNM Electric’s service territory in recent years and the lack of transmission development, most of the capacity on this transmission system is fully committed and there is very little or no additional access available on a firm commitment basis. These factors result in physical constraints on the system and limit the ability to wheel power into PNM Electric’s service area from outside of New Mexico.

TNMP Electric

TNMP Electric consists of the operations of TNMP. TNMP is a regulated utility operating in Texas and New Mexico. In Texas, TNMP Electric provides regulated transmission and distribution services under the provisions of TECA in accordance with Senate Bill 7. TNMP Electric serves a market niche of small-to-medium-sized communities. Only three of the 84 communities in TNMP Electric’s service territory have populations exceeding 50,000. TNMP Electric’s service territory is organized into two operating areas: Texas and New Mexico. In most areas that TNMP Electric serves, it is the exclusive provider of transmission and distribution services.

TNMP Electric’s Texas territory consists of three non-contiguous areas. One portion of this territory extends from Lewisville, which is approximately 10 miles north of the Dallas-Fort Worth International Airport, eastward to municipalities near the Red River, and to communities north, west and south of Fort Worth. The second portion of its territory includes the area along the Texas Gulf Coast between Houston and Galveston, and the third portion includes areas of far west Texas between Midland and El Paso. TNMP Electric’s Texas operations lie entirely within the ERCOT region. ERCOT is the independent system operator that is responsible for maintaining reliable operations for the bulk electric power supply system in the ERCOT region, which is located entirely within Texas and serves approximately 85% of the electrical load in ERCOT. See “Rates and Regulation” below for more information about ERCOT. In New Mexico, TNMP provides integrated electricity services that include the transmission, distribution, purchase and sale of electricity to its customers in southwest and south central New Mexico as well as transmission to third parties and to PNM.

TNMP Electric provides transmission and distribution services at regulated rates to various retail electric providers that, in turn, provide retail electric service within TNMP Electric’s Texas service area. As of December 31, 2005, 30 retail electric providers served customers that receive transmission and distribution services from TNMP Electric. First Choice, TNMP Electric’s affiliated retail electric provider, was TNMP Electric’s largest customer and accounted for approximately 56% of TNMP's total retail electric revenues for the year ended December 31, 2005.

A-3

TNMP holds long-term, non-exclusive franchise agreements for its electric transmission and distribution services, with varying expiration dates. These franchises accounted for approximately 7% of TNMP’s 2005 total electric utility operating revenues. TNMP intends to negotiate and execute new or amended franchise agreements with municipalities as they expire. Sales within the remaining 84 franchises contributed approximately 63% of TNMP’s 2005 total electric utility operating revenues. The remainder of TNMP's revenues are earned from service provided to facilities in its service area that lie outside the territorial jurisdiction of the municipalities with which TNMP has franchise agreements.

PNM Gas

PNM Gas distributes natural gas to most of the major communities in New Mexico, including Albuquerque and Santa Fe. The Albuquerque metropolitan area accounted for approximately 50% of the total gas revenues in 2005. No single sales-service customer accounted for more than 0.9% of PNM Gas’ therm sales in 2005. PNM holds long-term non-exclusive franchises with varying expiration dates in all incorporated communities in New Mexico requiring franchise agreements except for the municipalities of Aztec, Bosque Farms, Eunice, Gallup, Grants, Hurley, Los Ranchos de Albuquerque, Milan, Santa Clara, Santa Fe County, and Silver City. PNM Gas remains obligated to serve these franchise areas pursuant to state law despite the absence of an effective franchise agreement.

PNM Gas has a customer base that includes both sales-service customers and transportation-service customers. Sales-service customers purchase natural gas and receive transportation and delivery services from PNM Gas for which PNM Gas receives both cost-of-gas and cost-of-service revenues. In 2005, the market price of natural gas across the United States increased significantly, due to a hot 2005 summer, which led to more demand from natural gas-fired power plants, as well as due to the hurricanes in the Gulf Coast region of the United States. Cost-of-gas revenues collected from its sales-service customers are recovered in accordance with NMPRC regulations through the PNM Gas PGAC and represent a pass-through of the cost of natural gas to the customer. As a result, increases or decreases in gas revenues resulting from wholesale gas price fluctuations do not impact the Company’s consolidated gross margin (gross margin is equal to operating revenues minus cost of energy sold). An order was issued by the NMPRC in 2001 that approved an agreement regarding the hedging strategy of PNM Gas and the implementation of a price management fund program which includes a continuous monthly balancing account with a carrying charge. This carrying charge has the effect of keeping PNM Gas whole on purchases of gas since it is compensated for the time value of money that exists due to any delay in collections from customers. Additionally, PNM Gas makes occasional gas sales to off-system sales customers. Off-system sales deliveries generally occur at pipeline interconnections with the PNM Gas system and profits are shared between PNM Gas and its customers on a 30%/70% basis.

PNM Gas had 26 transportation-service customers in 2005, which procure gas for their end users independently of PNM Gas end users. Transportation-service customers are gas marketers and producers contracting with PNM Gas for transportation services to their end users and for other related services that provide PNM Gas with cost-of-service revenues only. Transportation services are provided to transportation-service customers at locations throughout the PNM Gas distribution system, as well as points on and off PNM Gas transmission pipelines. Through its transportation-service customers, PNM Gas provided gas transportation deliveries to 1,823 end users that were not PNM Gas customers during 2005.

In 2005, 38% of the total gas throughput of PNM Gas was related to transportation gas deliveries. The transportation rates of PNM Gas are unbundled, and transportation customers only pay for the service they receive. In 2005, revenues from transportation customers accounted for 3% of the total gas revenues of PNM Gas. Revenues from sales-service customers accounted for the remaining 97%. Cost of gas, on which PNM Gas makes no margin, accounted for 71% of total sales-service revenue. Because a major portion of the PNM Gas load is related to heating, sales levels are affected by the weather. In 2005, 60% of the total sales occurred in the months of January, February, March and December.

PNM Gas obtains its supply of natural gas primarily from sources within New Mexico by contracting with third party producers and marketers. These contracts are generally sufficient to meet its peak-day demand. PNM Gas serves certain cities that depend on El Paso Natural Gas Company or Transwestern Pipeline Company for transportation of gas supplies. Because these cities are not directly connected to the transmission facilities of PNM Gas, gas transported by these companies is the sole supply source for these cities. Such gas transportation is regulated by the FERC.

A-4

UNREGULATED OPERATIONS

PNM Wholesale

PNM Wholesale consists of the generation and sale of electricity into the wholesale market based on two product lines, long-term contracts and short-term sales. The source of these sales is supply created by selling the unused capacity of PNM's jurisdictional assets as well as the capacity of PNM’s wholesale plants excluded from retail rates. Both regulated and unregulated generation is jointly dispatched in order to improve reliability, provide the most economic power to retail customers, and maximize profits on any wholesale transactions.

Long-term contracts include sales to firm-requirements and other wholesale customers with multi-year arrangements. At December 31, 2005, these contracts ranged from 1 to 14.5 year terms with an average term of 5.3 years. Short-term sales include transactions entered into for less than one year. They include forward market opportunities, which transactions do not qualify as normal sales and purchases as defined in SFAS No. 133, as amended, “Accounting for Derivative Instruments and Hedging Activities,” (“SFAS 133”) and, as a result, are marked to market. Also included in short-term sales are spot market, hour ahead, day ahead, week ahead and other sales of any excess generation not required to fulfill PNM Electric’s retail load and contractual commitments.

The PNM Wholesale strategy calls for increased asset-backed energy sales supported by long-term contracts in the wholesale market, where PNM’s aggregate net open forward electric sales position, including short-term sales and long-term contracts, is generally covered by its forecasted excess generation capacity. Company management actively monitors the asset-backed sales by the use of stringent risk management policies. The Company’s future growth plans call for approximately 75% of its new generation portfolio to be committed through long-term contracts. The 75% threshold is in compliance with the Global Electric Agreement. Growth is dependent on market development and on the Company’s ability to generate funds for the Company’s future expansion. The Company continues to operate in the wholesale market and seek appropriately priced asset additions such as the proposed acquisition of the Twin Oaks facility. Expansion of the Company’s generation portfolio is dependent on the Company’s ability to acquire favorably priced assets at strategic locations and to secure long-term commitments for the purchase of power from the acquired plants.

In 2005 and 2004, PNM Wholesale revenues stabilized following the preceding years when volatility was high. The Company has been successful in developing its wholesale power marketing activities in the western United States, even in times of market volatility. Management believes this success is due to its business strategy of providing electric power customized to meet the special needs of its customers. This marketing strategy is based on PNM Wholesale's net asset-backed methodology, which helps mitigate the risks inherent in wholesale power marketing activities. PNM Wholesale also utilizes long-term transactions to enhance its product offerings.

Certain of PNM’s generation resources are excluded from retail electric rates. As a result, PNM Wholesale developed a wholesale power marketing strategy in which it sells the generation from its resources that are excluded from retail rates. This strategy also includes the forward purchase and sale of electricity to take advantage of market price opportunities in the electric wholesale market. During 2005, 2004 and 2003, PNM’s sales in the wholesale electric markets accounted for approximately 58%, 62% and 62%, respectively, of its total MWh sales. Of the total wholesale electric sales made in 2005, 2004 and 2003, 87%, 80% and 82%, respectively, were transacted through purchases for resale. (See Item 2. "Properties.")

PNM Wholesale has entered into various firm wholesale electric sales contracts. These contracts contain fixed capacity charges in addition to energy charges. Capacity charges are fixed monthly payments for a commitment of resources to service the contract requirements. Energy charges are payments based on the amount of electricity delivered to the customer intended to compensate PNM Wholesale for its variable costs incurred to provide the energy. PNM Wholesale’s firm-requirements demand was 281 MW in 2005, and is expected, based solely on existing contracts, to be 273 MW in 2006, 161 MW in 2007, 154 MW in 2008 and 90 MW in 2009. Firm requirements for TNMP’s New Mexico customers are included in these amounts through 2006. In accordance with the NMPRC’s stipulation approving PNMR’s acquisition of TNP, beginning January 1, 2007, TNMP’s New Mexico customers will be included in the PNM Electric load (see “Acquisition Agreements” below). No firm-requirements PNM Wholesale customer accounted for more than 6.9% of the Company's total electric sales for resale revenues for the year ended December 31, 2005.

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First Choice

First Choice is a certified retail electric provider operating in Texas, which allows it to provide electricity to residential, small and large commercial, industrial and institutional customers. First Choice's responsibilities include acquiring new retail customers, setting up retail accounts, handling customer inquiries and complaints, and acting as a liaison between the transmission and distribution companies and retail customers. First Choice was organized in 2000 to act as TNMP’s affiliated retail electric provider, as required by TECA. Although First Choice is regulated in certain respects by the PUCT under ERCOT, the Company includes First Choice in the unregulated portion of its business because First Choice is not subject to traditional rate of return regulation.

First Choice serves price-to-beat and competitive customers (residential, commercial, and aggregated municipalities) in Texas. The price-to-beat customers are former customers of TNMP that have chosen to remain with First Choice, TNMP’s affiliated retail electric provider. First Choice focuses its competitive customer acquisition efforts in the major metropolitan areas that are open to electric choice within ERCOT, including Dallas-Fort Worth, Houston, Corpus Christi, and McAllen-Harlingen.

First Choice experiences increased sales and operating revenues during the summer months as a result of increased air conditioner usage in hot weather. In 2005, approximately 43% of First Choice’s consolidated annual revenues were recorded in June, July, August and September.

First Choice’s load fluctuates continuously due to among other things, customer additions and losses, changes in customer usage, unseasonal weather and customer switching. First Choice continually monitors and revises its load forecast to account for changing price-to-beat and competitive customer loads. First Choice develops short-term load forecasts to identify short-term load surpluses and shortages, and to ensure that hedges are in place to cover forecasted sales. To the extent these short-term load forecasts identify shortages, First Choice covers shortages through short-term power purchases or through purchases on the ERCOT balancing market.

In Texas, capacity auctions were a semi-regular event mandated by the TECA to promote liquidity in the marketplace. In the most recent auctions, First Choice was the successful bidder for four 25 MW baseload blocks of capacity in October 2005 and two 25 MW cyclic blocks of capacity in September 2005.

CORPORATE AND OTHER

PNMR Services Company provides corporate services to PNMR and to all of PNMR's business units, including PNM, Avistar, TNP, TNMP and First Choice based on shared services agreements. These services are billed at cost on a monthly basis and allocated to the business units. PNMR Services Company and Avistar are included in the Corporate and Other segment.

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SOURCES OF POWER

PNMR

The Company has sources of power from property it owns or leases and power purchased through various long-term PPAs. For the year ended December 31, 2005, the Company had a 2,393 MW generation capacity from these sources.

First Choice assumed the energy supply activities of TNMP in Texas in 2002. In 2003, First Choice and Constellation executed a PSA that resulted in Constellation being the primary supplier of power for First Choice’s customers through the end of 2007. Additionally, Constellation has agreed to supply power in certain transactions under the PSA beyond the date when that commitment expires. The Company’s basic strategy is to minimize its exposure to fluctuations in market energy prices by matching fixed price sales contracts with fixed price supply. In addition, First Choice uses various financial instruments to hedge against the risk of adverse changes in natural gas prices. The PSA with Constellation resulted in Constellation assuming weather related risks because the contract is based on customer usage profiles as determined by ERCOT. First Choice retained the risks associated with customer attrition. (See Note 17 in the Notes to Consolidated Financial Statements.)

PNM

Sources of Power - Owned

As of December 31, 2005, the total net generation capacity of facilities owned by PNM was 1,744 MW, which includes all of PNM's interests in PVNGS, portions of which are held under operating leases. (See Item 2. “Properties.”)

PNM is committed to increasing the utilization of its generation capacity at SJGS, Four Corners and PVNGS. SJGS is operated by PNM. SJGS’ equivalent availability was 89.4% and 89.8% for the years ended December 31, 2005 and 2004, respectively. PVNGS’ equivalent availability was 76.0% and 81.7% for the years ended December 31, 2005 and 2004, respectively. Four Corners’ equivalent availability was 86.3% and 82.4% for the years ended December 31, 2005 and 2004, respectively. Four Corners and PVNGS are operated by APS.

PNM’s Lordsburg and Afton plants were built to serve wholesale customers and other sales rather than New Mexico retail customers and, therefore, are not currently included in the retail rates. However, these plants may be needed in the future to serve the growing retail load as is the case for Afton, as described below. If so, these plants would have to be certified by the NMPRC and would then be subject to inclusion in PNM’s retail rates in a future rate case. These plants were built as part of PNM’s ongoing strategy of increasing generation capacity over time to serve increasing retail load, sales under long-term contracts and other sales. The plants owned by PNM are available through joint dispatch to support service to the retail customers of PNM.

In July 2005, PNM filed with the NMPRC an application for a CCN in which PNM requested NMPRC approval to operate Afton as a public utility plant and include in PNM’s retail rate base in its next retail electric rate case the costs associated with the conversion of Afton from a combustion turbine to a combined cycle unit. In November 2005, PNM filed a joint stipulation with the NMPRC that would allow PNM to convert Afton to a combined cycle plant and bring Afton into retail rates, with 50% of Afton's capacity designated to serve PNM's customers and the other 50% designated to serve TNMP's New Mexico customers. Hearings were held in February 2006 before the NMPRC.

In November 2004, PNMR Development, a subsidiary of PNMR, purchased a one-third interest in Luna. Luna is a 570 MW, partially constructed, natural gas-fired power plant near Deming in southern New Mexico. The purchasers are investing approximately $100.0 million, one-third from each purchaser, to complete construction. In November 2005, the one-third interest in Luna was transferred from PNMR Development to PNM. PNM will continue to develop Luna and will utilize it as merchant plant. Luna is expected to be operational no later than the second quarter of 2006.

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Sources of Power - Leased

In 1996, PNM entered into an operating lease agreement for the rights to all the output of the Delta gas-fired generating plant for 20 years. The plant received FERC approval for "exempt wholesale generator" status. The maximum dependable capacity under the lease is 132 MW. The gas turbine generating unit is operated by Delta and is located on PNM’s retired Person Generating Station site in Albuquerque. Primary fuel for the gas turbine generating unit is natural gas provided by wholesale gas purchases. In addition, the unit has the capability to utilize low sulfur fuel oil if natural gas is neither available nor cost effective.

As discussed above, PNM leases portions of PVNGS. See Item 2. “Properties” and Note 7 in the Notes to Consolidated Financial Statements.

Sources of Power - PPAs

In addition to generating its own power, PNM purchases power in the open market. PNM's purchases under its long-term PPAs, including the Delta lease and the contract described below, were 649 MW in 2005 and are expected to be 599 MW in 2006, 532 MW in 2007, 532 MW in 2008, and 532 MW in 2009. This projected capacity assumes that contracts that end during the period are not renewed or extended. PNM also purchases power in the forward, day-ahead and real-time markets.

In 2002, PNM entered into an agreement with FPL to develop a 200 MW wind generation facility in New Mexico. PNM began receiving commercial power from the project in June 2003. FPL owns and operates the New Mexico Wind Energy Center, which consists of 136 wind-powered turbines on a site in eastern New Mexico. PNM has a contract to purchase all the power generated by the New Mexico Wind Energy Center for 25 years. In 2003, PNM received approval from the NMPRC for a voluntary tariff that allows PNM retail customers to buy wind-generated electricity for a small monthly premium. Power from the New Mexico Wind Energy Center is used to service load under the voluntary tariff and as part of PNM’s electric supply mix for meeting retail load. Any wind-generated electricity in excess of these amounts is sold on the wholesale power market, either within New Mexico or outside the state.

TNMP

TNMP purchases all electricity for its New Mexico customers' needs and energy-scheduling services under a wholesale power contract with PNM that extends through December 2006. As discussed below, in “Rates and Regulation,” in accordance with the NMPRC stipulation approving PNMR’s acquisition of TNP, PNM will remain the power supplier for TNMP’s New Mexico needs through 2010. As discussed above, First Choice performs the energy supply activities for TNMP’s Texas customers.

MARKET REACH

As of the date of this report, PNM owns firm transmission capacity to the Mead market hub in the amount of 100 MW, which serves various wholesale power markets and loads in the greater Las Vegas, Nevada area, and serves as a delivery point for the Cal ISO. In addition, PNM owns transmission capacity to serve major load centers in the Phoenix, Arizona area in amounts varying from 100 MW to 150 MW.

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FUEL AND WATER SUPPLY

PNM

The percentages of PNM’s generation of electricity (on the basis of KWh) fueled by coal, nuclear fuel and gas and oil, and the average costs to PNM of those fuels (in cents per million BTU), during the past three years were as follows:

	Coal		Nuclear		Gas and Oil
	Percent of	Average	Percent of	Average	Percent of	Average
	Generation	Cost	Generation	Cost	Generation	Cost
2005	71.3%	163.9	26.3%	45.7	2.4%	687.6
2004	70.1%	154.4	28.1%	52.5	1.8%	693.9
2003	68.0%	163.8	29.5%	44.5	2.5%	625.2

The generation mix for 2006 is expected to be 67.4% coal, 27.7% nuclear and 4.9% gas and oil. Due to locally available natural gas and oil supplies, the utilization of locally available coal deposits and the generally abundant supply of nuclear fuel, PNM believes that adequate sources of fuel are available for its generating stations into the foreseeable future.

Coal

See Note 16 in the Notes to Consolidated Financial Statements for information about PNM’s coal supply.

Natural Gas

The natural gas used as fuel for the electric generating plants located in Albuquerque (Reeves and the Delta operating lease) is procured on the open market and delivered by PNM Gas through its transportation services. PNM Wholesale procures its gas supply independently of PNM Gas but obtains gas transportation services from PNM Gas.

Nuclear Fuel

PNM is one of several participants in PVNGS. (See Note 14 in the Notes to Consolidated Financial Statements.) The fuel cycle for PVNGS is comprised of the following stages:

·   mining and milling of uranium ore to produce uranium concentrates;

·   conversion of uranium concentrates to uranium hexafluoride;

·   enrichment of uranium hexafluoride;

·   fabrication of fuel assemblies;

·   utilization of fuel assemblies in reactors; and

·   storage and disposal of spent nuclear fuel.

The PVNGS participants have contracted for all of the PVNGS requirements for uranium concentrates and conversion services through 2008. The PVNGS participants have also contracted for all of the PVNGS enrichment services through 2010, 80% of enrichment services through 2013 and all of the fuel assembly fabrication services until at least 2015.

Water Supply

See Note 16 in the Notes to Consolidated Financial Statements for information about PNM's water supply.

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RATES AND REGULATION

PNM is subject to the jurisdiction of the NMPRC, with respect to its retail electric and gas rates, service, accounting, issuance of securities, construction of major new generation and transmission facilities and other matters regarding retail utility services provided in New Mexico. The FERC has jurisdiction over rates and other matters related to wholesale electric sales and cost recovery for a portion of PNM’s transmission network.

In Texas, TNMP provides regulated transmission and distribution services and is subject to the jurisdiction of the PUCT and certain municipalities with respect to rates and service. Within New Mexico, TNMP is subject to the jurisdiction of the NMPRC. TNMP is subject to traditional cost-of-service regulation in both Texas and New Mexico. TNMP is subject to the jurisdiction of the FERC for some of its activities, including the issuance of securities and the acquisition or disposition of properties in New Mexico. TNMP’s transmission and distribution activities in Texas are not subject to FERC regulation, because those activities occur solely within the ERCOT system of Texas.

First Choice is a member of ERCOT, the ISO responsible for maintaining reliable operations of the bulk electric power supply system in the Texas electric market. The responsibilities of ERCOT include ensuring that information relating to a customer's choice of retail electric provider is conveyed in a timely manner to anyone needing the information. ERCOT is also responsible for ensuring that electricity production and delivery are accurately accounted for among the generation resources and wholesale buyers and sellers in the ERCOT region. The ERCOT ISO does not operate a centrally dispatched pool and does not procure energy on behalf of its members other than to maintain the reliable operation of the transmission system. ERCOT also serves as agent for procuring ancillary services for those who elect not to secure their own ancillary services requirements.

Members of ERCOT include retail customers, investor and municipal owned electric utilities, rural electric cooperatives, river authorities, independent generators, power markets and retail electric providers. The electric market served by ERCOT operates under the reliability standards set by the North American Electric Reliability Council. The PUCT has primary jurisdictional authority over the electric market served by ERCOT and the reliability of electricity across Texas' main interconnected power grid.

First Choice provides energy to retail customers in Texas. Senate Bill 7 contains no provisions for the specific recovery of fuel and purchased power costs, although First Choice can request that the PUCT change the price-to-beat fuel factor twice a year to recognize changes in natural gas prices. The rates charged to new customers acquired by First Choice outside of TNMP’s service territory are not regulated by the PUCT, but are negotiated by First Choice with each customer. As a result, changes in fuel and purchased power costs will affect First Choice’s operating results.

The items below describe certain of the more significant rate and regulatory matters that are relevant to the Company. See Notes 16 and 17 in the Notes to Consolidated Financial Statements for a discussion of additional rate and regulatory matters.

PNMR

Energy Policy Act

In August 2005, the Energy Policy Act of 2005 was enacted, effective February 2006. Implementation of various portions of the law requires the issuance of rules by the FERC. The FERC adopted final rules implementing various provisions of the Energy Policy Act including rules pertaining to repeal of PUHCA of 1935 and implementation of PUHCA of 2005, the FERC’s expanded mergers and acquisitions approval authority and prohibition of energy market manipulation. The FERC has also issued a number of other proposed rules that are pending, including rules pertaining to preventing undue discrimination in transmission services and electric reliability standards. The Company will continue to monitor, and participate in, as appropriate, proceedings involving implementation of the Energy Policy Act.

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PNM

Regional Transmission Issues

In July 2005, the FERC issued an order terminating its proceeding on standard market design, stating that since issuance of the standard market design notice of proposed rulemaking, the electric industry has made significant progress in the development of voluntary RTOs and ISOs. In September 2005, the FERC issued a Notice of Inquiry on Preventing Undue Discrimination and Preference in Transmission Services seeking information from the industry regarding the provisions of the OATT for possible revision in a future rulemaking.

In November 2005, the FERC issued a Notice of Proposed Rulemaking Promoting Transmission Investment through Pricing Reform. In the proposed rulemaking, the FERC notes declining investment in the national transmission grid and proposes certain incentive actions it is considering to increase transmission investment to improve the reliability of national transmission grid. In addition to the incentive proposals, the FERC would implement additional reporting requirements for public utilities that operate transmission systems. The Company intends to monitor and participate in these FERC notices and rulemakings.

Generation Market Power Filings

In its triennial market power screen filing in 2004, PNM reported that it continued to face transmission constraints in northern New Mexico and would continue to abide by the cost-based rate limitation on transmission service during times of transmission congestion for the northern New Mexico market. PNM also reported that for the EPE control area, PNM’s revised wholesale market share screen was below 20% for all seasons. In its order in PNM’s market-based rate filing, the FERC initiated a proceeding to determine if PNM’s mitigation measure in northern New Mexico is sufficiently adequate to prevent the exercise of market power and also required additional explanation of PNM’s revised wholesale market share calculation. The FERC established that rates reviewed under this proceeding for transactions completed in these two markets would be subject to refund effective March 6, 2005.

In April 2005, the FERC issued an order denying PNM’s petition for rehearing regarding the FERC’s finding that the existing mitigation measure for the northern New Mexico control area was insufficient, rejecting PNM’s February 2005 compliance filing as to both the northern and southern New Mexico control areas and requiring PNM to submit a compliance filing containing one of the alternatives listed in the order. The FERC’s order also clarified that market-based sales made at SJGS are sales made within PNM’s northern control area and are subject to these proceedings. In July 2005, PNM made its compliance filing at the FERC. The filing indicated that, as a result of the completion of its analysis pursuant to the FERC’s order, PNM did show failures in its own control area, but did not show failures in the EPE control area, with the exception of one measure. PNM maintained its position that when the historical data is considered, it is clear that PNM does not possess generation market power in either the PNM or EPE control area destination markets and PNM should maintain its market-based sales authority in those markets. In the event the FERC does not so find, PNM also proposed mitigation measures in both the PNM and EPE control area destination markets that will be applicable during the limited time periods when the failures occurred.

PNM cannot predict the outcome of the additional FERC proceedings on PNM’s financial position or results of operations; however, should the FERC determine that PNM has generation market power in these two markets, PNM could continue to make sales at cost-based or otherwise mitigated rates and thus not have future revenues subject to refund in this matter.

FERC Office of Market Oversight and Investigations Audit

In November 2005, PNM received notice that the FERC Division of Operational Audits of the Office of Market Oversight and Investigations would perform a compliance audit of PNM. The audit covers the period from January 2004 to the present and will examine PNM’s compliance with the FERC standards of conduct and OASIS requirements, compliance of PNM’s transmission practices with the FERC regulations and applicable OATT, and compliance of PNM’s wholesale electricity marketing operation with its market-based rate tariff. This audit is part of a series of routine, mandatory audits of all of the utilities under FERC oversight, focused on compliance with the FERC’s rules and regulations. Similar audits have been conducted of other regional utilities. The FERC will issue its findings upon conclusion of the audit, which could take from six months to a year, or more to complete.

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In preparing for an on-site visit by OMOI as part of its audit, and during the visit itself, the Company discovered computer system paths that could have permitted unauthorized Company personnel to access certain real-time transmission information concerning the PNM and TNMP transmission systems. The Company immediately reported to OMOI its discovery and disabled the paths. The Company’s preliminary examination has not revealed any evidence that unauthorized access to transmission information was, in fact, obtained by use of these paths.

PNM has been cooperating, and will continue to cooperate, fully with the FERC to complete the audit. The Company cannot predict the outcome of the audit or whether the FERC will make any adverse findings related to PNM’s compliance with the FERC’s rules and regulations.

Global Electric Agreement

In 2003, PNM signed the Global Electric Agreement, which provided for the repeal of a majority of the New Mexico Restructuring Act, a fixed rate path, procedures for PNM’s participation in unregulated generating plant activities and other regulatory issues. In accordance with this rate path, PNM reduced its retail rates by 2.5% in September 2005. The rate path is effective through December 31, 2007, at which time rates are subject to review by the NMPRC.

Renewable Portfolio Standard

The NMPRC issued a renewable resources rule in 2002 to encourage the development of renewable energy in New Mexico. The rule includes a provision requiring the use of a minimum of 5% renewable energy by January 1, 2006, with the minimum amount to increase 1% per year for each year until a renewable portfolio standard of 10% is reached in the year 2011. The Renewable Energy Act passed by the New Mexico Legislature establishes a mandatory renewable energy portfolio standard similar to the structure established by the NMPRC. The Renewable Energy Act provides for streamlined proceedings for utilities to obtain approval of procurement plans, provided certainty to utilities and protection for customers and required the NMPRC to establish a reasonable cost threshold for the procurement of renewable energy to prevent excessive costs being added to rates. Under the Renewable Energy Act, if renewable energy cannot be acquired under the threshold, the mandate would be suspended.

In September 2005, PNM made its 2006 annual portfolio summary filing and renewable energy procurement plan filing. PNM proposed to continue to procure renewable energy and certificates from wind resources, to pursue renewable energy projects and to implement a program to purchase renewable energy certificates from net-metered customers with small solar systems. The NMPRC approved this plan; however, with respect to cost recovery, costs incurred pursuant to the plan, with the exception of those for the small solar program, are subject to a rebuttable presumption of prudence.

TNMP

FERC Office of Market Oversight and Investigations Audit

In November 2005, the Company received notice that the FERC Division of Operational Audits of the Office of Market Oversight and Investigations would begin a compliance audit of the FERC jurisdiction transmission system of TNMP. The audit covers the period from the effective date of PNMR’s acquisition of TNP in June 2005 to the present. The audit is substantially the same as the PNM audit discussed above.

Acquisition Agreements

In 2005, the PUCT approved a settlement agreement finding the acquisition of TNP to be in the public interest. Among other things, the settlement agreement called for:

·   a two-year electric rate freeze that includes a $13.0 million annual rate reduction in TNMP's retail delivery rates effective May 1, 2005;

·   an authorized return on equity of 10.25% on an implied capital structure of 60% debt and 40% equity for certain reporting purposes;

·   the use of a 60/40% debt/equity capital structure in TNMP's next base rate case if filed before January 1, 2009; and

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·   a $6.0 million synergy savings credit amortized over 24 months effective after the close of the transaction.

Also in 2005, the NMPRC approved a stipulation in connection with the acquisition of TNP. Among other things, the stipulation called for:

·   a three-phase rate reduction totaling 15%, to TNMP’s electric customers in southern New Mexico, beginning January 2006 and ending December 2010; the rate reduction will lower TNMP electric rates by approximately $9.6 million in the first year;

·   an imputed 55/45% debt/equity structure with an assumed rate of return on equity of 10.5% for TNMP;

·   PNM to remain the power supplier for TNMP’s New Mexico needs through 2010; and

·   integration of TNMP’s New Mexico assets into PNM effective January 1, 2007, the companies, however, will maintain separate rates, at minimum, through 2010.

ENVIRONMENTAL MATTERS

PNM and TNMP, in common with other electric and gas utilities, are subject to stringent laws and regulations for protection of the environment by local, state, federal and tribal authorities. In addition, PVNGS is subject to the jurisdiction of the NRC, which has the authority to issue permits and licenses and to regulate nuclear facilities in order to protect the health and safety of the public from radioactive hazards and to conduct environmental reviews pursuant to the National Environmental Policy Act. The liabilities under these laws and regulations can be material and, in some instances, may be imposed without regard to fault, or may be imposed for past acts, whether or not such acts were lawful at the time they occurred. See Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation - Critical Accounting Policies” for a discussion of applicable accounting policies. In addition, see Note 16 and Note 18 in the Notes to Consolidated Financial Statements for information related to the following matters, incorporated in this item by reference.

·   Person Station

·   Retired Fossil-Fueled Plant Decommissioning Costs

·   Nuclear Spent Fuel and Waste Disposal

·   Navajo Nation Environmental Issues

·   New Source Review Rules

·   The Clean Air Act

·   Citizen Suit Under the Clean Air Act

·   Four Corners Air Emissions

·   Excess Emissions Reports

·   Santa Fe Generating Station

·   SESCO Matter (for both PNM and TNMP)

·   Coal Combustion Waste Disposal

·   Environmental Issues

COMPETITION

PNM Wholesale is involved in the generation and sale of electricity into the wholesale market. It is subject to competition from regional utilities with similar opportunities to generate and sell energy at market-based prices and larger trading entities that typically do not own or operate generating assets. The Company believes that it is well positioned to compete in this market due to its long history in the marketplace, its product offerings, and stringent risk management practices. The Company’s energy marketers are operationally trained and maintain effective marketing relationships with competitors and counterparties. The Company has maintained an investment-grade rating for its long-term debt despite turbulent wholesale markets, which enables the Company to fully participate in the marketplace.

The Texas electricity market has been open to retail competition since January 2002. Prior to 2002, TNMP operated as an integrated utility in Texas. In accordance with Senate Bill 7 and in compliance with a plan approved by the PUCT, TNMP separated its Texas utility operations into three components: (1) an unregulated retail sales

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business operated by First Choice; (2) a regulated power transmission and distribution business operated by TNMP and (3) power generation, a business which TNMP is no longer engaged in. In accordance with Senate Bill 7, TNMP provides transmission and distribution services at regulated rates to various retail electric providers that, in turn, provide retail electric service within TNMP’s Texas service area.

The Company is exposed to competition in the unregulated Texas retail electricity market through First Choice. First Choice serves customers at competitive rates and customers at price-to-beat rates approved by the PUCT. In order to compete effectively in the Texas retail electricity market, First Choice must be able to attract and retain customers on the basis of cost and service, while managing the cost of its energy supply.

Since 2002, Texas’ electric consumers have been encouraged to switch from their traditional affiliated retail energy provider, such as TNMP, to a competitive retail energy provider, such as First Choice. Currently under TECA, Texas’ consumers whose chosen retail energy provider has exited the Texas market are provided electric service by a “provider of last resort.” The rates of a provider of last resort are regulated by the PUCT and are fixed for the two-year period that each provider of last resort serves. The current contracts for default service offered by providers of last resort under TECA will expire on December 31, 2006. On January 1, 2007 new providers of last resort will be identified and those providers as well as the rates offered will be effective until December 31, 2008.

On December 31, 2006, the price-to-beat rate mechanism will cease to exist and First Choice and other retail energy providers subject to providing price-to-beat rates will only market retail electricity at competitive rates. There is currently an open rulemaking at the PUCT evaluating the potential need for a replacement rate for the price-to-beat rate mechanism. Other services being evaluated in this rulemaking are provider of last resort functions and pricing and the possible creation of a default provider. The Company cannot currently predict what, if any, changes will occur to either mechanism and what, if any, impact such changes may have on its results of operations and financial position.

EMPLOYEES

The following table sets forth the number of employees of PNMR, PNM and TNMP and for each business segment as of December 31, 2005:

	PNMR	PNM	TNMP
Corporate *	751	-	-
PNM Electric	1,165	1,165	-
TNMP Electric	469	-	469
PNM Gas	736	736	-
PNM Wholesale	70	70	-
First Choice	174	-	-
Other	17	-	-
Total	3,382	1,971	469

* Represents employees of PNMR Services Company.

TNMP does not have any employees that are represented by unions. The following table sets forth the number of employees of PNMR and PNM, by business segment, who are represented by unions as of December 31, 2005:

	PNMR	PNM
PNM Electric	496	496
PNM Gas	82	82
PNM Wholesale	45	45
Total	623	623

Not all of the Company’s business segments are separate legal entities. The employees disclosed in the tables above for PNM Electric, PNM Gas and PNM Wholesale are allocated, in part, in a manner consistent with the allocation of labor costs to those segments.

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ITEM 1A.RISK FACTORS

The business and financial results of PNMR, PNM and TNMP are subject to a number of risks and uncertainties, including those set forth below and in Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation.”

PNMR may fail to successfully integrate acquisitions, including the TNP acquisition and the proposed acquisition of Twin Oaks, into its other businesses or otherwise fail to achieve the anticipated benefits of pending and future acquisitions.

As part of PNMR’s growth strategy, PNMR is pursuing, and intends to continue to pursue, a disciplined acquisition strategy. While PNMR expects to identify potential synergies, cost savings, and growth opportunities prior to the acquisition and integration of acquired companies or assets, PNMR may not be able to achieve these anticipated benefits due to, among other things:

·   delays or difficulties in completing the integration of acquired companies or assets,

·   higher than expected costs or a need to allocate resources to manage unexpected operating difficulties,

·   diversion of the attention and resources of its management,

·   reliance on inaccurate assumptions in evaluating the expected benefits of a given acquisition,

·   inability to retain key employees or key customers of acquired companies, and

·   assumption of liabilities unrecognized in the due diligence process.

Acquisition of TNP in 2005

PNMR cannot assure that it will successfully integrate TNP with PNMR‘s current businesses. The integration of TNP with PNMR‘s other businesses presents significant challenges and, as a result, PNMR may not be able to operate the combined company as effectively as expected. PNMR may also fail to achieve the anticipated benefits of the acquisition as quickly or as anticipated or may not be able to achieve those benefits at all. Even if PNMR manages to realize greater than anticipated benefits from the integration of TNP into its business, PNMR’s regulated subsidiaries may be required by their regulators to return these benefits to ratepayers.

While the acquisition of TNP was accretive to earnings and cash flow in 2005, the 2005 results were based on a number of factors, which may not continue in the future. At FCP, the gross margin increased, which was driven mainly by natural gas hedging, lower transmission costs and gains from capacity auction participation. However, at TNMP, gross margin decreased in 2005 compared to the prior year. The decrease was primarily due to a decrease in revenues due to a rate reduction effective May 1, 2005 that was part of the PUCT’s approval of the TNP acquisition.

The ultimate success of the acquisition is also dependent upon PNMR’s ability to achieve operational benefits from operating the companies as a unified operation and the management of customer retention at First Choice and TNMP.

Proposed Acquisition of Twin Oaks in 2006

On January 14, 2006, Altura, a newly formed indirect wholly owned subsidiary of PNMR, entered into an agreement with Sempra to purchase Twin Oaks in an acquisition of assets for $480.0 million in cash. The Twin Oaks facility is a 305 MW coal-fired power plant located 150 miles south of Dallas, Texas. The transaction is expected to close no earlier than April 17, 2006. The Twin Oaks purchase agreement also includes the development rights for a possible 600 MW expansion of the plant. The necessary permits are expected to be granted in 2007. An additional $2.5 million payment will be made to Sempra upon the issuance of an air permit for the expansion and an additional $2.5 million will be paid when Altura begins construction of the expansion.

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The proposed acquisition of Twin Oaks is the latest step in implementing PNMR’s strategy of expanding its merchant generation fleet to serve a growing wholesale market in the Southwest, including the ERCOT market in Texas. The Twin Oaks plant provides PNMR with the opportunity for lower-cost coal generation in an ERCOT market that is driven by natural gas.

PNMR and Sempra are also parties to the purchase agreement and have agreed to guarantee certain obligations of their respective subsidiaries relating to the acquisition. Consequently, PNMR is at risk that Altura will not be able to meet its obligations that are guaranteed by PNMR.

Under the purchase agreement, substantially all of the assets and contractual commitments relating to Twin Oaks are to be transferred to Altura upon closing, including fuel supply and power purchase and sale agreements. For the next five years the majority of the plant’s output will be sold via two existing contracts. All of the plant’s capacity is committed through September 2007. After expiration, the first contract is expected to be replaced with another contract for approximately 75% of the plant’s capacity through 2010. Although PNMR plans to market the excess energy and capacity within ERCOT, PNMR is at risk that its marketing efforts may not be successful due to a number of factors, including competition, market prices and demand for electricity and economic conditions.

PNMR has arranged for bridge financing to close the transaction. It is expected that the permanent financing will come from the issuance of debt and equity structured to maintain PNMR’s investment grade rating. However, PNMR is at risk that it will be unable to obtain financing for the acquisition at a reasonable cost or terms that will permit PNMR to maintain its investment grade rating, due to conditions in the capital markets or PNMR’s financial condition.

While the acquisition of the Twin Oaks facility is expected to be neutral to slightly accretive to earnings in the first 18 months of ownership, approximately 15% to 20% of earnings during this period will include the amortization of certain contracts, which will be recorded at fair market value under purchase accounting and amortized into income. Although the acquisition of Twin Oaks is expected to be fully accretive to earnings after the first 18 months and to be neutral to cash flow in 2006 and accretive thereafter, PNMR cannot assure that it will be able to achieve the expected earnings and cash flow results from the Twin Oaks plant.

PNMR, PNM and TNMP are subject to complex government regulation, which may have a negative impact on their business, financial position and results of operations.

PNMR, PNM and TNMP are subject to comprehensive regulation by several federal, state and local regulatory agencies, which significantly influences their operating environment and may affect their ability to recover costs from utility customers. In particular, the NMPRC, the PUCT, the FERC, the NRC, the EPA, ERCOT, the NMED and the TCEQ regulate many aspects of their utility operations, including siting and construction of facilities, conditions of service, the issuance of securities, and the rates that the regulated entities can charge customers. PNMR, PNM and TNMP are required to have numerous permits, approvals and certificates from these agencies to operate their business. The rates that PNM and TNMP are allowed to charge for their retail services significantly influence PNMR’s and those subsidiaries’ business, financial position, results of operations and liquidity. Due to pending federal regulatory reforms, the public utility industry continues to undergo change. 

The Energy Policy Act of 2005 was enacted into law in August 2005, effective in February 2006. The legislation covers many areas, including the items set forth in Note 17 in the Notes to the Consolidated Financial Statements and elsewhere in this report. Implementation of various portions of the law requires the issuance of rules by the FERC. The FERC has adopted final rules implementing various provisions of the Energy Policy Act including rules pertaining to repeal of PUHCA of 1935 and implementation of PUHCA of 2005, the FERC’s expanded mergers and acquisitions approval authority and prohibition of energy market manipulation. FERC has also issued a number of other proposed rules that are pending, including rules pertaining to preventing undue discrimination in transmission services and electric reliability standards. PNMR will continue to monitor, and participate in as appropriate, the FERC and other proceedings involving implementation of the Energy Policy Act, in order to assess the implications of the new law and rules on its operations.

PNMR and its subsidiaries are unable to predict the impact on their business and operating results from the future regulatory activities of any agency that regulates them or from the implementation of the Energy Policy Act of 2005. Changes in regulations or the imposition of additional regulations may require PNMR and its regulated subsidiaries to incur additional expenses or change business operations, and therefore may have an adverse impact on PNMR’s and those subsidiaries’ results of operations. 

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PNM's retail electric rate reduction and retail electric rate freeze, and the New Mexico settlement relating to the TNP acquisition, could adversely affect its profit margin if it does not control costs.

Pursuant to an electric retail rate freeze stipulation, PNM decreased its retail electric rates by 6.5% as follows:

·   a 4% reduction effective September 1, 2003,

·   an additional 2.5% reduction effective September 1, 2005, and

·   maintain these reduced retail electric rates through December 31, 2007. 

The TNP acquisition settlement in New Mexico established how synergy savings would be allocated among PNM’s gas and electric customers. The settlement provides that:

·   PNM’s 413,000 electric customers will receive rate credits totaling $4.6 million or nearly $1.84 million annually over a 30-month period beginning January 2008.

·   PNM’s 471,000 gas customers will receive $4.3 million in rate credits over five years, or $860,000 annually, beginning June 6, 2005.

PNM's costs, however, are not frozen. Thus, PNM's ability to maintain its profit margins depends upon increased demand for electricity and PNM's efforts to control costs incurred in supplying that electricity, including, in particular, its coal costs.

PNM does not have the benefit of a fuel adjustment clause for its retail electric operations that would allow it to recover increased fuel and purchased power costs from customers. Therefore, to the extent that fuel and power prices increase, it is exposed to changes in fuel and power prices to the extent fuel for its electric generating facilities and power must be purchased on the open market in order for it to serve its retail electric customers. If PNM cannot control other operating expenses, the retail electric rate freeze may decrease PNM's profit margin.  The retail electric rate freeze will also affect PNM's ability to earn a return or recover from its customers costs associated with investments in generation, transmission and distribution facilities since it will not be able to increase retail electric rates to recover those costs until at least after the end of the rate freeze.

PNMR and PNM are not able to predict what rate treatment PNM will receive following the expiration of the retail electric rate freeze in New Mexico. Some of the factors that influence rates are largely outside their control. In response to competitive, economic, political, legislative and/or regulatory pressures, PNM may have to agree to further rate freezes, rate refunds or rate reductions, any or all of which could have a significant adverse effect on PNMR’s and PNM’s business, financial position, results of operations and liquidity.

The impact from the TNP acquisition settlements could adversely affect TNMP’s profit margin if TNMP does not control costs.

The TNP acquisition settlements for TNMP in Texas and New Mexico provide for the following:

·   a two-year electric rate freeze that includes a $13.0 million annual rate reduction in TNMP's retail delivery rates effective May 1, 2005,

·   a $6.0 million synergy savings credit (whether or not these savings are actually achieved) amortized over 24 months effective after the closing of the transaction,

·   a three-phase rate reduction totaling 15%, beginning January 2006 and ending December 2010, to TNMP’s electric customers in southern New Mexico; the rate reduction, which includes TNMP’s annual synergy-savings allocation, will lower TNMP electric rates by $9.6 million in the first year, and

·   maintain PNM as the power supplier for TNMP’s New Mexico needs through 2010.

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In addition, as part of the New Mexico settlement relating to the TNP acquisition, TNMP's current fuel and purchased power adjustment clauses will be eliminated no later than March 31, 2006. Also, the New Mexico settlement requires the integration of TNMP’s New Mexico assets into PNM effective January 1, 2007. The companies, however, will maintain separate rates, at a minimum,  through 2010.

PNMR and TNMP are not able to predict what rate treatment TNMP will receive following the expiration of the retail electric rate provisions in New Mexico. Some of the factors that influence rates are largely outside their control. In response to competitive, economic, political, legislative and/or regulatory pressures, TNMP may have to agree to further rate freezes, rate refunds or rate reductions, any or all of which could have a significant adverse effect on PNMR’s and TNMP’s business, financial position, results of operations and liquidity.

The ability of First Choice to attract and retain customers and its ability to mitigate the fluctuation in costs of energy supply could have a significant adverse effect on PNMR’s business, financial position, results of operations and liquidity.

As a result of the acquisition of TNP, PNMR is exposed to competition in the unregulated Texas retail electricity market through First Choice, which serves customers at price-to-beat rates and customers at competitive rates. In order to compete effectively in the Texas retail electricity market, First Choice must be able to attract and retain customers on the basis of cost and service, while managing the cost of its energy supply. The ability of First Choice to compete successfully in the Texas market could have a significant effect on PNMR’s business, financial position, results of operations and liquidity.

There are inherent risks in the operation of nuclear facilities, such as environmental, health and financial risks and the risk of terrorist attack.

PNM has a 10.2% undivided interest in PVNGS, with portions of its interests in Units 1 and 2 held under leases. PVNGS is subject to environmental, health and financial risks such as the ability to dispose of spent nuclear fuel, the ability to maintain adequate reserves for decommissioning, potential liabilities arising out of the operation of these facilities and the costs of securing the facilities against possible terrorist attacks and unscheduled outages due to equipment and other problems.  PNM maintains nuclear decommissioning trust funds and external insurance coverage to minimize its financial exposure to some of these risks; however, it is possible that damages could exceed the amount of insurance coverage. Although the decommissioning trust funds are designed to provide adequate funds for decommissioning at the end of the expected life of the PVNGS units, there is the risk of insufficient decommissioning trust funds in the event of early decommissioning of the units.

The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation facilities. In the event of non-compliance, the NRC has the authority to impose fines or shut down a unit, or both, depending upon its assessment of the severity of the situation, until compliance is achieved. In addition, if a serious nuclear incident were to occur at PVNGS, it could materially and adversely affect PNM’s and PNMR’s business, financial position, results of operations and liquidity. A major incident at a nuclear facility anywhere in the world could cause the NRC to limit or prohibit the operation or licensing of any domestic nuclear unit.

PNMR’s and its electric subsidiaries’ financial performance may be adversely affected if their power plants and transmission and distribution system are not successfully operated.

General

PNMR’s and its electric subsidiaries’ financial performance depends on the successful operation of their generation, transmission and distribution assets. Unscheduled or longer than expected maintenance outages, other performance problems with the electric generation assets, severe weather conditions, accidents and other catastrophic events, disruptions in the delivery of fuel and other factors could reduce its excess generation capacity and therefore limit the electric subsidiaries’ ability to opportunistically sell excess power in the wholesale market. Diminished generation capacity could also result in the aggregate net open forward electric sales position being larger than forecasted generation capacity. If this were to occur, purchases of electricity in the wholesale market would be required under contracts priced at the time of execution or, if in the spot market, at the then-current market price. There can be no assurance that sufficient electricity would be available at reasonable prices, or at all, if such a

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situation were to occur. Failures of transmission or distribution facilities may also cause interruptions in the services the electric subsidiaries provide.  These potential generation, distribution and transmission problems, and any potentially related service interruptions, could result in lost revenues and additional costs.

PVNGS

During 2005, PVNGS had the lowest capacity factor (measured against maximum dependable capacity) that the plant has had since 1994. The equivalent availability for PVNGS was 76.0% for 2005. This reflects bottom quartile performance relative to the 103 operating reactors in the United States. There were nine unscheduled outages during 2005 that had a variety of causes. In 2004, the NRC determined that there had been a safety concern at PVNGS related to the safety injection systems for the three PVNGS units. This led to a "yellow" finding and a $50,000 civil penalty under the NRC’s reactor oversight process. A "yellow" finding places a unit in the "degraded safety cornerstone" column of the NRC’s performance matrix, which results in an enhanced NRC inspection regimen. During 2005, the NRC completed its enhanced inspection. The "yellow" finding remains unresolved.

APS has encountered tube cracking in the steam generators and has taken, and will continue to take, remedial actions that it believes have slowed the rate of tube degradation. The PVNGS Unit 2 steam generators were replaced in 2003, and the replacement of PVNGS Unit 1 steam generators was completed in December 2005. Installation of the PVNGS Unit 3 steam generators should be completed by December 2007.

APS has been operating PVNGS Unit 1 at reduced power levels since December 25, 2005 due to a vibration in the PVNGS Unit 1 shutdown cooling lines. As a result, PNM is receiving approximately 24 MW of power from PVNGS Unit 1 based on its 10.2% undivided interest in PVNGS.

Implementation of a potential solution preliminarily scheduled by APS for February 2006 was canceled after comprehensive analysis concluded that the desired improvement likely would not have been achieved. APS had informed PNM that it was in the process of formulating other potential remedies to address the issue and that it was scheduling another attempt to remedy this issue sometime in April 2006. APS has more recently informed PNM that the preferred solution will require Unit 1 to undergo an outage of approximately five weeks in order to effect the necessary modifications to Unit 1 and that it plans to begin this outage in the June 2006 timeframe. In addition, an outage of approximately one week for preparatory work will begin in mid-March 2006. This preferred solution was initially planned for installation in the spring of 2007.

The operation of PVNGS not only affects PNM’s ability to make off-system sales, but can also cause PNM to purchase power to serve its retail electric customers. Based on current forward market energy prices, PNM estimates that operation of PVNGS Unit 1 at the reduced power level could result in a reduction in consolidated gross margin, or operating revenues minus cost of energy sold, of $3.0 million to $4.0 million per month before income taxes. However, PNM is taking steps to mitigate the impact on consolidated gross margin while PVNGS Unit 1 operates at the reduced power level.

The financial performance of PNMR and PNM may be adversely affected if PVNGS Unit 1 cannot be operated at a satisfactory level or if the NRC imposes restrictions on operation of the plant or any of the three units at PVNGS.

The operations of PNMR and its operating subsidiaries are subject to risks beyond their control that may reduce their revenues.

The revenues of PNMR and its operating subsidiaries are affected by the demand for electricity and natural gas.  That demand can vary greatly based upon:

·   weather conditions, including hurricanes, seasonality and temperature extremes,

·   fluctuations in economic activity and growth in PNMR’s service area and the western region of the United States,

·   the extent of additional energy available from current or new competitors, and

·   the ability of First Choice to attract and retain customers.

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Weather conditions will impact the revenues that PNMR and its operating subsidiaries obtain from electric retail and wholesale sales.  Temperature extremes, especially for prolonged periods, can dramatically increase the demand for electricity, as opposed to the effect of more moderate temperatures.  Temperature extremes inside the subsidiary’s service territory reduce the amount of power available to sell on the wholesale market.

Drought conditions in New Mexico generally, and especially in the Four Corners region, in which SJGS and the Four Corners Generating Station are located, may affect the water supply for PNM’s generating plants.  If adequate precipitation is not received in the watershed that supplies the Four Corners region, PNM may have to decrease generation at these plants, which would reduce PNM’s ability to sell excess power on the wholesale market and reduce its revenues. If the drought conditions continue or regulators or legislators take action to limit PNM’s supply of water, PNM’s and PNMR’s business may be adversely impacted. Although PNM has been able to maintain adequate access to water through supplemental contracts and voluntary shortage sharing agreements with tribes and other water users in the San Juan Basin, PNM cannot be certain that it will be able to do so in the future.

The inability to raise capital could limit PNMR’s ability to execute its growth strategy and finance its capital requirements, which could adversely affect PNMR’s business, financial position, results of operations and liquidity.

PNMR and its operating subsidiaries rely on access to both short-term money markets and longer-term capital markets as a source of liquidity for any capital requirements not satisfied by the cash flow from operations, which could include capital requirements for energy infrastructure investments and funding new projects. If PNMR and its operating subsidiaries are not able to access capital at competitive rates or at all, PNMR’s ability to implement its growth strategy and its ability to finance capital requirements, if needed, will be limited. Market disruptions or any downgrade of PNMR’s or its operating subsidiaries’ credit rating may increase the cost of borrowing or adversely affect their ability to raise capital through the issuance of securities or other borrowing arrangements, which could have a material adverse effect on their business, financial position, results of operations and liquidity. These disruptions could include:

·   an economic downturn,

·   changes in capital market conditions generally,

·   the bankruptcy of an unrelated energy company,

·   increased market prices for electricity and gas,

·   terrorist attacks or threatened attacks on facilities of PNMR’s operating subsidiaries or those of unrelated energy companies, and

·   deterioration in the overall health of the utility industry.

A significant reduction in the credit ratings of PNMR or its operating subsidiaries could materially and adversely affect their business, financial position, results of operations and liquidity.

PNMR, PNM and TNMP cannot be sure that any of their current ratings will remain in effect for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency. Any downgrade:

·   could increase borrowing costs, which would diminish financial results,

·   could require payment of a higher interest rate in future financings and the potential pool of investors and funding sources could decrease,

·   could increase borrowing costs under certain of existing credit facilities,

·   could also require the provision of additional support in the form of letters of credit or cash or other collateral to various counterparties,

·   could limit access to or increase the cost of access to the commercial paper market, and

·   below investment grade credit ratings would also require approvals from the NMPRC for new wholesale plant projects and for continuing to participate in wholesale plant projects of more than a certain dollar value and under certain conditions.

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On January 20, 2006, S&P revised PNMR’s outlook from stable to negative and downgraded the commercial paper of PNMR and PNM from A-2 to A-3, citing concerns about reduced plant availability at PVNGS, the higher cost of replacement power due to high natural gas prices and the lack of a fuel adjustment clause that would permit PNM to pass these costs to customers. The ratings action by S&P has increased short-term borrowing costs for PNMR and PNM and could increase long-term borrowing costs for PNMR and PNM.

The ratings from rating agencies reflect only the views of such rating agencies and are not recommendations to buy, to sell or to hold our securities. Each rating should be evaluated independently of any other rating. Any downgrade or withdrawal of PNMR’s, PNM’s or TNMP’s current ratings may have an adverse effect on the market price of their outstanding debt.

Costs of environmental compliance, liabilities and litigation could exceed estimates by PNMR’s and its operating subsidiaries, which could adversely affect their business, financial position, results of operations and liquidity.

Compliance with federal, state and local environmental laws and regulations may result in increased capital, operating and other costs, including remediation and containment expenses and monitoring obligations. PNMR, PNM and TNMP cannot predict how they would be affected if existing environmental laws and regulations were revised, or if new environmental laws and regulations seeking to protect the environment were adopted, but any such changes could increase their financing requirements or otherwise adversely affect their business, financial position, results of operations and liquidity, unless increased environmental costs are recovered in customer rates. Revised or additional laws and regulations could also result in additional operating restrictions on their facilities or increased compliance costs that may not be fully recoverable in rates, thereby reducing net income. For example, any future changes in the interpretation of the Clean Air Act’s new source review provisions could potentially increase operating and maintenance costs substantially. Similarly, in March 2005, the EPA adopted the Clear Air Act Mercury Rule, which is intended to reduce mercury emissions from coal-fired generation plants. PNMR and PNM cannot be certain how this rule will affect them.

In addition, PNM or TNMP may be designated as a responsible party for environmental clean up at a site identified by a regulatory body. PNMR, PNM and TNMP cannot predict with certainty the amount and timing of all future expenditures related to environmental matters because of the difficulty of estimating clean-up and compliance costs, and the possibility that changes will be made to the current environmental laws and regulations. There is also uncertainty in quantifying liabilities under environmental laws that impose joint and several liability on all potentially responsible parties. Failure to comply with environmental laws and regulations, even if caused by factors beyond PNM’s or TNMP’s control, may result in the assessment of civil or criminal penalties and fines.

PNMR’s business, results of operations and financial position may be adversely affected if PNMR and its operating subsidiaries do not successfully compete for wholesale customers and generation plant acquisition opportunities. Wholesale plants will be exposed to price risk to the extent they must compete for the sale of energy and capacity.

As a result of the changing regulatory environment and the relatively low barriers to entry (which include, in addition to open access transmission service, relatively low construction costs for new generating facilities), PNMR expects competition to steadily increase. This increased competition could affect load forecasts, acquisition opportunities and wholesale energy sales and related revenues. Since PNM’s sales in the wholesale electric market accounted for approximately 58% of total MWh sales in 2005, the impact of these changes on PNMR’s and PNM’s financial results could be material. The effect on results of operations and financial position could vary depending on the extent to which:

·   PNMR and its operating subsidiaries are able to acquire additional generation to compete in the wholesale market,

·   new opportunities are created for the expansion of wholesale load, and

·   current wholesale customers elect to purchase from other suppliers after existing contracts expire.

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As of December 31, 2005, PNM’s long-term contracts to supply power ranged from 1 to 14.5 year terms with an average term of 5.3 years. PNM’s ability to renew these contracts at terms comparable to those currently in place is dependent upon prevailing market conditions at the time of negotiations.

To the extent electric capacity generated by wholesale plants is not under contract to be sold, the business, results of operations and financial position of PNMR and PNM will generally depend on the prices that can be obtained for energy and capacity in New Mexico, in Texas (if the proposed acquisition of Twin Oaks is completed) and in adjacent markets.

PNMR and its operating subsidiaries may not be able to mitigate fuel and wholesale electricity pricing risks, which could result in unanticipated liabilities or increased volatility in earnings.

The business and operations of PNMR and its operating subsidiaries are subject to changes in purchased power prices and fuel costs that may cause increases in the amounts that must be paid for power supplies on the wholesale market and the cost of producing power in owned generation plants. Prices for electricity, fuel and natural gas may fluctuate substantially over relatively short periods of time and expose PNMR and its operating subsidiaries to significant commodity price risks.

Among the factors that could affect market prices for electricity and fuel are:

·   prevailing market prices for coal, oil, natural gas and other fuels used in the generation plants of PNMR and its operating subsidiaries, including associated transportation costs, and supplies of such commodities,

·   prevailing market conditions in the general wholesale electricity market,

·   liquidity in the commodity markets,

·   the rate of growth in electricity as a result of population changes, regional economic conditions and the implementation of conservation programs,

·   weather conditions impacting demand for electricity or availability of hydroelectric power or fuel supplies,

·   changes in the regulatory framework for the commodities markets that PNMR and its operating subsidiaries rely on for purchased power and fuel,

·   the actions of external parties, such as the FERC or independent system operators, that may impose price limitations and other mechanisms to address some of the volatility in the United States’ western energy markets,

·   changes in federal and state energy and environmental laws and regulations,

·   union and labor relations, and

·   natural disasters, wars, embargoes and other catastrophic events.

PNMR and its operating subsidiaries rely on derivatives such as forward contracts, futures contracts, options and swaps to manage these risks. They attempt to manage their exposure from these activities through enforcement of established risk limits and risk management procedures. PNMR and its operating subsidiaries cannot be certain that these strategies will be successful in managing pricing risk, or that they will not result in net liabilities as a result of future volatility in these markets.

Impairments of tangible long-lived assets of PNMR, PNM and TNMP could adversely affect their business, financial position, liquidity and results of operations.

PNMR, PNM and TNMP evaluate their tangible long-lived assets for impairment whenever indicators of impairment exist pursuant to SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). These potential impairment triggers could include changing customer purchase commitments and market share; fluctuating market prices resulting from weather patterns; changing fuel costs; industry deregulation and other economic and market conditions and trends. Except as described below, PNMR, PNM and TNMP determined that no triggering events occurred during the period for their tangible long-lived assets.

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PNM determined that as of December 31, 2005, its D-11 steam turbine, which is in a temporary storage facility in southern New Mexico, was impaired in the amount of approximately $15.0 million. The D-11 steam turbine was impaired since it is no longer being utilized in the Afton generation facility and has been designated as available for sale.

PNM will continue to analyze all tangible long-lived assets for impairment on an on-going basis in accordance with SFAS 144.

Impairments of goodwill and intangible assets of PNMR and its subsidiaries could adversely affect their business, financial position, liquidity and results of operations.

As a result of the acquisition of TNP in 2005, PNMR recorded $499.2million of goodwill composed of $456.1 million of goodwill at TNMP and $43.1 million of goodwill at FCP. As required by SFAS 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), PNMR and TNMP will evaluate goodwill for impairment annually and between annual tests whenever indicators of impairment exist. Impairment of goodwill exists when the carrying amount of goodwill exceeds its implied fair value.

PNMR also recorded $79.3 million of other intangible assets as a result of its acquisition of TNP. Of the $79.3 million of acquired intangible assets, $68.8 million was assigned to the trade name “First Choice.” The trade name has an indefinite useful life and therefore, no amortization will be recognized until its useful life is determined to be no longer indefinite. As required by SFAS 142, PNMR evaluates the First Choice trade name for impairment annually and between annual tests whenever indicators of impairment exist. PNMR evaluates the useful life of the First Choice trade name each reporting period as required by SFAS 142 to determine whether events or circumstances continue to support an indefinite useful life.

The remaining $10.5 million of acquired intangible assets was assigned to the First Choice customer list. The useful life of the customer list is estimated to be eight years and is being amortized on a straight-line basis over eight years. As required by SFAS 144, PNMR evaluates the First Choice customer list for impairment whenever indicators of impairment exist. PNMR evaluates the remaining useful life of the First Choice customer list each reporting period as required by SFAS 144 to determine whether events or circumstances continue to support the remaining amortization period.

Due to the significant amounts of goodwill and intangible assets recorded by PNMR and its subsidiaries, the impairment of goodwill or intangible assets could adversely affect their business, financial position, liquidity and results of operations.

Actual results could differ from estimates used to prepare PNMR’s, PNM’s and TNMP’s financial statements.

In preparing the financial statements in accordance with GAAP, management must often make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements and during the reporting period. Some of those judgments can be subjective and complex, and actual results could differ from those estimates. For more information about these estimates and assumptions, see Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operation - Critical Accounting Policies” and Footnote 1 in the Notes to Consolidated Financial Statements.

Provisions of PNMR’s organizational documents, as well as several other statutory and regulatory factors, will limit another party’s ability to acquire PNMR and could deprive PNMR’s shareholders of the opportunity to gain a takeover premium for shares of PNMR’s common stock.

PNMR’s restated articles of incorporation and by-laws include a number of provisions that may have the effect of discouraging persons from acquiring large blocks of PNMR’s common stock or delaying or preventing a change in control of PNMR. The material provisions that may have such an effect include:

·   authorization for the PNMR Board to issue PNMR’s preferred stock in series and to fix rights and preferences of the series (including, among other things, whether, and to what extent, the shares of any series will have voting rights, subject to certain limitations, and the extent of the preferences of the shares of any series with respect to dividends and other matters),

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·   advance notice procedures with respect to any proposal other than those adopted or recommended by PNMR’s Board, and

·   provisions specifying that only a majority of the Board, the chairman of the Board, the president or holders of not less than one-tenth of all of PNMR's shares entitled to vote may call a special meeting of stockholders.

Under the New Mexico Public Utility Act, NMPRC approval is required for certain transactions that may result in PNMR’s change in control or exercise of control. Certain acquisitions of PNMR’s outstanding voting securities would also require FERC approval under the FERC's authority resulting from the Energy Policy Act and the repeal of PUHCA. See Note 17 in the Notes to Consolidated Financial Statements for further discussion.

ITEM 1B.UNRESOLVED STAFF COMMENTS

None.

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ITEM 2.PROPERTIES

PNMR

The significant properties owned by PNMR include those owned by PNM and TNMP and are disclosed below.

PNM

Electric

PNM’s ownership and capacity in electric generating stations in commercial service as of December 31, 2005 follow:

			Total Net
			Generation
			Capacity
Type	Name	Location	(MW)

Coal	SJGS (a)	Waterflow, New Mexico	765
Coal	Four Corners (b)	Fruitland, New Mexico	192
Gas/Oil	Reeves Station	Albuquerque, New Mexico	154
Gas/Oil	Las Vegas (c)	Las Vegas, New Mexico	18
Gas/Oil	Afton (d)	La Mesa, New Mexico	141
Gas	Lordsburg (e)	Lordsburg, New Mexico	72
Nuclear	PVNGS (f)	Wintersburg, Arizona	402	(g)
			1,744

(a)   SJGS Units 1, 2 and 3 are 50% owned by PNM; SJGS Unit 4 is 38.5% owned by PNM.

(b)   Four Corners Units 4 and 5 are 13% owned by PNM.

(c)   PNM has filed with the NMPRC for approval to close the Las Vegas Generating Station in 2006.

(d)   Subject to NMPRC approval, PNM plans to convert Afton to a combined cycle plant and bring Afton into retail rates, with 50% of Afton's capacity designated to serve PNM's customers and the other 50% designated to serve TNMP's New Mexico customers.

(e)   PNM’s Lordsburg plant was built to serve wholesale customers and other sales rather than New Mexico retail customers and, therefore, is not currently included in the retail rates. However, it is possible that this plant may be needed in the future to serve the growing retail load.

(f)   PNM is entitled to 10.2% of the power and energy generated by PVNGS. PNM has a 10.2% ownership interest in Unit 3 and has leasehold interests in approximately 7.9% of Units 1 and 2 and an ownership interest in approximately 2.3% of Units 1 and 2.

(g)   For load and resource purposes, PNM has notified the NMPRC that the maximum dependable capacity rating for PVNGS is 395 MW.

Fossil-Fueled Plants

SJGS is located in northwestern New Mexico, and consists of four units operated by PNM. Units 1, 2, 3 and 4 at SJGS have net rated capacities of 327 MW, 316 MW, 497 MW and 507 MW, respectively. SJGS Units 1 and 2 are owned on a 50% shared basis with Tucson. SJGS Unit 3 is owned 50% by PNM, 41.8% by SCPPA and 8.2% by Tri-State. SJGS Unit 4 is owned 38.457% by PNM, 28.8% by M-S-R Public Power Agency, 10.04% by Anaheim, 8.475% by Farmington, 7.2% by Los Alamos and 7.028% by UAMPS.

PNM also owns 192 MW of net rated capacity derived from its 13% interest in Units 4 and 5 of Four Corners located in northwestern New Mexico on land leased from the Navajo Nation and adjacent to available coal deposits. Units 4 and 5 at Four Corners are jointly owned with SCE, APS, Salt River Project, Tucson and EPE and are operated by APS.

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Four Corners and a portion of the facilities adjacent to SJGS are located on land held under easements from the United States and also under leases from the Navajo Nation. The enforcement of these leases could require Congressional consent. PNM does not deem the risk that is associated with the enforcement of these easements and leases to be material. However, PNM is dependent in some measure upon the willingness and ability of the Navajo Nation to protect these leased properties.

PNM owns 154 MW of generation capacity at Reeves Station in Albuquerque and 18 MW of generation capacity at Las Vegas Station in Las Vegas, New Mexico. PNM also owns Afton, a 141 MW gas or oil fired combustion turbine plant in La Mesa, New Mexico, and Lordsburg, a 72 MW gas fired combustion turbine generator in Lordsburg, New Mexico. In addition, PNM has 132 MW of generation capacity in Albuquerque under an operating lease. These power sources are used primarily for peaking and transmission support. During times of excess capacity, these resources have been used to augment PNM’s wholesale power trading activities. PNM owns a one-third interest in a partially constructed, combined-cycle power plant near Deming, New Mexico, called Luna. The facility is expected to be completed no later than the second quarter of 2006 and is designed to be capable of producing 570 MW, of which PNM will be entitled to 190 MW. PNM plans to convert Afton to a combined cycle plant and bring Afton into retail rates, with 50% of Afton's capacity designated to serve PNM's customers and 50% designated to serve TNMP's New Mexico customers. (See “Sources of Power” in Item 1. “Business.”)

Nuclear Plant

PNM’s Interest in PVNGS

PNM is participating in the three units of PVNGS, also known as the Arizona Nuclear Power Project, with APS (the operating agent), Salt River Project, EPE, SCE, SCPPA and the Department of Water and Power of the City of Los Angeles. PNM has a 10.2% undivided interest in PVNGS, with portions of its interests in Units 1 and 2 held under leases.

Other PVNGS Matters

See Note 16 in the Notes to Consolidated Financial Statements for information on other PVNGS matters.

Transmission and Distribution

As of December 31, 2005, PNM owned, jointly owned or leased, 2,897 circuit miles of electric transmission lines, 4,077 miles of distribution overhead lines, 4,504 cable miles of underground distribution lines (excluding street lighting) and 237 substations.

Gas

As of December 31, 2005, the natural gas properties consisted primarily of natural gas storage, transmission and distribution systems. Provisions for storage made by PNM include ownership and operation of an underground storage facility located near Albuquerque. The transmission systems consisted of 1,578 miles of pipe and compression facilities. The distribution systems consisted of 12,205 miles of pipe.

Other Information

PNM’s electric and gas transmission and distribution lines are generally located within easements and rights-of-way on public, private and Native American lands. PNM leases interests in PVNGS Units 1 and 2 and related property, EIP and associated equipment, data processing, communication, office and other equipment, office space, joint use utility poles, vehicles and real estate. PNM also owns and leases service and office facilities in Albuquerque and in other areas throughout its service territory.

TNMP

TNMP’s facilities are located within its Texas and New Mexico service areas. TNMP’s Texas transmission and distribution facilities are located in three non-contiguous areas. One area extends from Lewisville, which is approximately 10 miles north of the Dallas-Fort Worth International Airport, eastward to municipalities near the Red River, and to communities north, west, and south of Fort Worth. The second area includes counties along the Texas Gulf Coast between Houston and Galveston, and the third area includes portions of far west Texas between Midland

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and El Paso. TNMP’s New Mexico transmission and distribution facilities are located in southwest and south central New Mexico, including the cities of Alamogordo, Ruidoso, Sliver City, Lordsburg and surrounding communities. TNMP also owns and leases service and office facilities in other areas throughout its service territory.

ITEM 3.LEGAL PROCEEDINGS

See Note 16 in the Notes to Consolidated Financial Statements for information related to the following matters for PNMR, PNM and TNMP, incorporated in this item by reference.

·   Tax Refund Litigation

·   PVNGS Water Supply Litigation

·   San Juan River Adjudication

·   Navajo Nation Environmental Issues

·   Citizen Suit Under the Clean Air Act

·   Excess Emissions Reports

·   Santa Fe Generating Station

·   Natural Gas Royalties Qui Tam Litigation

·   Asbestos Cases

·   SESCO Matter (for both PNM and TNMP)

·   Archaeological Site Disturbance

   ·   Legal Proceedings discussed under the caption "Western United States Wholesale Power Market"

·   Wholesale Power Marketing Antitrust Suit

·   TNMP True-Up Proceeding

·   Power Resource Group Litigation

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

None.

SUPPLEMENTAL ITEM - EXECUTIVE OFFICERS OF PNM RESOURCES, INC.

All officers are elected annually by the Board of the PNMR. Executive officers, their ages as of February 26, 2006 and offices held with PNMR for the past five years, or other companies if less than five years with PNMR, are as follows:

Name	Age	Office	Initial Effective Date
J. E. Sterba	50	Chairman, President and Chief Executive Officer	December 2001
		Chairman, President and Chief Executive Officer, PNM	October 2000
		President and Chief Executive Officer, PNM	June 2000
		President, PNM	March 2000
C. N. Eldred 1	52	Senior Vice President and Chief
		Financial Officer	January 2006
		Vice President and Chief Financial Officer,
		Omaha Public Power District	November 1999
A. A. Cobb	58	Senior Vice President and Chief Administrative Officer	June 2005
		Senior Vice President, Peoples Services and
		Development	December 2001
		Senior Vice President, Peoples Services and
		Development, PNM	September 2001
		Global Human Resources Officer, Clientlogic	November 1999
P. T. Ortiz	56	Senior Vice President and General Counsel	June 2005
		Senior Vice President, General Counsel and Secretary	December 2001
		Senior Vice President, General Counsel and
		Secretary, PNM	August 1999
W.J. Real	57	Senior Vice President, Public Policy (PNMR and PNM)	July 2002
		Executive Vice President, Power Production
		and Marketing	December 2001
		Executive Vice President, Power Production
		and Marketing, PNM	January 1999
H. W. Smith 2	48	Senior Vice President, Energy Resources (PNMR and PNM)	March 2004
		Vice President, Energy Supply, Trading and
		Services, TECO Energy, Inc.	January 2001
W.D Hobbs 3	62	Senior Vice President, Customer and Delivery Services	June 2005
		Senior Vice President and Chief Operations
		Officer, TNMP	August 2002
		Vice President, Transmission and
		Distribution Operations, TNMP	June 2002
		Vice President, Texas Transmission and
		Distribution Operations, TNMP	October 2000
J. D. Shorter 4	40	Senior Vice President	April 2005
		Managing Partner, Wolfrox Partners LLP	August 2004
		Senior Vice President, North America
		Commercial Operations, TXU Corp.	June 2003
		Vice President and Director of Trading, TXU Corp.	March 1999
T. G. Sategna	52	Vice President and Corporate Controller (PNMR and PNM)	October 2003
		Controller, Utility Operations (PNMR and PNM)	August 2002
		Controller, Electric and Gas	December 2001
		Controller, Electric and Gas Services, PNM	May 2000

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¹ C. N. Eldred was Chief Financial Officer at Omaha Public Power District prior to joining PNMR. Prior to that he was head of financing and capital markets for Southern Company. At Southern Company Mr. Eldred executed debt and equity financing strategies and managed rating agency and investment banking relationships associated with capital markets.

² H.W. Smith had 25-years of experience in the utility industry prior to joining PNMR, which included executive-level experience in marketing and customer service, economic development, generation development and engineering.

³ W.D. Hobbs had more than 24 years of experience in engineering, power production, business development and utility operations prior to joining PNMR. He most recently served as Senior Vice President and Chief Operations Officer for TNMP.

⁴ J. D. Shorter had more than 16 years of experience in strategic planning, pricing and wholesale power marketing prior to joining PNMR, including extensive knowledge of the deregulated market in Texas.

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PART II

ITEM 5.MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED

     STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

PNMR’s common stock is traded on the New York Stock Exchange. On May 18, 2004, PNMR’s Board approved a 3-for-2 stock split effective on June 11, 2004 for shareholders of record on June 1, 2004. All references to numbers of shares outstanding and per share amounts have been restated to reflect the stock split.

Ranges of sales prices of PNMR’s common stock, reported as composite transactions (Symbol: PNM), and dividends declared on the common stock for 2005 and 2004, by quarters, are as follows:

Quarter Ended	Range of Sales Prices		Dividends
	High	Low	Per Share
2005
December 31	$29.22	$24.03	$0.200
September 30	$30.45	$27.62	$0.400
June 30	$30.38	$26.12	$ -
March 31	$28.20	$23.83	$0.185
Fiscal Year	$30.45	$23.83	$0.785
2004
December 31	$26.11	$22.57	$0.185
September 30	$22.75	$20.09	$0.160
June 30	$20.87	$18.70	$0.160
March 31	$21.20	$18.77	$0.160
Fiscal Year	$26.11	$18.70	$0.665

Dividends declared during the quarter ended September 30, 2005 include a $0.20 per share dividend declared on July 19, 2005 for the quarter ended June 30, 2005 and a $0.20 per share dividend declared on September 27, 2005 for the quarter ended September 30, 2005.

On July 19, 2005, PNMR’s Board approved an 8.0% increase in the common stock dividend. The increase raised the quarterly dividend to $0.20 per share, for an indicated annual dividend of $0.80 per share. On February 14, 2006, the Board approved a 10.0% increase in the Company's common stock dividend for an indicated annual rate of $0.88 per share. PNMR targets a payout ratio of 50% to 60% of consolidated earnings.

On February 28, 2006, there were 14,350 holders of record of the Company’s common stock.

See Part II. Item 7. “Management’s Discussion and Analysis of Results of Operation and Financial Condition - Liquidity and Capital Resources - Dividends,” for a discussion on the payment of future dividends.

See Part III. Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

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Cumulative Preferred Stock

PNMR

PNMR does not have any cumulative preferred stock outstanding.

PNM

PNM is not aware of any active trading market for its cumulative preferred stock. Quarterly cash dividends were paid on PNM’s outstanding cumulative preferred stock at the stated rates during 2005 and 2004.

Sales of Unregistered Securities

None not previously reported on a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.

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ITEM 6.SELECTED FINANCIAL DATA

The selected financial data and comparative operating statistics should be read in conjunction with the Consolidated Financial Statements and Notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operation. All references to numbers of shares outstanding and per share amounts have been restated to reflect the 3-for-2 stock split that occurred on June 11, 2004. PNMR results include TNP results are included from the date of acquisition, June 6, 2005, in the table below.

PNM RESOURCES, INC. AND SUBSIDIARIES

	2005			2004			2003			2002			2001
	(In thousands except per share amounts and ratios)
Total Operating Revenues	$	2,076,810		$	1,604,792		$	1,455,653		$	1,118,694		$	2,254,178
Net Earnings Before Cumulative Effect of Changes
in Accounting Principles	$	68,153		$	87,686		$	58,552		$	63,686		$	149,847
Net Earnings	$	67,227		$	87,686		$	95,173		$	63,686		$	149,847
Net Earnings per Common Share
Basic	$	1.02		$	1.45		$	1.60		$	1.09		$	2.55
Diluted	$	1.00		$	1.43		$	1.58		$	1.07		$	2.51
Cash Flow Data
Net cash flows provided from operating activities	$	210,451		$	235,142		$	225,915		$	97,359		$	327,346
Net cash flows used in investing activities	$	(154,643	)	$	(143,838	)	$	(98,790	)	$	(200,427	)	$	(407,014	)
Net cash flows generated (used) by financing activities	$	(4,804	)	$	(86,803	)	$	(118,133	)	$	78,362		$	385
Total Assets	$	5,124,709		$	3,487,635		$	3,378,629		$	3,247,227		$	3,127,602
Long-Term Debt	$	1,746,395		$	987,823		$	987,210		$	980,092		$	953,884
Common Stock Data
Market price per common share at year end	$	24.49		$	25.29		$	18.73		$	15.88		$	18.63
Book value per common share at year end	$	19.51		$	18.20		$	18.07		$	16.60		$	17.25
Average number of common shares outstanding		65,928			60,414			59,620			58,677			58,677
Dividends declared per common share	$	0.785		$	0.665		$	0.600		$	0.587		$	0.533
Return on average common equity		5.6	%		8.1	%		9.3	%		6.4	%		15.5	%
Capitalization
Common stockholders’ equity		42.3	%		52.4	%		51.9	%		49.5	%		50.8	%
Preferred stock without mandatory redemption
requirements		0.4			0.6			0.6			0.7			0.6
Long-term debt		57.3			47.0			47.5			49.8			48.6
		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

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PNM RESOURCES, INC. AND SUBSIDIARIES
COMPARATIVE OPERATING STATISTICS
	2005	2004	2003	2002	2001
Regulated Operations
PNM Electric MWh Sales
Residential	2,652,475	2,509,449	2,405,488	2,298,542	2,197,889
Commercial	3,526,133	3,450,503	3,379,147	3,254,576	3,213,208
Industrial	1,277,156	1,283,769	1,292,711	1,612,723	1,603,266
Other	256,202	253,393	247,255	267,070	240,934
Total PNM Electric MWh Sales	7,711,966	7,497,114	7,324,601	7,432,911	7,255,297
TNMP Electric MWh Sales *
Residential	1,859,020	-	-	-	-
General Services	144,203	-	-	-	-
Primary/Economy/Transmission	1,311,208	-	-	-	-
Secondary	1,174,587	-	-	-	-
Municipal/Lighting	86,307	-	-	-	-
Total TNMP MWh Sales	4,575,325	-	-	-	-
PNM Gas Throughput - Decatherms
(In thousands):
Residential	28,119	30,618	27,416	29,627	27,848
Commercial	10,554	11,639	10,810	12,009	10,421
Industrial	369	413	485	749	3,920
Transportation	37,013	43,208	50,756	44,889	51,395
Other	9,780	13,871	5,510	4,807	4,355
Total PNM Gas Throughput	85,835	99,749	94,977	92,081	97,939
Unregulated Operations
PNM Wholesale MWh Sales
Long-term contracts	2,516,907	2,943,372	2,469,707	844,169	1,463,031
Short-term sales	8,069,751	9,057,172	9,432,297	8,605,985	11,133,669
Total PNM Wholesale MWh Sales	10,586,658	12,000,544	11,902,004	9,450,154	12,596,700
First Choice MWh Sales *
Residential	1,591,005	-	-	-	-
Mass-market	400,839	-	-	-	-
Mid-market	478,531	-	-	-	-
Other	29,780	-	-	-	-
Total First Choice MWh Sales	2,500,155	-	-	-	-

* TNMP and First Choice are reported from the date of acquisition, June 6, 2005.

Under TECA, customers of TNMP Electric in Texas can choose First Choice or any other REP to provide energy. However, TNMP Electric delivers energy to customers within its service area regardless of the REP chosen. Therefore, TNMP Electric earns revenue for energy delivery and First Choice earns revenue on the usage of that energy by its customers. The MWh reported above for TNMP Electric and First Choice include approximately 1,644,675 MWh used by customers of TNMP Electric who have chosen First Choice as their REP.

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PNM RESOURCES, INC. AND SUBSIDIARIES
COMPARATIVE OPERATING STATISTICS
	2005	2004	2003		2002	2001
	(In thousands)
Regulated Operations
PNM Electric Revenues
Residential	$ 216,890	$ 206,950	$ 203,710		$ 197,174	$  187,600
Commercial	254,480	251,092	252,876		247,800	242,372
Industrial	61,146	61,905	64,549		82,009	82,752
Transmission	21,509	18,327	19,453		23,857	26,553
Other	19,951	20,138	19,876		19,956	19,949
Total PNM Electric Revenues	$ 573,976	$ 558,412	$ 560,464		$ 570,796	$  559,226
TNMP Electric Revenues *
Residential	$   57,732	$           -	$            -		$            -	$             -
General Services	18,864	-	-		-	-
Primary/Economy/Transmission	25,815	-	-		-	-
Secondary	29,925	-	-		-	-
Municipal/Lighting	5,311	-	-		-	-
Other	16,703	-	-		-	-
Total TNMP Revenues	$ 154,350	$           -	$            -		$            -	$              -
PNM Gas Revenues
Residential	$ 311,043	$ 292,163	$ 226,799		$ 176,284	$   221,409
Commercial	98,929	92,128	72,269		53,734	65,654
Industrial	3,375	2,889	2,820		2,872	27,519
Transportation	13,813	15,274	18,906		17,735	20,188
Other	84,282	88,467	37,473		26,781	36,495
Total PNM Gas Revenues	$ 511,442	$ 490,921	$ 358,267		$ 277,406	$   371,265
Unregulated Operations
PNM Wholesale Revenues
Long-term contracts	$ 154,692	$ 158,085	$ 135,674		$   58,546	$     77,250
Short-term sales	473,336	430,158	417,486	(a)	285,234	1,244,899
Total PNM Wholesale Revenues	$ 628,028	$ 588,243	$ 553,160		$ 343,780	$1,322,149
First Choice Revenues *
Residential	$ 198,218	$           -	$            -		$            -	$              -
Mass-market	53,111	-	-		-	-
Mid-market	46,584	-	-		-	-
Other	18,417	-	-		-	-
Total First Choice Revenues	$ 316,330	$           -	$            -		$           -	$              -

* TNMP and First Choice are reported from the date of acquisition, June 6, 2005.

(a) Includes intersegment sales of $1,535 in 2003.

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PNM RESOURCES, INC. AND SUBSIDIARIES
COMPARATIVE OPERATING STATISTICS
	2005	2004	2003	2002	2001
Regulated Operations
PNM Electric Customers
Residential	378,116	367,491	358,099	345,588	340,656
Commercial	44,721	43,425	42,391	41,092	40,065
Industrial	281	290	296	311	377
Other	838	818	822	796	924
Total PNM Electric Customers	423,956	412,024	401,608	387,787	382,022
TNMP Electric Customers *
Residential	222,688	-	-	-	-
General Services	6,147	-	-	-	-
Primary/Economy/Transmission	208	-	-	-	-
Secondary	29,038	-	-	-	-
Municipal/Lighting	2,188	-	-	-	-
Total TNMP Customers	260,269	-	-	-	-
PNM Gas Customers
Residential	440,624	430,578	421,104	411,642	404,753
Commercial	35,136	34,993	34,645	35,194	32,894
Industrial	42	47	46	58	50
Transportation	26	23	40	27	34
Other	2,654	2,931	2,983	3,664	3,528
Total PNM Gas Customers	478,482	468,572	458,818	450,585	441,259
Unregulated Operations
PNM Wholesale Customers
Long-term and short-term	76	68	72	76	79
Total PNM Wholesale Customers	76	68	72	76	79
First Choice Customers *
Residential	178,128	-	-	-	-
Mass-market	23,914	-	-	-	-
Mid-market	6,649	-	-	-	-
Other	1,760	-	-	-	-
Total First Choice Customers	210,451	-	-	-	-
PNM Generation Statistics
Reliable Net Capability - MW	1,744	1,729	1,742	1,734	1,521
Coincidental Peak Demand - MW	1,779	1,655	1,661	1,478	1,431
Average Fuel Cost per Million BTU	$ 1.4711	$ 1.3751	$ 1.4120	$ 1.3910	$ 1.6007
BTU per KWh of Net Generation	10,706	10,442	10,854	10,568	10,549

* TNMP and First Choice are reported from the date of acquisition, June 6, 2005.

The customers reported above for TNMP Electric and First Choice include 150,787 customers of TNMP who have chosen First Choice as their REP. These TNMP Electric customers are also included in the First Choice segment.

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following Management’s Discussion and Analysis of Financial Condition and Results of Operation for PNMR, PNM and TNMP is presented both on a combined basis as applicable, and on a separate basis. For discussion purposes, this report will use the term “Company” when discussing matters of common applicability to PNMR, PNM and TNMP. Discussions regarding specific contractual obligations generally reference the entity that is legally obligated. In the case of contractual obligations of PNM and TNMP, these obligations are consolidated with PNMR and its subsidiaries under GAAP. A reference to a “Note” in this Item 7 refers to the accompanying Notes to Consolidated Financial Statements.

RESULTS OF OPERATION - EXECUTIVE SUMMARY

During 2005, the Company's results were impacted by unexpected plant outages and the extension of planned outages, particularly at PVNGS, higher purchased power costs and charges for refinancing and TNP acquisition integration costs. As experienced in its 2005 results, the Company expects that the TNP acquisition will be accretive to earnings in 2006, the first full year of operation after the transaction was completed. This expectation is based on certain assumptions, including assumptions related to interest rates and market prices for power, among other things. In 2005, the market price of natural gas across the United States increased significantly, due to a hot 2005 summer, which led to more demand from natural gas-fired power plants, as well as due to the hurricanes in the Gulf Coast region of the United States. The Company cannot predict what impact the increase in market prices for natural gas will have on its future results of operations.

PNM is a participant in PVNGS, of which APS is the operating agent. During 2005, PVNGS had the lowest capacity factor (measured against maximum dependable capacity) that the plant has had since 1994. The equivalent availability for PVNGS was 76.0% for 2005. This reflects bottom quartile performance relative to the 103 operating reactors in the United States. There were nine unscheduled outages during 2005 that had a variety of causes. In 2004, the NRC determined that there had been a safety concern at PVNGS related to the safety injection systems for the three PVNGS units. This led to a "yellow" finding and a $50,000 civil penalty under the NRC’s reactor oversight process. A "yellow" finding places a unit in the "degraded safety cornerstone" column of the NRC’s performance matrix, which results in an enhanced NRC inspection regimen. During 2005, the NRC completed its enhanced inspection. The "yellow" finding remains unresolved.

PVNGS has encountered tube cracking in the steam generators. The PVNGS Units 2 steam generators were replaced in 2003 and the replacement of PVNGS Unit 1 steam generators was completed in December 2005. Completion of installation of the PVNGS Unit 3 steam generators is expected by December 2007.

APS has been operating PVNGS Unit 1 at reduced power levels since December 25, 2005 due to a vibration in the PVNGS Unit 1 shutdown cooling lines. As a result, PNM is receiving approximately 24 MW of power from PVNGS Unit 1 based on its 10.2% undivided interest in PVNGS.

Implementation of a potential solution preliminarily scheduled by APS for February 2006 was canceled after comprehensive analysis concluded that the desired improvement likely would not have been achieved. APS had informed PNM that it was in the process of formulating other potential remedies to address the issue and that it was scheduling another attempt to remedy this issue sometime in April 2006. APS has more recently informed PNM that the preferred solution will require Unit 1 to undergo an outage of approximately five weeks in order to effect the necessary modifications to Unit 1 and that it plans to begin this outage in the June 2006 timeframe. In addition, an outage of approximately one week for preparatory work will begin in mid-March 2006. This preferred solution was initially planned for installation in the spring of 2007.

The operation of PVNGS not only affects PNM’s ability to make off-system sales, but can also cause PNM to purchase power to serve its retail electric customers. Based on current forward market energy prices, PNM estimates that operation of PVNGS Unit 1 at the reduced power level could result in a reduction in consolidated gross margin, or operating revenues minus cost of energy sold, of $3.0 million to $4.0 million per month before income taxes. However, PNM is taking steps to mitigate the impact on consolidated gross margin while PVNGS Unit 1 operates at the reduced power level.

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The Company is positioned as a merchant utility, primarily operating as a regulated energy service provider. The Company is engaged in the sale and marketing of electricity in the competitive wholesale energy marketplace. In addition, through First Choice, the Company is a retail electric provider in Texas under legislation that established retail competition. PNM is under the jurisdiction of the NMPRC while TNMP operates under the jurisdiction of the PUCT in Texas and the NMPRC in New Mexico.

Regulated Operations

The regulated operations strategy is directed at supplying reasonably priced and reliable energy to retail customers through customer-driven operational excellence, high quality customer service, cost efficient processes and improved overall organizational performance.

PNM Electric

PNM Electric is an integrated electric utility that consists of generation, transmission and distribution of electricity for retail electric customers in New Mexico and the sale of transmission to third parties as well as to PNM Wholesale and TNMP Electric. PNM Electric provides retail electric service to a large area of north central New Mexico, including the cities of Albuquerque and Santa Fe, and certain other areas of New Mexico. Customer rates for retail electric service are set by the NMPRC based on the provisions of the Global Electric Agreement. (See Note 17.) PNM Electric owns or leases transmission lines, interconnected with other utilities in New Mexico, south and east into Texas, west into Arizona, and north into Colorado and Utah.

PNM Gas

PNM Gas distributes natural gas to most of the major communities in New Mexico, including two of New Mexico’s three largest metropolitan areas, Albuquerque and Santa Fe. The customer base for PNM Gas includes both sales-service customers and transportation-service customers. PNM Gas operates under a purchase gas adjustment clause that allows it to purchase natural gas in the open market and resell it at cost to its distribution customers. As a result, increases or decreases in gas revenues resulting from wholesale gas price fluctuations do not impact PNM’s consolidated gross margin or earnings.

TNMP Electric

TNMP Electric is a regulated utility operating in Texas and New Mexico. In Texas, TNMP provides regulated transmission and distribution services under TECA. In New Mexico, TNMP provides integrated electric services that include the transmission, distribution, purchase and sale of electricity to its New Mexico customers as well as transmission to third parties and to PNM. TNMP’s Texas and New Mexico operations are subject to traditional cost of service regulation. PNM Wholesale is TNMP’s sole supplier for its load in New Mexico. In accordance with the NMPRC stipulation approving PNMR’s acquisition of TNP, PNM Wholesale will remain the sole power supplier for TNMP’s New Mexico needs through 2010 (see Note 17).

Unregulated Operations

PNM Wholesale

PNM Wholesale is engaged in the generation and sale of electricity into the wholesale market based on two product lines, long-term contracts (including a contract with TNMP that expires December 31, 2006) and short-term sales. PNM wholesale sells the unused capacity of jurisdictional assets as well as the capacity of PNM’s wholesale plants excluded from retail rates. Both regulated and unregulated generation is jointly dispatched in order to improve reliability, provide the most economic power to retail customers and maximize profits on any wholesale transactions. Although PNM Wholesale is regulated in certain respects, including FERC jurisdiction over its rates, the Company includes PNM Wholesale in the unregulated segment of its business because PNM Wholesale is not subject to traditional rate of return regulation.

The PNM Wholesale strategy utilized by the Company calls for net asset-backed energy sales supported by long-term contracts sold into the wholesale market. PNM Wholesale’s aggregate net open forward electric sales position, including short-term sales and long-term contracts, is covered by its forecasted excess generation capacity. Management actively monitors the net asset-backed sales by the use of stringent risk management policies.

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First Choice

First Choice is a certified retail electric provider operating in Texas that provides electricity to residential, small and large commercial, industrial and institutional customers. First Choice serves Texas retail customers by acquiring new retail customers, by setting up retail accounts, handling customer inquiries and complaints, and acting as a liaison between the transmission and distribution companies and retail customers. First Choice was organized in 2000 to act as TNMP’s affiliated retail electric provider, as required by TECA. Although First Choice is regulated in certain respects by the PUCT under ERCOT, the Company includes First Choice in the unregulated segment of its business because First Choice is not subject to traditional rate of return regulation.

Corporate and Other

PNMR was established as the holding company in 2001. On December 30, 2004, PNMR became a registered holding company under PUHCA and created PNMR Services Company, which began operating on January 1, 2005.

Comprehensive energy legislation enacted in August 2005 resulted in the repeal of PUHCA effective February 2006. PNMR is in the process of evaluating the effects of the repeal, along with the other provisions of the legislation.

PNMR performed substantially all of the corporate activities of PNM from 2001 to 2004. These activities were billed to PNM on a cost basis to the extent they were for the corporate management of PNM and were allocated to the business units. The services functions previously performed by PNMR were assumed by PNMR Services Company effective January 1, 2005.

TNMP provided First Choice and TNP with corporate support services under a shared services agreement with First Choice and a similar agreement with TNP. These services were billed at TNMP’s cost and, in return, TNP and First Choice compensated TNMP for the use of the services. These agreements were in effect through June 6, 2005 when they were replaced by a new service arrangement.

Effective with the acquisition of TNP on June 6, 2005 (see Note 2) all TNMP employees who were providing corporate support to TNP and First Choice became employees of PNMR Services Company. PNMR Services Company provides corporate services to PNMR and its subsidiaries including PNM, Avistar, TNP, TNMP and First Choice based on shared services agreements. These services are billed at cost on a monthly basis and are allocated to PNMR and its subsidiaries.

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto. Trends and contingencies of a material nature are discussed to the extent known. Refer also to Item 1A. "Risk Factors" and to “Disclosure Regarding Forward Looking Statements" in this Item 7.

TNP Acquisition

On June 6, 2005, PNMR acquired all of the outstanding common shares of TNP, including its principal subsidiaries, TNMP and First Choice, in order to complement its existing New Mexico electric operations and to expand into the retail and wholesale markets in Texas. The results of TNP’s operations have been included in the Consolidated Financial Statements of PNMR from that date.

The aggregate purchase price was $1,221 million, including a net payment to the previous owner of $162.0 million consisting of $74.6 million of cash and common stock valued at $87.4 million. The value of the 4,326,337 common shares issued was determined based on $20.20 per common share as provided for in the Stock Purchase Agreement, dated as of July 24, 2004, by and between PNMR and SW Acquisition. In addition, the aggregate purchase price included $1,037 million of TNP debt and preferred stock and incurred transaction and other costs of $21.5 million. During the fourth quarter of 2005, PNMR completed the valuations of acquired property and intangible assets.

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Pursuant to the Stock Purchase Agreement, PNMR provided SW Acquisition its proposed final purchase price, reflecting a reduction from the estimated purchase price of approximately $37.0 million. SW Acquisition filed a lawsuit that disputed PNMR’s proposed final purchase price. In November 2005, the parties reached a settlement of the lawsuit resulting in a reduction of approximately $13.0 million to the original purchase price based on working capital adjustments from the closing of the second-quarter financial statements and stranded cost recovery payments. PNMR received the $13.0 million payment from SW Acquisition in the fourth quarter of 2005. The net cash paid and purchase price stated above reflect this reduction.

In 2005, the PUCT approved a settlement agreement finding the acquisition of TNP to be in the public interest. Among other things, the settlement agreement calls for:

·   a two-year electric rate freeze that includes a $13.0 million annual rate reduction in TNMP's retail delivery rates effective May 1, 2005;

·   an authorized return on equity of 10.25% on an implied capital structure of 60% debt and 40% equity for certain reporting purposes;

·   the use of a 60/40% debt/equity capital structure in TNMP's next base rate case if filed before January 1, 2009; and

·   a $6.0 million synergy savings credit (whether or not savings are achieved) amortized over 24 months effective after the close of the transaction.

Also in 2005, the NMPRC approved a stipulation in connection with the acquisition of TNP. Among other things, the stipulation calls for:

·   a three-phase rate reduction totaling 15%, to TNMP’s electric customers in southern New Mexico, beginning January 2006 and ending December 2010; the rate reduction will lower TNMP electric rates by approximately $9.6 million in the first year;

·   an imputed 55/45% debt/equity structure with an assumed rate of return on equity of 10.5% for TNMP;

·   PNM to remain the power supplier for TNMP’s New Mexico needs through 2010; and

·   integration of TNMP’s New Mexico assets into PNM effective January 1, 2007, the companies, however, will maintain separate rates through 2010.

Proposed Twin Oaks Acquisition

In January 2006, Altura, an indirect wholly owned subsidiary of PNMR, entered into an agreement with subsidiaries of Sempra to purchase the Twin Oaks power facility in an acquisition of assets for $480 million in cash. PNMR and Sempra are also parties to the agreement and have agreed to provide parental guarantees for certain obligations of their respective subsidiaries relating to the acquisition.

The Twin Oaks power facility is a 305 MW coal-fired power plant located 150 miles south of Dallas, Texas. Under the agreement, substantially all of the assets and contractual commitments relating to Twin Oaks are to be transferred to Altura upon closing, including fuel supply and power purchase and sale agreements. The agreement also includes the development rights for a possible 600 MW expansion of the plant. The Sempra subsidiaries are pursuing necessary permits for the plant expansion, which permits are expected to be granted in 2007. An additional $2.5 million payment will be made to Sempra upon the issuance of an air permit for the expansion and an additional $2.5 million will be paid when Altura begins construction of the expansion.

The transaction is expected to close no earlier than April 17, 2006, subject to third-party consents and anti-trust clearance under the Hart-Scott-Rodino Act. PNMR has arranged for bridge financing to close the transaction. It is expected that the permanent financing will be provided from the issuance of debt and equity.

Competitive Strategy

The Company’s vision is to “Build America’s Best Merchant Utility.” To achieve this objective, management intends to:

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   Expand Regulated and Unregulated Operations. The Company intends to develop both its retail and wholesale business by expanding its current operations and by acquiring additional value-enhancing assets. As evidenced by the Luna and TNP acquisitions and the proposed Twin Oaks acquisition, the Company intends to continue to increase its revenues by expanding its geographic coverage in the southwest, a region which not only exhibits rapid customer and load growth, but which the Company knows well. The Company also intends to increase its presence in the southwest market by buying additional generating resources and selling power from those resources through long-term contracts. The Company’s future growth plans call for approximately 75% of its new generation portfolio to be committed through long-term contracts as required by the Global Electric Agreement. In October 2005, PNM entered into a 150 MW long-term sale contract with APS that begins in June 2007. In addition, the Company expects that the acquisition of First Choice as part of the TNP acquisition will provide a solid foundation for entry into the competitive retail market in Texas. In addition, PNMR intends to continue to provide energy and technology related services through its wholly owned subsidiary, Avistar.

Acquire Additional Generating Assets in the Southwest Region. The Company intends to enhance and diversify its presence in the southwest region through the acquisition or development of quality generation assets, including renewable or clean technology resources, to serve the Company’s retail and wholesale load while maintaining diversity of fuel mix. The Company also plans to increase long-term sales contracts in tandem with increases in its generation capacity. In 2004, the Company purchased a one-third interest in Luna, a partially constructed, combined-cycle power plant near Deming, New Mexico. The Company will be entitled to 190 MW from the 570 MW facility, which is expected to be completed no later than the second quarter of 2006. The Company also believes that Luna strategically fits well into its portfolio of generation assets because of the facility’s location in southern New Mexico, its low capital costs, its efficient heat rate, its anticipated low dispatch costs and its use of clean burning gas technology. In addition, the proposed acquisition of the Twin Oaks facility, discussed above, would provide access to wholesale markets in Texas. As in the past, the Company intends to continue a disciplined approach to any acquisition, to match acquisitions to demand and to hedge capacity with long-term contracts.

Maintain Prudent Cost Controls. Management maintains cost control procedures for PNMR and its subsidiaries.

Continue to Improve Credit Strength and Reduce Cost of Capital. A high priority and long-term commitment is to maintain the Company's investment grade rating in any type of regulatory, natural gas or electricity price scenario. The Company believes TNP offers an opportunity to derive additional value through the stronger credit profile of the combined entity. In conjunction with the acquisition of TNP, on June 6, 2005, PNMR made an equity investment of approximately $110.5 million in TNP, which TNP used to repay in full amounts owing under TNP’s credit agreement. In addition, in July 2005, PNMR provided funds to TNP to enable TNP to redeem its preferred stock and senior notes. See “Financing Activities - PNMR” below in “Liquidity and Capital Resources” for further details of this transaction. In addition, PNMR plans to obtain the permanent financing for the proposed acquisition of the Twin Oaks facility from the issuance of debt and equity, structured to maintain the Company's investment grade rating.

Commitment to Corporate Citizenship. The Company is committed to its guiding principle, “Do the Right Thing.” This commitment serves as the cornerstone of the Company's ethics and compliance efforts and underscores its effort to ensure that dealings with customers, employees, shareholders and business partners are above reproach. This is evidenced by the Company's environmental sustainability program with aggressive five-year goals for reducing water usage, improving air quality, reducing waste streams and becoming a leader in the development of renewable energy.

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RESULTS OF OPERATION - PNMR

YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004

PNMR’s net GAAP earnings for the year ended December 31, 2005 were $67.2 million, or $1.00 per diluted share of common stock, compared to $87.7 million or $1.43 per diluted share of common stock in 2004. The decrease in earnings per share was driven primarily by acquisition related and other charges of $36.5 million, net of income taxes, which consisted of the following:

·   TNP acquisition integration costs of $10.1 million;

·   turbine impairment of $9.0 million (see Note 1);

·   charge related to issuance of equity-linked units of $7.3 million (see Note 6);

·   TNP debt refinancing costs of $5.1 million;

·   software write-off of $2.7 million;

·   charge associated with the NMPRC’s approval of the TNP acquisition of $1.4 million; and

·   cumulative effect of adoption of FIN 47 of $0.9 million (see Note 1).

In addition, as discussed above, PNM experienced below normal levels of plant performance due to unexpected plant outages, particularly at PVNGS, which reduced the amount of electricity PNM sold in the wholesale market and forced PNM to purchase power to meet jurisdictional and contractual wholesale needs. In addition, the margin on fixed-price contracts decreased, as increases in purchased power prices that were driven by increasing fuel prices that could not be passed on to customers with fixed sales prices. These decreases to net earnings were partially offset by the addition of TNP operations from June 6 through December 31, 2005.

The following discussion is based on the methodology that management uses for making operating decisions and assessing performance of its various business activities. See Note 3 for additional information regarding these results and the Consolidated Financial Statements.

In addition, adjustments related to EITF Issue 03-11, “Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not Held for Trading Purposes,” are excluded from the PNM Wholesale segment and are instead included in the Corporate and Other segment. This accounting pronouncement requires a net presentation of realized gains and losses for certain non-trading derivatives. Management evaluates PNM Wholesale on a gross presentation basis due to its primarily net-asset-backed marketing strategy and the importance it places on PNM’s ability to repurchase and remarket previously sold capacity. The other segments are not affected by this EITF.

Corporate costs, income taxes and non-operating items are discussed on a consolidated basis for PNMR and are in conformity with the presentation in PNMR’s Consolidated Financial Statements.

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Regulated Operations

PNM Electric

The table below sets forth the operating results for PNM Electric:

	Year Ended
	December 31,
	2005			2004			Variance
				(In thousands)
Operating revenues	$	573,976		$	558,412		$	15,564
Less: Cost of energy		210,169			186,517			23,652
Intersegment energy transfer		(35,829	)		(42,769	)		6,940
Gross margin		399,636			414,664			(15,028	)
Energy production costs		118,633			113,848			4,785
Transmission and distribution O&M		30,462			31,360			(898	)
Customer related expense		19,454			18,190			1,264
Administrative and general		11,001			4,640			6,361
Total non-fuel O&M		179,550			168,038			11,512
Corporate allocation		64,170			69,820			(5,650	)
Depreciation and amortization		69,798			63,050			6,748
Taxes other than income taxes		19,726			20,324			(598	)
Income taxes		13,065			23,141			(10,076	)
Total non-fuel operating expenses		346,309			344,373			1,936
Operating income	$	53,327		$	70,291		$	(16,964	)

The following table shows electric revenues by customer class and average customers:

PNM Electric Revenues

	Year Ended
	December 31,
	2005		2004		Variance
	(In thousands, except customers)
Residential	$	216,890	$	206,950	$	9,940
Commercial		254,480		251,092		3,388
Industrial		61,146		61,905		(759	)
Transmission		21,509		18,327		3,182
Other		19,951		20,138		(187	)
	$	573,976	$	558,412	$	15,564
Average customers		417,986		406,968		11,018

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The following table shows electric sales by customer class:

PNM Electric Sales

	Year Ended
	December 31,
	2005		2004		Variance
	(Megawatt hours)
Residential		2,652,475		2,509,449		143,026
Commercial		3,526,133		3,450,503		75,630
Industrial		1,277,156		1,283,769		(6,613	)
Other		256,202		253,393		2,809
		7,711,966		7,497,114		214,852

Operating revenues increased $15.6 million, or 2.8%, from the prior year. Retail electricity sales increased 2.9%, to 7.7 million MWh in 2005 compared to 7.5 million MWh in 2004. Customer growth was 2.7% year over year and weather-normalized retail electric load growth was 2.5%. Average customer load growth, when normalized for the impact of weather and the leap year in 2004, increased revenues by $14.0 million. Cooling Degree Days for Albuquerque increased approximately 19.6% and Heating Degree Days decreased approximately 4.7%, resulting in a net overall increase in revenues of $3.7 million. In addition, increased transmission revenues, primarily from point-to-point customers, increased revenues $3.2 million. These revenue increases were partially offset by a decrease of $1.3 million attributable to the 2004 leap year, with 2005 including one less day of revenues, and by a decrease of $3.8 million due to the 2.5% electric rate reduction effective September 1, 2005.

The gross margin, or operating revenues minus cost of energy sold and intersegment energy transfer, decreased $15.0 million, or 3.6%, from the prior year due to a reduction in power plant availability resulting from plant outages and a related increase in purchased power requirements to serve load. In addition, an increase in purchased power contract prices on pre-existing contracts reduced the margin earned on fixed-price sales. These decreases were partially offset by the increased revenues associated with retail load growth.

Total non-fuel O&M expenses increased $11.5 million, or 6.9%, over the prior year. Energy production costs increased $4.8 million, or 4.2%, due to higher plant maintenance costs in 2005 compared to 2004. Plant outage costs at PVNGS and Reeves increased costs $2.8 million and $1.4 million, respectively, in 2005. In addition, there were higher general plant maintenance and other costs of $1.0 million compared to 2004. These increases were partially offset by reduced outage costs at Four Corners and SJGS of $0.4 million and $0.3 million, respectively. Transmission and distribution O&M expense decreased $0.9 million, or 2.9%, primarily due to a decrease in maintenance and labor expenses. Customer related expense increased $1.3 million, or 6.9%, primarily due to increased consulting fees related to FERC proceedings. Administrative and general expenses increased $6.4 million over the prior year primarily due to increased incentive compensation, labor and insurance costs of $5.3 million (compensation costs were recorded at the corporate level in 2004 but charged to the business segments in 2005) and increased legal and other outside services costs of $0.6 million for routine business matters.

Depreciation and amortization increased $6.7 million, or 10.7%, primarily due to asset and software additions placed in service in December 2004 and in 2005. PNMR expects depreciation to rise going forward as a result of increased investment in new information technology platforms and other capital spending.

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TNMP Electric

PNMR acquired TNP, the parent of TNMP, on June 6, 2005, and results in this section are presented from the acquisition date forward only. Comparable results from 2004 are not presented. For the year ended December 31, 2005, which includes results from June 6 through December 31, 2005, the TNMP Electric segment increased PNMR revenues by $154.4 million.

The table below sets forth the operating results for TNMP Electric:

For the Period
June 6 - December 31, 2005
(In thousands)
Operating revenues	$	154,350
Less: Cost of energy		58,014
Gross margin		96,336
Transmission and distribution O&M		12,403
Customer related expense		3,111
Administrative and general		415
Total non-fuel O&M		15,929
Corporate allocation		9,386
Depreciation and amortization		17,596
Taxes other than income taxes		14,261
Income taxes		8,442
Total non-fuel operating expenses		65,614
Operating income	$	30,722

The following table shows electric revenues by customer class and average customers:

TNMP Electric Revenues

For the Period
June 6 - December 31, 2005
(In thousands, except customers)
Residential	$	57,732
General Services		18,864
Primary/Economy/Transmission		25,815
Secondary		29,925
Municipal/Lighting		5,311
Other		16,703
	$	154,350
Average customers *		255,335

* Under TECA, customers of TNMP Electric in Texas have the ability to choose First Choice or any other REP to provide energy. However, TNMP Electric delivers energy to customers within its service area regardless of the REP chosen. Therefore, TNMP Electric earns revenue for the delivery of energy to First Choice and First Choice earns revenue on the usage of that energy by its customers. The average customers reported above include 154,252 customers of TNMP Electric who have chosen First Choice as their REP. These TNMP Electric customers are also included below in the First Choice segment. For PNMR consolidated reporting purposes, these customers are included only once in the consolidated customer count.

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The following table shows electric sales by customer class:

TNMP Electric Sales *

For the Period
June 6 - December 31, 2005
(Megawatt hours)
Residential	1,859,020
General Services	144,203
Primary/Economy/Transmission	1,311,208
Secondary	1,174,587
Municipal/Lighting	86,307
	4,575,325

* The MWh reported above include 1,644,675 MWh used by customers of TNMP Electric who have chosen First Choice as their REP. These MWh are also included below in the First Choice segment.

TNMP Electric’s gross margin was $96.3 million for the period June 6 through December 31, 2005. The significant factors that impacted gross margin include increases due to load growth because of warmer than normal weather, a decrease in revenues due to a 9.3% Texas rate reduction, synergy savings effective in May 2005, and lower revenues due to a reduction in operations of a major customer in New Mexico.

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PNM Gas

The table below sets forth the operating results for PNM Gas:

	Year Ended
	December 31,
	2005		2004		Variance
			(In thousands)
Operating revenues	$	511,442	$	490,921	$	20,521
Less: Cost of energy		364,205		343,219		20,986
Gross margin		147,237		147,702		(465	)
Energy production costs		2,444		2,338		106
Transmission and distribution O&M		27,817		28,006		(189	)
Customer related expense		19,616		19,283		333
Administrative and general		3,487		1,648		1,839
Total non-fuel O&M		53,364		51,275		2,089
Corporate allocation		37,028		38,725		(1,697	)
Depreciation and amortization		22,548		18,894		3,654
Taxes other than income taxes		8,010		7,412		598
Income taxes		5,853		8,063		(2,210	)
Total non-fuel operating expenses		126,803		124,369		2,434
Operating income	$	20,434	$	23,333	$	(2,899	)

The following table shows gas revenues by customer and average customers:

PNM Gas Revenues

	Year Ended
	December 31,
	2005		2004		Variance
	(In thousands, except customers)
Residential	$	311,043	$	292,163	$	18,880
Commercial		98,929		92,128		6,801
Industrial		3,375		2,889		486
Transportation*		13,813		15,274		(1,461	)
Other		84,282		88,467		(4,185	)
	$	511,442	$	490,921	$	20,521
Average customers		471,321		461,399		9,922

*Customer-owned gas.

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The following table shows gas throughput by customer class:

PNM Gas Throughput

	Year Ended
	December 31,
	2005		2004		Variance
	(Thousands of decatherms)
Residential		28,119		30,618		(2,499	)
Commercial		10,554		11,639		(1,085	)
Industrial		369		413		(44	)
Transportation*		37,013		43,208		(6,195	)
Other		9,780		13,871		(4,091	)
		85,835		99,749		(13,914	)

*Customer-owned gas.

Operating revenues increased $20.5 million, or 4.2% over the prior year, primarily due to higher natural gas prices in 2005 compared to 2004. PNM Gas purchases natural gas in the open market and resells it at the same price to its sales-service customers. As a result, increases or decreases in gas revenues driven by gas costs do not impact the consolidated gross margin or earnings of PNM Gas. Total gas sales volumes decreased 13.9%, due to a 4.7% decrease in Heating Degree-Days and additional customer conservation resulting from higher natural gas prices. These decreases were partially offset by average customer growth of 2.2%, which increased gas revenues $2.2 million, and an increase of $6.7 million due to a residential cost of service rate increase beginning in April 2004.

The gross margin, or operating revenues minus cost of energy sold, was largely unchanged, decreasing only $0.5 million, or 0.3%, from the prior year. Warmer weather resulted in a $7.9 million decrease to margin and additional customer conservation resulted in reduced usage of $1.4 million. These decreases were offset by the residential cost of service rate increase and the customer growth discussed above.

Total non-fuel O&M expenses increased $2.1 million, or 4.1%, over the prior year. Administrative and general expense increased $1.8 million primarily due to a $1.5 million increase in incentive based compensation, which was recorded at the corporate level in 2004 but charged to the business segments in 2005. Administrative and general expense also increased by $0.9 million due to reduced capitalization of expenses, which increased the costs allocated to administrative and general expense. The increase in administrative and general expense was offset in part by a $0.9 million decrease in workmen’s compensation and insurance.

Depreciation and amortization increased $3.7 million, or 19.3%, primarily due to the addition of $16.0 million in distribution assets, $14.2 million in transmission assets and $18.2 million in software assets. PNMR expects depreciation to continue to rise going forward as a result of increased investment in new information technology platforms and other capital spending.

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Unregulated Operations

PNM Wholesale

The table below sets forth the operating results for PNM Wholesale:

	Year Ended
	December 31,
	2005		2004		2005
			(In thousands)
Operating revenues	$	628,028	$	588,243	$	39,785
Less: Cost of energy		506,935		449,059		57,876
Intersegment energy transfer		35,829		42,769		(6,940	)
Gross margin		85,264		96,415		(11,151	)
Energy production costs		29,614		29,967		(353	)
Transmission and distribution O&M		54		81		(27	)
Customer related expense		879		1,049		(170	)
Administrative and general		6,446		7,255		(809	)
Total non-fuel O&M		36,993		38,352		(1,359	)
Corporate allocation		4,395		4,557		(162	)
Depreciation and amortization		15,669		14,809		860
Taxes other than income taxes		3,439		3,533		(94	)
Income taxes		3,612		8,537		(4,925	)
Total non-fuel operating expenses		64,108		69,788		(5,680	)
Operating income	$	21,156	$	26,627	$	(5,471	)

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The following table shows revenues by customer class:

PNM Wholesale Revenues

	Year Ended
	December 31,
	2005		2004		Variance
	(In thousands)
Long-term contracts	$	154,692	$	158,085	$	(3,393	)
Short-term sales		473,336		430,158		43,178
	$	628,028	$	588,243	$	39,785

The following table shows sales by customer class:

PNM Wholesale Sales

	Year Ended
	December 31,
	2005		2004		Variance
	(Megawatt hours)
Long-term contracts		2,516,907		2,943,372		(426,465	)
Short-term sales		8,069,751		9,057,172		(987,421	)
		10,586,658		12,000,544		(1,413,886	)

Operating revenues increased $39.8 million, or 6.8%, from the prior year. This increase in wholesale electric sales was primarily due to increased short-term sales of $43.2 million, or 10.0%, resulting from a 23.5% increase in average short-term prices in 2005 compared to 2004. In addition, long-term sales increased due to higher prices associated with SO2 credit sales. These increases were partially offset by a decrease in revenues from long-term contracts in 2005 due primarily to the expiration of a customer contract and lower sales volumes resulting from below normal levels of plant performance. PNM Wholesale sold 10.6 million MWh of electricity in 2005 compared to 12.0 million MWh in 2004, a decrease of 11.8%.

The gross margin, or operating revenues minus cost of energy sold and intersegment energy transfer, decreased $11.2 million, or 11.6%, from the prior year. Decreased plant availability and increased retail load decreased the availability of less expensive excess energy for sale in the wholesale market. In addition, higher purchased power contracts prices decreased the margin on fixed-price sales contracts. The long-term sales margin was relatively unchanged from the prior year due to the impacts of customer load growth and higher prices associated with SO2 credit sales that were offset by a decrease in sales volume due to the expiration of a long-term contract and increased purchased power contract prices that could not be passed through to customers based on fixed-price sales contracts. The short-term margin decreased $11.5 million primarily resulting from lower plant availability and increased retail loads, which caused a decrease in energy available to sell on the wholesale market. PNM Wholesale's mark-to-market position fell to a $0.2 million loss in 2005 from a $1.6 million gain in 2004.

Total non-fuel O&M expense decreased $1.4 million, or 3.5%, from the prior year. Administrative and general expense decreased $0.8 million, or 11.2%, due primarily to the capitalization of expenses from administrative and general activities related to the construction of Luna.

Depreciation and amortization increased $0.9 million, or 5.8%, over the prior year due to the addition of new technology platforms that were placed in service in December 2004 and in 2005. PNMR expects depreciation to rise going forward as a result of increased investment in new information technology platforms and other capital spending.

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First Choice

PNMR acquired TNP on June 6, 2005, and results in this section are presented from the acquisition date forward only. For the year ended December 31, 2005, which includes results from June 6 through December 31, 2005, the First Choice segment increased PNMR revenues by $316.3 million.

The table below sets forth the operating results for First Choice:

For the Period
June 6 - December 31, 2005
(In thousands)
Operating revenues	$	316,330
Less: Cost of energy		243,053
Gross margin		73,277
Customer related expense		2,539
Administrative and general		13,008
Total non-fuel O&M		15,547
Corporate allocation		8,434
Depreciation and amortization		1,094
Taxes other than income taxes		3,916
Income taxes		15,450
Total non-fuel operating expenses		44,441
Operating income	$	28,836

The following table shows electric revenues by customer class and average customers:

First Choice Electric Revenues

For the Period
June 6 - December 31, 2005
(In thousands, except customers)
Residential	$	198,218
Mass-market		53,111
Mid-market		46,584
Other		18,417
	$	316,330
Average customers *		209,464

The following table shows electric sales by customer class:

First Choice Electric Sales *

For the Period
June 6 - December 31, 2005
(Megawatt hours)
Residential	1,591,005
Mass-market	400,839
Mid-market	478,531
Other	29,780
	2,500,155

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

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First Choice’s gross margin was $73.3 million for the period June 6 through December 31, 2005. The significant factors that impacted gross margin include revenues of $9.4 million due to an increase in the price-to-beat fuel factor in October 2005, higher purchased power costs, that were lessened by gas hedges, gains of $4.2 million from the amortization of purchase power and power sale contracts (see Note 2), and gains of $4.2 million from a capacity auction.

In Texas, capacity auctions were a semi-regular event mandated by the TECA to promote liquidity in the marketplace. In the most recent auctions, First Choice was the successful bidder for four 25 MW baseload blocks of capacity in October 2005 and two 25 MW cyclic blocks of capacity in September 2005.

Corporate and Other

Corporate Administrative and General Expenses

Corporate administrative and general expenses, which represent costs that are driven primarily by corporate-level activities, are allocated to the business segments and are presented in the corporate allocation line item in the segment statements. These costs increased $10.5 million, or 9.3%, from the prior year to $123.6 million. The increase was primarily due to charges in 2005 related to the TNP acquisition of $19.3 million and increased audit and costs related to the cost of compliance with the Sarbanes-Oxley Act of $3.1 million. These increases were offset in part by a decrease of $14.2 million for incentive based compensation at the corporate level, which were recorded at the corporate level in 2004 but charged to the business segments in 2005.

PNMR Consolidated

Other Income and Deductions

Interest income increased $4.8 million, or 12.7%, due primarily to interest income of $2.5 million earned from the investment of TNP's cash balance, which PNMR did not have in the prior year, interest income of $1.9 million earned from the investment of cash received from PNMR’s issuance of equity-linked units, and $1.4 million of interest income earned from higher cash balances from the PGAC caused by increasing gas prices. The increase in interest income was partially offset by lower interest income of $2.0 million due to a lower level of investment in the Palo Verde capital trust.

Other income increased $7.6 million, or 75.3%, due to a realized gain of $4.1 million on the sale of certain PVNGS decommissioning trust assets, a $2.1 million increase in trust earnings in excess of the required amount and a $2.2 million increase in merchandising revenues, primarily from emergency assistance services to other utilities (offset by the related expenses in other deductions below). The increase in other income was offset in part by a $0.8 million decrease from the sale of water rights in 2004 that did not reoccur in 2005.

Carrying charges on regulatory assets were $4.4 million from June 6 through December 31, 2005. This represents interest income on TNMP regulatory assets from the date of acquisition.

Other deductions increased approximately $16.0 million due primarily to an $11.3 million charge related to the issuance of equity-linked units (see Note 6). In addition, other deductions increased due to a $2.5 million contribution by PNMR to the PNM Resources Foundation and a $2.4 million increase in expenses related to emergency assistance services to other utilities (offset by the related revenues in other income above).

Interest Charges

Interest charges increased $42.3 million, or 82.3%, primarily due to $16.8 million of interest charges related to debt from the TNP operations, which PNMR did not have in the prior year, interest and refinancing costs of $10.8 million related to the hybrid income term securities issued in March and October of 2005 and $8.1 million of interest charges related to increased commercial paper borrowings.

A-51

Cumulative Effect of a Change in Accounting Principle

Effective January 1, 2005, PNMR adopted FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”), and recognized a cumulative effect of a change in accounting principle that decreased 2005 earnings $0.9 million, net of the income tax benefit, or $0.01 per diluted common share. The $0.9 million decrease to 2005 earnings is net of amounts expensed in prior years for cost of removal included in depreciation. FIN 47 requires the accrual of costs associated with conditional retirement obligations.

Income Taxes

PNMR’s consolidated income tax expense was $32.9 million for the year ended December 31, 2005 before the cumulative effect of a change in accounting principle, compared to $49.2 million in 2004. The decrease in consolidated income tax expense was due to the impact of lower pre-tax earnings. PNMR’s effective operating income tax rates for the years ended December 31, 2005 and 2004 were 30.80% and 36.95%, respectively. The decrease in the effective operating tax rate, year-over-year, was due to lower pre-tax earnings and changes in permanent tax differences. PNMR’s effective non-operating income tax rates for the years ended December 31, 2005 and 2004 were 32.92% and 33.03%, respectively.

A-52

RESULTS OF OPERATION - PNM

YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004

PNM’s segments are PNM Electric, PNM Gas and PNM Wholesale and are identical to the segments presented above in “Results of Operation” for PNMR.

Cumulative Effect of a Change in Accounting Principle

In 2005, PNM adopted FIN 47 and recognized a cumulative effect of a change in accounting principle that decreased 2005 earnings $0.5 million, net of the income tax benefit. The $0.5 million decrease to 2005 earnings is net of amounts expensed in prior years for cost of removal included in depreciation. FIN 47 requires the accrual of costs associated with conditional retirement obligations.

A-53

RESULTS OF OPERATION - TNMP

YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004

TNMP operates in only one reportable segment, “TNMP Electric.” Results for the year ended December 31, 2005 include the effects of purchase accounting on June 6, 2005, which are not included in the year ended December 31, 2004. Amounts for the period June 6 through December 31, 2005 are post-acquisition and amounts for the period January 1 through June 6, 2005 and the year ended December 31, 2004 are pre-acquisition. (See Note 2.)

Operating revenues decreased $2.5 million, or 0.9%, from the prior year. Gross margin for the year ended December 31, 2005 decreased $3.0 million, or 1.8%, compared with the year ended December 31, 2004. The decrease was primarily due to a $10.5 million decrease in revenues due to a rate reduction effective May 1, 2005 that was part of the PUCT’s approval of the TNP acquisition and $0.9 million decrease in margin due to the reduced operations of a major customer. Partially offsetting the decrease in operating revenues were an increase in revenues of $6.1 million due to customer growth and an increase in revenues of $1.8 million resulting from warm weather.

Total non-fuel operating expenses increased $0.3 million, or 0.2%, due primarily to a decrease in non-fuel O&M of $0.6 million offset by an increase of $0.9 million in depreciation and amortization expense.

Administrative and general expenses decreased $2.8 million primarily due to decreased legal, environmental and regulatory expenses of $4.4 million. The decrease in administrative and general expense was partially offset by increased expenses of $1.5 million related to synergy credits passed to customers.

Transmission and distribution O&M increased $2.2 million primarily due to $0.6 million in increased expenses for the preparation and restoration efforts related to hurricane Rita, $0.9 million related to the maintenance of overhead lines in 2005, and increased payroll expenses of $0.6 million.

Depreciation expenses increased as a result of additions to fixed assets.

Cumulative Effect of a Change in Accounting Principle

In 2005, TNMP adopted FIN 47 and recognized a cumulative effect of a change in accounting principle that decreased 2005 earnings $0.4 million, net of the income tax benefit. The $0.4 million decrease to 2005 earnings is net of amounts expensed in prior years for cost of removal included in depreciation. FIN 47 requires the accrual of costs associated with conditional retirement obligations.

A-54

RESULTS OF OPERATION - PNMR

YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003

The Company’s net GAAP earnings for the year ended December 31, 2004 were $87.7 million, or $1.43 per diluted share of common stock, a 7.8% decrease in net earnings compared to $95.2 million, or $1.58 per diluted share of common stock, in 2003. This decrease primarily resulted from items that occurred in 2003 that did not recur in 2004. In 2003, the Company recognized $36.6 million, net of income taxes, as an addition to net income for the cumulative effect of changes in accounting principles for the adoption of SFAS No. 143, ”Accounting for Asset Retirement Obligations” (”SFAS 143”) and the change in the pension actuarial valuation measurement date ($0.61 per diluted share of common stock). This increase to 2003 income was partially offset by the write-off of transition costs of $9.5 million, net of income taxes, or $0.16 per diluted share of common stock, that resulted from the repeal of electric deregulation in New Mexico in 2003, and a charge of $10.0 million, net of income taxes, or $0.17 per diluted share of common stock, for costs related to long-term debt refinancing.

The following discussion is based on the methodology that the Company’s management uses for making operating decisions and assessing performance of its various business activities. As such, these statements report operating results without regard to the effect of accounting or regulatory changes, and similar items not related to normal operations. See Note 3 for additional information regarding these results and the Consolidated Financial Statements.

In addition, adjustments related to EITF Issue 03-11 are excluded from the PNM Wholesale segment and are instead included in the Corporate and Other segment. This accounting pronouncement requires a net presentation of realized gains and losses for certain non-trading derivatives. Management evaluates PNM Wholesale on a gross presentation basis due to its primarily net-asset-backed marketing strategy and the importance it places on PNM’s ability to repurchase and remarket previously sold capacity. The other segments are not affected by this EITF.

Corporate costs, income taxes and non-operating items are discussed only on a consolidated basis and are in conformity with the presentation in the Consolidated Financial Statements.

A-55

Regulated Operations

PNM Electric

The table below sets forth the operating results for PNM Electric:

	Year Ended
	December 31,
	2004			2003			Variance
				(In thousands)
Operating revenues	$	558,412		$	560,464		$	(2,052	)
Less: Cost of energy		186,517			177,767			8,750
Intersegment energy transfer		(42,769	)		(34,760	)		(8,009	)
Gross margin		414,664			417,457			(2,793	)
Energy production costs		113,848			108,734			5,114
Transmission and distribution O&M		31,360			31,596			(236	)
Customer related expense		18,190			15,543			2,647
Administrative and general		4,640			6,972			(2,332	)
Total non-fuel O&M		168,038			162,845			5,193
Corporate allocation		69,820			69,269			551
Depreciation and amortization		63,050			73,532			(10,482	)
Taxes other than income taxes		20,324			20,520			(196	)
Income taxes		23,141			23,750			(609	)
Total non-fuel operating expenses		344,373			349,916			(5,543	)
Operating income	$	70,291		$	67,541		$	2,750

The following table shows electric revenues by customer class and average customers:

PNM Electric Revenues

	Year Ended
	December 31,
	2004		2003		Variance
	(In thousands, except customers)
Residential	$	206,950	$	203,710	$	3,240
Commercial		251,092		252,876		(1,784	)
Industrial		61,905		64,549		(2,644	)
Transmission		18,327		19,453		(1,126	)
Other		20,138		19,876		262
	$	558,412	$	560,464	$	(2,052	)
Average customers		406,968		396,303		10,665

A-56

The following table shows electric sales by customer class:

PNM Electric Sales

	Year Ended
	December 31,
	2004		2003		Variance
	(Megawatt hours)
Residential		2,509,449		2,405,488		103,961
Commercial		3,450,503		3,379,147		71,356
Industrial		1,283,769		1,292,711		(8,942	)
Other		253,393		247,255		6,138
		7,497,114		7,324,601		172,513

Operating revenues decreased $2.1 million, or 0.4%, from the prior year. The decrease in revenues was primarily due to an electric rate reduction under the Global Electric Agreement. The rate reduction decreased 2004 revenues by $16.7 million. Under the agreement, rates will decrease again by 2.5% in September 2005 and remain at that level through 2007. PNM Electric sales grew 2.4%, to 7.5 million MWh in 2004 compared to 7.3 million MWh in 2003. Weather-normalized retail electric load growth was 3.3% in 2004. This volume increase was due to customer growth, which increased revenues by $21.2 million. This volume increase was offset slightly by warmer summer weather in 2003 compared to 2004. Cooling Degree Days for Albuquerque declined 22% to 1,304 during the year ended December 31, 2004 compared to 1,671 during the year ended December 31, 2003.

The gross margin, or operating revenues minus cost of energy sold and intersegment energy transfer, decreased $2.8 million, or 0.7%, from the prior year. Generation costs decreased by $3.5 million driven by lower fuel costs at SJGS, while purchased power costs increased $5.4 million due to higher prices. In addition, costs of $5.9 million related to the amortization of certain coal mine reclamation costs as agreed to in the current electric rate agreement were incurred during 2004, an increase of $4.0 million compared to 2003. These costs are amortized over 17 years.

Total non-fuel O&M expenses increased $5.2 million, or 3.2%, over the prior year. Energy production costs increased $5.1 million, or 4.7%, primarily due to increased plant maintenance costs of $4.3 million for planned and unplanned outages in 2004. Transmission and distribution O&M expense decreased $0.2 million, or 0.8%, primarily due to a decrease in operating lease costs of $1.1 million for a transmission line, a portion of which was purchased in April 2003 and decreased maintenance costs of $0.3 million in 2004, which were mostly offset by increased labor and outside services costs. Customer-related expense increased $2.6 million, or 17.0%, as a result of favorable collection outcomes in 2003. Administrative and general expense decreased $2.3 million, or 33.5%, due to lower expenses for paid-time-off and insurance, regulatory commission expense and outside service costs.

Depreciation and amortization decreased $10.5 million, or 14.3%. This reduction was primarily attributable to a decrease in depreciation rates to align depreciation expenses with NMPRC approved rates based on a new five-year depreciation study, which decreased depreciation expense by $8.2 million year over year. Additionally, depreciation decreased $3.0 million due to the Company’s billing system being fully depreciated at the end of 2003. The Company expects to see depreciation rise going forward as a result of increased investment in new information technology platforms.

A-57

PNM Gas

The table below sets forth the operating results for PNM Gas:

	Year Ended
	December 31,
	2004		2003			Variance
	(In thousands)
Operating revenues	$	490,921	$	358,267		$	132,654
Less: Cost of energy		343,219		228,345			114,874
Gross margin		147,702		129,922			17,780
Energy production costs		2,338		1,930			408
Transmission and distribution O&M		28,006		29,515			(1,509	)
Customer related expense		19,283		16,832			2,451
Administrative and general		1,648		2,040			(392	)
Total non-fuel O&M		51,275		50,317			958
Corporate allocation		38,725		39,543			(818	)
Depreciation and amortization		18,894		22,186			(3,292	)
Taxes other than income taxes		7,412		6,886			526
Income taxes		8,063		(956	)		9,019
Total non-fuel operating expenses		124,369		117,976			6,393
Operating income	$	23,333	$	11,946		$	11,387

The following table shows gas revenues by customer and average customers:

PNM Gas Revenues

	Year Ended
	December 31,
	2004		2003		Variance
	(In thousands, except customers)
Residential	$	292,163	$	226,799	$	65,364
Commercial		92,128		72,269		19,859
Industrial		2,889		2,820		69
Transportation*		15,274		18,906		(3,632	)
Other		88,467		37,473		50,994
	$	490,921	$	358,267	$	132,654
Average customers		461,399		452,328		9,071

*Customer-owned gas.

A-58

The following table shows gas throughput by customer class:

PNM Gas Throughput

	Year Ended
	December 31,
	2004		2003		Variance
	(Thousands of decatherms)
Residential		30,618		27,416		3,202
Commercial		11,639		10,810		829
Industrial		413		485		(72	)
Transportation*		43,208		50,756		(7,548	)
Other		13,871		5,510		8,361
		99,749		94,977		4,772

*Customer-owned gas.

Operating revenues increased $132.7 million, or 37.0%, over the prior year primarily because of higher natural gas prices in 2004 as compared to 2003 and the rate increase discussed below. The Company purchases natural gas in the open market and resells it at the same price to its sales-service customers. As a result, increases or decreases in gas revenues driven by gas costs do not impact the Company’s consolidated gross margin or earnings. In 2004, off-system sales revenues increased $47.7 million due to the revision of an interstate transportation contract and improved conditions in the gas market. Total gas sales volumes increased 5.0%, resulting from off-system sales and customer growth of 2.0%; customer growth increased revenues $2.7 million over the prior year. A normal early winter season compared to a warmer 2003 increased revenues $3.0 million. In addition, revenues grew $11.4 million due to a cost of service rate increase granted by the NMPRC in January 2004. The rate increase is expected to increase gas revenues by approximately $22.0 million annually; however, implementation of the residential increase was delayed until April 2004. The increase in operating revenues was partially offset by a decrease in off-system transportation of $5.4 million due to lower price differences between the San Juan and Permian basins.

The gross margin, or operating revenues minus cost of energy sold, increased $17.8 million, or 13.7%, over the prior year. This increase was due mainly to customer growth, a normal winter heating season during the first quarter 2004 compared to the first quarter of 2003, and the NMPRC-approved rate increase, partially offset by the decrease in off-system transportation sales described above.

Total non-fuel O&M expenses increased $1.0 million, or 1.9%, over the prior year. Customer-related expense increased $2.5 million, or 14.6%, primarily due to an improvement in collection rates in 2003 that was maintained in 2004. Transmission and distribution O&M expense decreased $1.5 million primarily due to a reduction in payroll costs from a Company reorganization. Administrative and general expense decreased $0.4 million due primarily to a $1.3 million decrease in paid-time-off expense, offset in part by increased insurance expense of $0.5 million and increased capital activity in 2004.

Depreciation and amortization decreased $3.3 million, or 14.8%, primarily due to the Company’s customer billing system being fully depreciated at the end of 2003. The Company expects to see depreciation rise going forward as a result of increased investment in new information technology platforms and other capital spending.

A-59

Unregulated Operations

PNM Wholesale

The table below sets forth the operating results for PNM Wholesale:

	Year Ended
	December 31,
	2004		2003		Variance
	(In thousands)
Operating revenues
External sales	$	588,243	$	551,625	$	36,618
Intersegment sales		-		1,535		(1,535	)
Total revenues		588,243		553,160		35,083
Less: Cost of energy		449,059		413,089		35,970
Intersegment energy transfer		42,769		34,760		8,009
Gross margin		96,415		105,311		(8,896	)
Energy production costs		29,967		29,919		48
Transmission and distribution O&M		81		59		22
Customer related expense		1,049		711		338
Administrative and general		7,255		8,390		(1,135	)
Total non-fuel O&M		38,352		39,079		(727	)
Corporate allocation		4,557		2,586		1,971
Depreciation and amortization		14,809		14,230		579
Taxes other than income taxes		3,533		3,263		270
Income taxes		8,537		12,111		(3,574	)
Total non-fuel operating expenses		69,788		71,269		(1,481	)
Operating income	$	26,627	$	34,042	$	(7,415	)

A-60

The following table shows revenues by customer class:

PNM Wholesale Revenues

	Year Ended
	December 31,
	2004		2003		Variance
	(In thousands)
Long-term contracts	$	158,085	$	135,674	$	22,411
Short-term sales		430,158		415,951		14,207
Intersegment sales		-		1,535		(1,535	)
	$	588,243	$	553,160	$	35,083

The following table shows sales by customer class:

PNM Wholesale Sales

	Year Ended
	December 31,
	2004		2003		Variance
	(Megawatt hours)
Long-term contracts		2,943,372		2,469,707		473,665
Short-term sales		9,057,172		9,432,297		(375,125	)
		12,000,544		11,902,004		98,540

Operating revenues increased $35.1 million or 6.3% over the prior year. This increase in wholesale electric sales primarily reflects additional long-term contract sales and wholesale electric price improvements in short-term prices. New long-term contracts added 437,446 MWhs, or $21.0 million in revenues, slightly offset by a decrease in certain existing contract sales prices of $3.3 million due largely to a price reduction for sales to Kirtland Air Force Base. These contracts support the Company’s long-term growth plans and net asset-backed strategy. In addition, the Company’s short-term sales increased $14.2 million, or 3.4%, compared to the prior year period, partially due to an increase in average short-term prices. Short-term sales volume decreased 4.0% due to less favorable energy purchase-to-sale market spreads between PVNGS and the Mead market hub.

The gross margin, or operating revenues minus cost of energy sold and intersegment energy transfer, decreased $8.9 million, or 8.4%, from the prior year. Short-term sales margin decreased $15.6 million primarily due to the effect of higher purchase costs and less available excess energy resulting from increased electric retail load growth and unplanned outages on certain of the Company’s generation facilities, partially offset by higher sales volumes and higher market prices. Average short-term market purchase prices increased 10.7% over the prior year while average short-term market sale prices increased 4.4% over the prior year. The Company had an unfavorable change in the unrealized mark-to-market position of $1.7 million from the prior year ($1.8 million gain in 2004 versus $3.5 million gain in 2003), reflecting depressed pricing caused by cooler weather. Long-term contracts margin increased $6.8 million due to additional long-term sales under new and existing contracts. In addition, the long-term margin increase included $6.1 million from sales of pollution credits.

Total non-fuel O&M decreased $0.7 million, or 1.9%, from the prior year. Administrative and general decreased $1.1 million, or 13.5%, due to transportation costs of $1.0 million recognized in 2003 for turbines that were placed in storage, which did not recur in 2004.

Corporate and Other

Corporate Administrative and General Expenses

Corporate administrative and general expenses, which represent costs that are driven primarily by corporate-level activities, is allocated to the business segments and is presented in the corporate allocation line item in the segment statements. These costs increased $1.7 million, or 1.5%, from the prior year to $113.1 million, primarily due to a net increase in compensation and benefit costs.

A-61

Taxes other than income increased $2.7 million due to the 2003 favorable resolution of tax issues of $2.4 million and increased social security taxes due to overall higher payroll costs.

PNMR Consolidated

Other Income and Deductions

Other income decreased $4.6 million, or 8.8%, from the prior year due to decreased tax credits of $2.4 million, and a decrease in the equity component of allowance for funds used during construction of $1.3 million. Additionally, other income decreased due to favorable 2003 customer settlements of $0.8 million, which did not recur in 2004.

Other deductions decreased $38.0 million from the prior year primarily due to a charge of $16.7 million in 2003 for the write-off of transition costs due to the repeal of deregulation in New Mexico and a charge of $16.6 million in 2003 for costs related to long-term debt refinancing.

Interest Expense

Interest expense decreased $14.8 million, or 22.4%, over the prior year due to debt refinancing, including senior unsecured notes and pollution control bonds, and lower short-term debt balances, which decreased interest costs $10.1 million. Additionally, the Company had lower borrowing levels in 2004, which reduced interest expense by $2.6 million, and a favorable interest rate swap which further reduced interest expense by $2.1 million.

Income Taxes

PNMR’s consolidated income tax expense was $49.2 million for the year ended December 31, 2004, compared to $27.9 million in 2003 before the cumulative effect of a change in accounting principles. The increase was due to the impact of higher pre-tax earnings. PNMR’s effective operating income tax rates for the years ended December 31, 2004 and 2003 were 36.95% and 34.88%, respectively. The increase in the effective operating tax rate was due to a decrease in permanent tax differences, resulting from tax credits in 2003. PNMR’s effective non-operating income tax rates for the years ended December 31, 2004 and 2003 were 33.03% and (2.79)%, respectively. The increase in the effective tax rate was due to a decrease in permanent tax differences, resulting from allowance for funds used during construction and tax credits in 2003.

Cumulative Effect of Changes in Accounting Principles

In 2003, the Company adopted SFAS 143. The effect of the initial application of the new standard is reported as a cumulative effect of a change in accounting principle. As a result, PNMR recorded income, net of income tax expense, of approximately $37.4 million, or $0.62 per diluted common share, representing amounts expensed in prior years for its asset retirement obligations in excess of the actual legal obligations as established under the new accounting standard.

In 2003, the Company changed its valuation date for its pension and post retirement benefits plans from September 30 to December 31 to better reflect the actual plan balances as of the PNMR’s year end balance sheet date. The effect of the change in the plans’ valuation date is reported as a cumulative effect of a change in accounting principle. PNMR recorded additional expense, net of income tax benefit, of approximately $0.8 million, or $0.01 per diluted common share reflecting the effect of changing the valuation date.

A-62

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with GAAP requires Company management to select and apply accounting policies that best provide the framework to report the results of operations and financial position for PNMR, PNM and TNMP. The selection and application of those policies requires management to make difficult subjective or complex judgments concerning reported amounts of revenue and expenses during the reporting period and the reported amounts of assets and liabilities at the date of the financial statements. As a result, there exists the likelihood that materially different amounts would be reported under different conditions or using different assumptions. Company management has identified the following accounting policies that it deems critical to the portrayal of the financial condition and results of operations of PNMR, PNM and TNMP and that involve significant subjectivity. Company management believes that its selection and application of these policies best represent the operating results and financial position of PNMR, PNM and TNMP. The following discussion provides information on the processes utilized by Company management in making judgments and assumptions as they apply to its critical accounting policies.

Revenue Recognition

Operating revenues are recorded as services are rendered to customers. Revenues subject to refund are recorded with a reserve also established for the potential refund. The Company’s subsidiaries record unbilled revenues representing management's assessment of the estimated amount customers will be billed for services rendered between the meter-reading dates in a particular month and the end of that month. Company management estimates unbilled revenues based on sales recorded in the billing system, taking into account weather impacts. The method is consistent with the approach to normalization employed for rate case billing determinants and the load forecast. To the extent the estimated amount differs from the amount subsequently billed, revenues will be affected. Unbilled revenues are separately reported on the Consolidated Balance Sheets of PNMR, PNM and TNMP.

Regulatory Assets and Liabilities

The Company is subject to the provisions of SFAS No. 71, as amended, “Accounting for the Effects of Certain Types of Regulation” (”SFAS 71”). Accordingly, the Company’s utility subsidiaries, PNM and TNMP, have recorded assets and liabilities on the Consolidated Balance Sheets resulting from the effects of the ratemaking process, which would not be recorded under GAAP for non-regulated entities. Regulatory assets represent incurred costs that have been deferred because they are probable of future recovery in customer rates. Regulatory liabilities generally represent probable future reductions in revenue or refunds to customers. The Company’s continued ability to meet the criteria for application of SFAS 71 may be affected in the future by competitive forces and restructuring in the electric industry. In the event that SFAS 71 no longer applied to all, or a separable portion, of Company’s operations, the related regulatory assets and liabilities would be written off unless an appropriate regulatory recovery mechanism is provided.

Until its next rate case, PNM’s electric rates are fixed; therefore, the opportunity to recover increased costs and the costs of new investment in facilities through rates is limited through 2007 due to the rate-freeze. As a result, PNM defers certain costs based on its expectation that it will recover these costs in future rate cases. If future recovery of these costs ceases to be probable, PNM would be required to record a charge in current period earnings for the portion of the costs that were not recoverable.

Asset Impairment

Tangible long-lived assets are evaluated in relation to the future undiscounted cash flows to assess recoverability in accordance with SFAS 144 when events and circumstances indicate that the assets might be impaired. These potential impairment indicators include Company management's assessment of fluctuating market conditions as a result of industry deregulation; planned and scheduled customer purchase commitments; future market penetration; fluctuating market prices resulting from factors including changing fuel costs and other economic conditions; weather patterns; and other market trends. The amount of impairment recognized is the difference between the fair value of the asset and the carrying value of the asset.

A-63

PNM has three turbines currently in storage, with a combined book value of approximately $64.7 million at December 31, 2005. PNM believes that it will be able to place two of the turbines in service and recover the costs of these two turbines in rates. As previously reported, PNM had planned to convert Afton from a combustion turbine to a combined-cycle unit using another turbine in storage. As part of negotiations that will allow PNM to convert Afton to a combined cycle plant and include it as a jurisdictional resource, Company management found that an alternative equipment configuration will be used and this turbine will not be used. In the fourth quarter of 2005, Company management determined that it would make the turbine available for sale. Based on its market survey, PNM recorded an impairment charge of $15.0 million for the year ended December 31, 2005. The impairment charge is recorded in the Corporate and Other segment.

Goodwill and Other Intangible Assets

In accordance with SFAS No. 141, as amended, “Business Combinations” (“SFAS 141”), the Company has revalued the assets and liabilities acquired as part of the acquisition of TNP at their respective fair values. Under the provisions of SFAS 142, the Company does not amortize goodwill. Certain intangible assets are amortized over their estimated useful lives. Goodwill and unamortized intangible assets are evaluated for impairment at least annually, or more frequently if events and circumstances indicate that the goodwill and intangible assets might be impaired. Amortized other intangible assets are evaluated for impairment in accordance with SFAS 144 when events and circumstances indicate that the assets might be impaired.

Purchase Accounting

The acquisition of TNP was accounted for using the purchase method of accounting as prescribed in SFAS 141; accordingly, purchase accounting adjustments have been reflected in the financial statements of TNP for all periods subsequent to June 6, 2005. The purchase accounting entries are reflected on PNMR’s financial statements as of the purchase date. PNMR “pushed down” the effects of purchase accounting to the financial statements of TNMP and First Choice. Accordingly, TNMP’s post-acquisition financial statements reflect a new basis of accounting. TNP’s largest subsidiary, TNMP, is a regulated utility; therefore, in accordance with SFAS 71, the fair value of the majority of the assets and liabilities did not change significantly. The business operations of TNP were not significantly changed as a result of the acquisition, and post-acquisition and pre-acquisition operating results, except as noted in the discussion, are comparable.

Decommissioning Costs

Accounting for decommissioning costs for nuclear and fossil-fuel generation involves significant estimates related to costs to be incurred many years in the future after plant closure. Changes in these estimates could significantly impact PNMR’s and PNM’s financial position, results of operations and cash flows. PNM owns and leases nuclear and fossil-fuel generation facilities that are within and outside of its retail service areas. In accordance with SFAS 143, PNM is only required to recognize and measure decommissioning liabilities for tangible long-lived assets for which a legal obligation exists (see Note 15). Adoption of SFAS 143 changed the method of accounting for both nuclear generation decommissioning and fossil-fuel generation decommissioning. Nuclear decommissioning costs are based on site-specific estimates of the costs for removing all radioactive and other structures at the site. PVNGS Unit 3 is excluded from PNM’s retail rates while PVNGS Units 1 and 2 are included. PNM collects a provision for ultimate decommissioning of PVNGS Units 1 and 2 in its rates and recognizes a corresponding expense and liability for these amounts. PNM believes that it will continue to be able to collect in rates for its legal asset retirement obligations for nuclear generation activities included in the ratemaking process.

Financial Instruments

The Company follows the provisions set forth under SFAS 133, as amended. SFAS 133 establishes accounting and reporting standards requiring derivative instruments to be recorded in the balance sheet as either an asset or liability measured at their fair value. SFAS 133 also requires that changes in the derivatives’ fair value be recognized currently in earnings unless specific hedge accounting or normal purchase and sale criteria are met. Special accounting for qualifying hedges allows derivative gains and losses to offset related results on the hedged item in the statement of earnings, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS 133 provides that the effective portion of the gain or loss on a derivative instrument designated and qualifying as a cash flow hedging instrument be reported as a

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component of other comprehensive income and be reclassified into earnings in the period during which the hedged forecasted transaction affects earnings. The results of hedge ineffectiveness and the change in fair value of a derivative that an entity has chosen to exclude from hedge effectiveness are required to be presented in current earnings.

Pension and Other Postretirement Benefits

PNMR and its subsidiaries maintain a qualified defined benefit pension, a plan providing medical and dental benefits to eligible retirees, and an executive retirement program (“PNM Plans”). PNMR maintains the legal obligation for the benefits owed to participants under these plans. TNMP also maintains a qualified defined benefit pension plan covering substantially all of its employees, a plan providing medical and death benefits to eligible retirees and an executive retirement program (“TNMP Plans”). The actuarial estimates of retiree benefits and the associated significant weighted-average assumptions for these plans are discussed in Note 12.

One of the most significant assumptions is the return on assets assumption, which was 9.0% for the PNM pension plan for the year ending December 31, 2005 and 7.8% for the TNMP pension plan from January 1 though June 6 and 9.0% from June 6 through December 31, 2005. This assumption will be 9.0% for both the PNM and TNMP pension plans for 2006. In developing the expected long-term rate of return assumption, the Company evaluated input from its actuaries and its investment consultant, including their review of asset class return expectations as well as long-term inflation assumptions. The 9.0% assumption was based on a passive return of 8.7% and a premium for active management of 0.3% reflecting the target asset allocation and current investment array. If all other factors were to remain unchanged, it is expected that a 1% decrease in the expected long-term rate of return would cause PNM’s 2006 net pension income to decrease approximately $4.5 million (analogous change would result from a 1% increase). If all other factors were to remain unchanged, it is expected that a 1% decrease in the expected long-term rate of return would cause TNMP’s 2006 net pension income to decrease approximately $0.8 million (analogous change would result from a 1% increase).

Under SFAS No. 87, “Employers' Accounting for Pensions” (“SFAS 87”) and SFAS No. 106, “Employers' Accounting for Postretirement Benefits Other Than Pensions” (“SFAS 106”), the expected long-term rate of return on pension and postretirement plan assets is calculated on the market-related value of assets. SFAS 87 and SFAS 106 require that actual gains and losses on pension and postretirement plan assets be recognized in the market-related value of assets equally over a period of not more than five years, which reduces year-to-year volatility. For the PNM Plans and TNMP Plans, the market-related value of assets is equal to the prior years’ market related value of assets adjusted for contributions, benefit payments and investment gains and losses that lie within a corridor of plus or minus 4.0% around the expected return on market value. Gains and losses that lie outside the corridor are amortized over five years, i.e., if investment return is outside a range of 5.0% to 13.0% (expected long-term rate of return plus or minus 4.0%), this market-related value recognizes the portion of return that is outside the range over a five-year period from the year in which the return occurs. As such, the future value of assets will be impacted as previously deferred returns are recorded.

The discount rate that the Company utilizes for determining future pension and postretirement obligations is based on a review of long-term high-grade bonds and management’s expectations. As a result of this review, the Company adjusted the discount rate for the PNM pension plan to 5.75% at December 31, 2005 from 6.0% at December 31, 2004. The rate for the TNMP pension plan was adjusted to 5.75% at December 31, 2005 from 5.25% at June 6, 2005 and was 5.75% at December 31, 2004. Lowering the discount rate by 0.5% would have decreased 2005 pension income for PNM by approximately $0.5 million and would have no impact on TNMP pension expense.

Based on an expected rate of return of 9.0%, a discount rate of 5.75% and various other assumptions, it is estimated that the PNM pension income for the qualified and non-qualified pension plans will be approximately $2.8 million in 2006 and $2.8 million in 2007. It is estimated that TNMP pension income for the qualified and non-qualified pension plans will be approximately $2.6 million in 2006 and $2.7 million in 2007. Future actual pension income or expense will depend on future investment performance, changes in future discount rates and various other factors related to the populations participating in the Company’s pension plans.

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Note 12 contains further details about the effects of certain changes in assumptions related to medical trend rates on retiree health costs. The Company will continue to evaluate its actuarial assumptions at least annually, and will adjust as necessary.

See Item 7A. “Quantitative and Qualitative Disclosure About Market Risk” for discussion regarding the Company’s accounting policies and sensitivity analysis for the Company’s financial instruments and derivative energy and other derivative contracts. See also “Financing Activities” below for additional discussion regarding the Company’s accounting policies for forward interest rate swaps.

LIQUIDITY AND CAPITAL RESOURCES

PNMR

At December 31, 2005, PNMR had cash and short-term investments of $68.2 million compared to $17.2 million in cash and short-term investments at December 31, 2004.

Cash provided by operating activities for the year ended December 31, 2005 was $210.5 million compared to $235.1 million for the year ended December 31, 2004. PNMR's net earnings for the year ended December 31, 2005 decreased 23.4% to $67.2 million from $87.7 million for the year ended December 31, 2004. The decrease in earnings, as well as higher natural gas prices in 2005, contributed to the decrease in cash provided by operating activities. The decrease in earnings was driven primarily by acquisition related costs, the write down of a turbine to fair market value and other charges. In addition, the Company experienced below normal levels of plant performance, which reduced the amount of electricity the Company sold on the wholesale market and forced the Company to purchase power to meet jurisdictional and contractual wholesale needs. In addition, the margin on fixed-price contracts decreased, as increases in purchased power contract prices driven by increasing fuel prices could not be passed on to customers with fixed sales prices. These decreases to net earnings were partially offset by the addition of the TNP operations for June 6 through December 31, 2005 and an increase in cost of service gas rates.

Cash used for investing activities was $154.6 million for the year ended December 31, 2005 compared to $143.8 million for the year ended December 31, 2004. The increase in cash used for investing activities in the current period was due primarily to increased cash payments for utility plant additions, offset in part by the cash balances acquired from TNP, net of the cash paid to acquire TNP.

Cash used for financing activities was $4.8 million for the year ended December 31, 2005 compared to cash used for financing activities of $86.8 million for the year ended December 31, 2004. Cash used for financing activities in 2005 decreased due to the issuance of short-term debt of $237.5 million to fund a portion of the cost of redemption of TNP preferred stock and senior notes, the issuance of the equity-linked units for $339.8 million and the issuance of common stock for $101.2 million. The decrease in cash used for financing activities was partially offset by the redemption of TNP preferred stock of $224.6 million and the repayment of long-term debt of $399.6 million, including the repayment of $289.1 million in TNP senior notes (excluding the final interest payment) and the repayment of $110.5 million under the TNP credit agreement. Financing activities in 2004 consisted primarily of common stock dividend payments and short-term debt repayments.

PNM

Cash provided by operating activities for the year ended December 31, 2005 was $171.5 million compared to $261.0 million for the year ended December 31, 2004. This decrease in cash provided by operating activities was due primarily to lower earnings in 2005 and higher natural gas prices in 2005.

Cash used for investing activities was $151.3 million for the year ended December 31, 2005 compared to $131.8 million for the year ended December 31, 2004. The increase in cash used for investing activities was due primarily to increased utility plant additions in 2005, offset in part by a $12.2 million purchase of EIP bond investments in 2004 that did not recur in 2005.

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Cash used by financing activities was $24.0 million for the year ended December 31, 2005 compared to cash used for financing activities of $124.4 million for the year ended December 31, 2004. The decrease in cash used for financing activities was due primarily to cash received from short-term borrowings in 2005 of $67.8 million compared to the use of cash in 2004 of $64.5 million to repay short-term borrowings. The decrease in cash flows from financing activities was offset in part by the payment of $91.0 million in dividends to PNMR in 2005.

TNMP

TNMP's cash provided by operating activities for the year ended December 31, 2005 was $66.9 million compared to $67.4 million for the year ended December 31, 2004. TNMP's net earnings for the year ended December 31, 2005 were $26.7 million compared to a net loss of $51.2 million in the year ended December 31, 2004. TNMP's net earnings increased $77.9 million in 2005 compared to 2004 due primarily to a charge of $97.8 million, net of tax, in 2004 for the disallowance of stranded costs, which did not recur in 2005. The charge for stranded costs was offset in part by the recording of $32.0 million of carrying charges related to deferred stranded costs in 2004.

Cash used for investing activities was $42.8 million for the year ended December 31, 2005, relatively unchanged from $43.2 million for the year ended December 31, 2004.

Cash used for financing activities for the year ended December 31, 2005 was $73.7 million compared to cash used for financing activities for the year ended December 31, 2004 of $15.4 million. During 2005, TNMP, a wholly owned subsidiary of TNP, paid $62.0 million to redeem a portion of the TNMP stock held by TNP. TNMP also paid $12.0 million to redeem senior notes in 2005.  Cash used for financing activities in 2004 consisted primarily of long-term debt costs/repayments and dividends paid.

Pension and Other Postretirement Benefits

PNMR

PNMR and its subsidiaries maintain a qualified defined benefit pension, a plan providing medical and dental benefits to eligible retirees, and an executive retirement program (“PNM Plans”). PNMR maintains the legal obligation for the benefits owed to participants under these plans. TNMP also maintains a qualified defined benefit pension plan covering substantially all of its employees, a plan providing medical and death benefits to eligible retirees and an executive retirement program (“TNMP Plans”).

The total 2005 contributions to the PNM Plans, in addition to contributions to the TNMP Plans from the date of PNMR’s acquisition of TNP, or June 6, 2005 through December 31, 2005, are included in PNMR’s Consolidated Statement of Cash Flows. TNMP Plan contributions of $0.5 million are included in PNMR’s Consolidated Statement of Cash Flows for the year ended December 31, 2005. See PNM and TNMP contribution detail below.

PNM

During 2005, PNM did not make any contributions to its qualified pension plan and does not anticipate making any contributions to the qualified pension plan in 2006. PNM made contributions totaling $6.2 million to its postretirement benefit plan for the plan year 2005 and expects to make contributions totaling $6.2 million to its postretirement benefit plan in 2006.

TNMP

During 2005, TNMP did not make any contributions to its qualified pension plan and does not anticipate making any contributions to the qualified pension plan in 2006. TNMP made contributions totaling $0.9 million to its postretirement benefit plan for the plan year 2005 and expects to make contributions totaling $0.3 million to its postretirement benefit plan in 2006.

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Capital Requirements

PNMR

Total capital requirements include construction expenditures as well as other major capital requirements and cash dividend requirements for both common and preferred stock. The main focus of the Company’s current construction program is upgrading generation resources, upgrading and expanding the electric and gas transmission and distribution systems and purchasing nuclear fuel. Projections for total capital requirements for 2006, including TNMP and First Choice, are $458.0 million with projections for construction expenditures for 2006 constituting $418.0 million of that total. Total capital requirements, including TNMP and First Choice, are projected to be $1,833.8 million and construction expenditures are projected to be $1,602.8 million for 2006-2010. These estimates are under continuing review and subject to on-going adjustment. This projection includes $16.0 million for the construction of Luna and $147.0 million for expansion at Afton. In November 2005, PNM filed a joint stipulation with the NMPRC that would allow PNM to convert Afton to a combined cycle plant and bring Afton into retail rates effective January 1, 2008. The Afton book value for ratemaking in PNM’s 2007 rate case will be 50% of the lower of the actual cost to construct or $187.6 million. PNM cannot recover costs for Afton in excess of this amount in its retail rates. The stipulation is subject to approval by the NMPRC. This projection does not include any amounts for the proposed Twin Oaks acquisition.

The Company continues to look for appropriately priced generation acquisition and expansion opportunities to support retail electric load growth, for the continued expansion of its long-term contract business, and to supplement its natural transmission position in the southwest and west areas of the United States.

During the year ended December 31, 2005, the Company utilized cash generated from operations and cash on hand, as well as its liquidity arrangements, to cover its capital requirements and construction expenditures. Except for the proposed acquisition of the Twin Oaks facility, the Company anticipates that internal cash generation and current debt capacity will be sufficient to meet all of its capital requirements and construction expenditures for the years 2006 through 2010. To cover the difference in the amounts and timing of cash generation and cash requirements, the Company intends to use short-term borrowings under its current and future liquidity arrangements.

PNM

The main focus of PNM’s current construction program is to upgrade generation resources, to upgrade and expand the electric and gas transmission and distribution systems and to purchase nuclear fuel. Projections for total capital requirements for 2006 are $386.2 million with projections for construction expenditures for 2006 constituting $346.2 million of that total. Total capital requirements are projected to be $1,520.0 million and construction expenditures are projected to be $1,289.0 million for the years 2006 through 2010. These estimates are under continuing review and subject to on-going adjustment.

Until November 2005, the Company's one-third interest in the 570 MW Luna facility, currently under construction, was held in a wholly owned subsidiary, PNMR Development and Management Corporation. In November 2005, the Company transferred its one-third interest in the Luna facility to PNM. PNM will complete construction of the Luna facility for use as merchant plant.

TNMP

The main focus of TNMP’s current construction program is to upgrade and expand its electric transmission and distribution systems. Projections for total capital requirements for 2006 are $44.3 million. Total capital requirements are projected to be $233.7 million for the years 2006 through 2010. These estimates are under continuing review and subject to on-going adjustment.

Liquidity

PNMR

As of February 28, 2006, PNMR had $615.0 million of liquidity arrangements. The liquidity arrangements consist of $600.0 million from an unsecured revolving credit facility, referred to as the PNMR Facility for purposes of this discussion, and $15.0 million in local lines of credit. As of February 28, 2006, there were no amounts borrowed under the PNMR Facility and $9.8 million borrowed under the local lines of credit.

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At February 28, 2006, First Choice had up to $300.0 million of borrowing capacity under the PNMR Facility. Any borrowings made by First Choice under this sublimit are guaranteed by PNMR. At February 28, 2006, First Choice had no borrowings outstanding under the PNMR Facility; however, First Choice had $16.9 million of letters of credit outstanding, which reduces the available capacity under the PNMR Facility. TNMP is also a borrower under the PNMR Facility, see “TNMP” detail below.

In addition, in February 2006, the Board approved intercompany borrowing arrangements between PNMR and its subsidiaries that would authorize each subsidiary to borrow up to $50.0 million from PNMR.

PNMR has established a commercial paper program under which it may issue up to $400.0 million in commercial paper for up to 270 days. The commercial paper is unsecured and the proceeds are used for short-term cash management needs. The PNMR Facility serves as a backstop for the outstanding commercial paper. As of February 28, 2006, there were $208.4 million of borrowings outstanding under this program.

PNMR’s ability, if required, to access the capital markets at a reasonable cost and to provide for other capital needs is largely dependent upon its ability to earn a fair return on equity, its results of operations, its credit ratings, its ability to obtain required regulatory approvals and conditions in the financial and wholesale markets. Financing flexibility is enhanced by providing a high percentage of total capital requirements from internal sources and having the ability, if necessary, to issue long-term securities and to obtain short-term credit.

Moody’s considered PNMR's credit outlook stable as of the date of this report. In January 2006, S&P revised its outlook for PNMR to negative from stable. The Company is committed to maintaining or improving its investment grade ratings. S&P and Moody’s rated PNMR’s senior unsecured notes issued in March 2005 (see “Financing Activities” below) as BBB- and Baa3, respectively. PNMR's commercial paper program discussed above has been rated P-3 by Moody's, but was lowered to A-3 from A-2 by S&P in January 2006.

Investors are cautioned that a security rating is not a recommendation to buy, sell or hold securities, that it is subject to revision or withdrawal at any time by the assigning rating organization, and that each rating should be evaluated independently of any other rating.

PNM

As of February 28, 2006, PNM had $493.5 million of liquidity arrangements. The liquidity arrangements consist of $400.0 million from an unsecured revolving credit facility, referred to as the PNM Facility for purposes of this discussion, $70.0 million from an accounts receivable securitization program and $23.5 million in local lines of credit. As of February 28, 2006, there were no amounts borrowed against the accounts receivable securitization, the local lines of credit, or the PNM Facility; however, $4.5 million of letters of credit were outstanding, which reduces the available capacity under the PNM Facility. The accounts receivable securitization program expires in April 2006.

At February 28, 2006, PNM also had a $20.0 million borrowing arrangement with PNMR, which is not included in the $493.5 million of liquidity arrangements discussed above. As of February 28, 2006 there were no amounts outstanding under this arrangement.

PNM has a commercial paper program under which PNM may issue up to $300.0 million in commercial paper for up to 365 days. The commercial paper is unsecured and the proceeds are used for short-term cash management needs. The PNM Facility serves as a backstop for PNM's outstanding commercial paper. As of February 28, 2006, PNM had $133.9 million in commercial paper outstanding under this program.

PNM’s ability, if required, to access the capital markets at a reasonable cost and to provide for other capital needs is largely dependent upon its ability to earn a fair return on equity, its results of operations, its credit ratings, its ability to obtain required regulatory approvals and conditions in the financial and wholesale markets. Financing flexibility is enhanced by providing a high percentage of total capital requirements from internal sources and having the ability, if necessary, to issue long-term securities and to obtain short-term credit.

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Moody’s considered PNM's credit outlook stable as of the date of this report. In January 2006, S&P revised its outlook for PNM to negative from stable. PNM is committed to maintaining or improving its investment grade ratings. As of December 31, 2005, S&P rated PNM’s business position as six, its senior unsecured notes as BBB with a stable outlook and its preferred stock as BB+. As of December 31, 2005, Moody’s rated PNM’s senior unsecured notes as Baa2 and its preferred stock as Ba1. PNM's commercial paper program is rated P-3 by Moody's, but was lowered to A-3 from A-2 by S&P in January 2006.

TNMP

In June 2005, TNMP filed an application with the NMPRC to become a borrower and issue notes of up to $100.0 million under the PNMR Facility. In July 2005, the NMPRC issued an order approving the application, SEC approval was received in September 2005 and TNMP was added as a borrower under the PNMR Facility in September 2005. Any borrowings made by TNMP under this sublimit are not guaranteed by PNMR. At February 28, 2006, TNMP had no outstanding borrowings under the PNMR Facility, but did have $2.5 million letters of credit outstanding, which reduces available capacity under the PNMR Facility.

In September 2005, as part of the TNP acquisition financing, TNMP redeemed and cancelled 1,090 shares of its privately held stock held by TNP at the book value of $56,888.91 per share, for a total of $62.0 million. TNP subsequently paid a cash dividend of $62.0 million to PNMR.

In June 2003, TNMP issued $250.0 million of 6.125% senior notes due in 2008. In May 2003, TNMP executed a $250.0 million Treasury rate lock transaction designed to manage interest rate risk associated with the issuance of the senior notes. TNMP paid $4.2 million upon the issuance of senior notes in June 2003 to settle the rate lock. Through the date of the acquisition, the cost of the rate lock was recorded in accumulated other comprehensive income and was amortized to interest expense over the life of the senior notes. The book value of the rate lock acquired was $1.7 million. In conjunction with the acquisition of TNP by PNMR on June 6, 2005, the balance for the rate lock remaining in accumulated other comprehensive income was recorded at fair market value as of the date of acquisition, which was zero, in accordance with SFAS 141.

TNMP’s ability, if required, to access the capital markets at a reasonable cost and to provide for other capital needs is largely dependent upon its ability to earn a fair return on equity, its results of operations, its credit ratings, its ability to obtain required regulatory approvals and conditions in the financial and wholesale markets. Financing flexibility is enhanced by providing a high percentage of total capital requirements from internal sources and having the ability, if necessary, to issue long-term securities and to obtain short-term credit.

Moody’s considered TNMP's credit outlook stable as of the date of this report. In January 2006, S&P revised its outlook for TNMP to negative from stable. The Company is committed to maintaining or improving its investment grade ratings. As of December 31, 2005, S&P rated TNMP’s senior unsecured notes at BBB. As of December 31, 2005, Moody’s rated TNMP’s senior unsecured notes at Baa3.

Off-Balance Sheet Arrangements

The Company’s off-balance sheet arrangements consist of PNM’s operating lease obligations for PVNGS Units 1 and 2, the EIP transmission line and the entire output of Delta, as gas-fired generating plant. These arrangements help ensure PNM the availability of lower-cost generation needed to serve customers.

The total capitalization for these obligations was $170.9 million as of December 31, 2005 and $176.0 million as of December 31, 2004.

Commitments and Contractual Obligations

Tabular information for PNMR, PNM and TNMP is presented below. See also Note 7 for further details about the Company’s significant leases, including those for PNM and TNMP.

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PNMR

The following table sets forth PNMR’s long-term contractual obligations as of December 31, 2005:

	Payments Due
			Less than						After
Contractual Obligations	Total		1 year		2-3 years		4-5 years		5 years
	(In thousands)
Long-Term Debt (a)	$	1,749,745	$	-	$	548,935	$	514,940	$	685,870
Interest on Long-Term Debt (b)		810,713		97,174		186,725		110,838		415,976
Equity-Linked Units Forward
Contracts		16,038		5,983		9,988		67		-
Interest on Forward Contracts		759		465		294		-		-
Operating Leases		380,593		34,363		69,005		62,749		214,476
Purchased Power Agreements		85,457		32,027		24,924		24,119		4,387
Coal Contracts (c)		694,307		49,905		103,635		110,206		430,561
Other Purchase Obligations (d)		1,609,268		424,376		752,061		432,831		-
Total	$	5,346,880	$	644,293	$	1,695,567	$	1,255,750	$	1,751,270

(a)   Represents total long-term debt excluding unamortized discount of $3.4 million.

(b)   Represents the annual interest expense on fixed and variable rate debt. Projections of interest expense on variable rate debt are based on current interest rates as of December 31, 2005.

(c)   Represents only certain minimum payments that may be required under the coal contracts if no deliveries are made.

(d)   Represents commitments for capital expenditures, pension and postretirement benefit obligations and other obligations.

The following table sets forth PNMR’s other commercial commitments as of December 31, 2005:

	Amount of Commitment Expiration Per Period
	Total
Other Commercial	Amounts								After
Commitments	Committed		1 year		2-3 years		4-5 years		5 years
	(In thousands)
Short-Term Debt (a)	$	967,492	$	395,500	$	-	$	571,992	$	-
Local Lines of Credit		38,500		38,500		-		-		-
Total	$	1,005,992	$	434,000	$	-	$	571,992	$	-

(a) Represents the unused borrowing capacity of the various credit facilities less outstanding letters of credit of $22.5 million and borrowings of $10.0 million as of December 31, 2005.

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PNM

The following table sets forth PNM’s long-term contractual obligations as of December 31, 2005:

	Payments Due
Contractual Obligations	Total		Less than 1 year		2-3 years		4-5 years		After 5 years
	(In thousands)
Long-Term Debt (a)	$	985,870	$	-	$	300,000	$	-	$	685,870
Interest on Long-Term Debt (b)		637,861		49,657		99,314		72,914		415,976
Operating Leases		353,430		29,322		61,353		57,990		204,765
Purchased Power Agreements		71,239		17,809		24,924		24,119		4,387
Coal Contracts (c)		694,307		49,905		103,635		110,206		430,561
Other Purchase Obligations (d)		1,295,107		352,316		610,613		332,178		-
Total	$	4,037,814	$	499,009	$	1,199,839	$	597,407	$	1,741,559

(a)   Represents total long-term debt excluding unamortized premium of $1.2 million.

(b)   Represents the annual interest expense on fixed and variable rate debt. Projections of interest expense on variable rate debt are based on current interest rates as of December 31, 2005.

(c)   Represents only certain minimum payments that may be required under the coal contracts if no deliveries are made.

(d)   Represents commitments for capital expenditures, pension and postretirement benefit obligations and other obligations.

The following table sets forth PNM’s other commercial commitments as of December 31, 2005:

	Amount of Commitment Expiration Per Period
Other Commercial Commitments	Total Amounts Committed		1 year		2-3 years		4-5 years		After 5 years
	(In thousands)
Short-Term Debt (a)	$	395,500	$	395,500	$	-	$	-	$	-
Local Lines of Credit		23,500		23,500		-		-		-
Total	$	419,000	$	419,000	$	-	$	-	$	-

(a)   Represents the unused borrowing capacity of the various credit facilities less outstanding letters of credit of $4.5 million as of December 31, 2005.

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TNMP

The following table sets forth TNMP’s long-term contractual obligations as of December 31, 2005:

	Payments Due
Contractual Obligations	Total		Less than 1 year		2-3 years		4-5 years		After 5 years
	(In thousands)
Long-Term Debt (a)	$	416,625	$	-	$	248,935	$	167,690	$	-
Interest on Long-Term Debt (b)		74,800		25,728		43,832		5,240		-
Operating Leases		8,493		3,159		3,887		993		454
Purchased Power Agreements		14,218		14,218		-		-		-
Other Purchase Obligations (c)		233,979		44,555		110,809		78,615		-
Total	$	748,115	$	87,660	$	407,463	$	252,538	$	454

(a)   Represents total long-term debt excluding unamortized discount of $0.8 million.

(b)   Represents the annual interest expense on fixed and variable rate debt. Projections of interest expense on variable rate debt are based on current interest rates as of December 31, 2005.

(c)   Represents commitments for capital expenditures, pension and postretirement benefit obligations and other obligations.

The following table sets forth TNMP’s other commercial commitments as of December 31, 2005:

	Amount of Commitment Expiration Per Period
Other Commercial Commitments	Total Amounts Committed		1 year		2-3 years		4-5 years		After 5 years
	(In thousands)
Short-Term Debt (a)	$	97 587	$	-	$	-	$	97,587	$	-
Total	$	97,587	$	-	$	-	$	97,587	$	-

(a) Represents the unused borrowing capacity of TNMP on the PNMR credit facility less outstanding letters of credit of $2.4 million as of December 31, 2005.

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Contingent Provisions of Certain Obligations

PNMR, PNM and TNMP have a number of debt obligations and other contractual commitments that contain contingent provisions. Some of these, if triggered, could affect the liquidity of the Company. PNMR, PNM or TNMP could be required to provide security, immediately pay outstanding obligations or be prevented from drawing on unused capacity under certain credit agreements if the contingent requirements were to be triggered. The most significant consequences resulting from these contingent requirements are detailed in the discussion below.

PNMR

The committed PNMR Facility contains a “ratings trigger,” for pricing purposes only. If PNMR is downgraded or upgraded by the ratings agencies, the result would be an increase or decrease in interest cost, respectively. In addition, the PNMR Facility contains a contingent requirement that requires PNMR to maintain a debt-to-capital ratio, inclusive of off-balance sheet debt, of less than 65%. If PNMR’s debt-to-capital ratio, inclusive of off-balance sheet debt, were to exceed 65%, it could be required to repay all borrowings under the PNMR Facility, be prevented from drawing on the unused capacity under the PNMR Facility, and be required to provide security for all outstanding letters of credit issued under the PNMR Facility.

PNM

PNM's standard purchase agreement for the procurement of gas for its retail customers contains a contingent requirement that could require PNM to provide security for its gas purchase obligations if the seller were to reasonably believe that PNM was unable to fulfill its payment obligations under the agreement.

The master agreement for the sale of electricity in the WSPP contains a contingent requirement that could require PNM to provide security if its debt were to fall below investment grade rating. The WSPP agreement also contains a contingent requirement, commonly called a material adverse change provision, which could require PNM to provide security if a material adverse change in its financial condition or operations were to occur.

The committed PNM Facility contains a “ratings trigger,” for pricing purposes only. If PNM is downgraded or upgraded by the ratings agencies, the result would be an increase or decrease in interest cost, respectively. In addition, the PNM Facility contains a contingent provision that requires PNM to maintain a debt-to-capital ratio, inclusive of off-balance sheet debt, of less than 65%. If PNM’s debt-to-capital ratio, inclusive of off-balance sheet debt, were to exceed 65%, PNM could be required to repay all borrowings under the PNM Facility, be prevented from drawing on the unused capacity under the PNM Facility, and be required to provide security for all outstanding letters of credit issued under the PNM Facility.

If a contingent requirement were to be triggered under the PNM Facility resulting in an acceleration of the outstanding loans under the PNM Facility, a cross-default provision in the PVNGS leases could occur if the accelerated amount is not paid. If a cross-default provision is triggered, the lessors have the ability to accelerate their rights under the leases, including acceleration of all future lease payments.

TNMP

TNMP’s borrowing availability under the committed PNMR Facility contains a “ratings trigger,” for pricing purposes only. If TNMP is downgraded or upgraded by the ratings agencies, the result would be an increase or decrease in interest cost, respectively. In addition, the PNMR Facility contains a contingent requirement that requires TNMP to maintain a debt-to-capital ratio, inclusive of off-balance sheet debt, of less than 65%. If TNMP’s debt-to-capital ratio, inclusive of off-balance sheet debt, were to exceed 65%, TNMP could be required to repay all borrowings under the PNMR Facility, be prevented from drawing on the unused capacity under the PNMR Facility, and be required to provide security for all outstanding letters of credit issued under the PNMR Facility.

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Financing Activities

PNMR

PNMR has a universal shelf registration statement filed with the SEC for the issuance of debt securities, equity securities, preferred stock, purchase contracts, purchase contract units and warrants. As of December 31, 2005, PNMR had approximately $400.9 million of remaining unissued securities under this registration statement.

PNMR has entered into three fixed-to-floating interest rate swaps with an aggregate notional principal amount of $150.0 million. Under these swaps, PNMR receives a 4.40% fixed interest payment on the notional principal amount on a semi-annual basis and pays a floating rate equal to the six month LIBOR plus 58.15 basis points (0.5815%) on the notional amount through September 15, 2008. The initial floating rate was 1.91% and will be reset every six months. The floating rate was reset on September 15, 2005, to 4.60%. The swap is accounted for as a fair-value hedge with a negative fair-market value (liability position) of approximately $3.9 million as of December 31, 2005.

During October 2004, PNMR entered into two forward starting floating-to-fixed rate interest rate swaps with an aggregate notional principal amount of $100.0 million. These swaps became effective August 1, 2005 and terminate November 15, 2009. Under these swaps, PNMR receives a floating rate equal to three month LIBOR on the notional principal amount and pays a fixed interest rate of 3.975% on the notional principal amount on a quarterly basis. The initial floating rate was set on August 1, 2005, at 3.693% and will be reset every three months.

From November 2004 through June 30, 2005, the swaps were accounted for as a cash flow hedge against borrowings under a five-year $400.0 million PNMR revolving credit agreement dated November 15, 2004. The PNMR Facility replaced the November 2004 credit agreement in August 2005. Effective June 30, 2005, the swaps were de-designated as cash flow hedges due to a change in the underlying borrowings being hedged from the November 2004 credit agreement at the inception of the hedge to commercial paper. The mark-to-market change in the fair value of these swaps was subsequently recognized on PNMR’s Consolidated Statement of Earnings. At December 31, 2005, the increase in fair value related to these swaps was $2.8 million. Of this increase, $0.4 million was recorded in accumulated other comprehensive income on PNMR’s Consolidated Balance Sheet and $2.4 million was recognized in other income on PNMR’s Consolidated Statement of Earnings for the year ended December 31, 2005.

In March 2005, PNMR issued 3,910,000 shares of its common stock at $26.76 per share. PNMR received net proceeds from this offering, after deducting underwriting discounts and commissions and estimated expenses, of approximately $101.0 million. In addition, in March 2005, PNMR also completed a public offering of 4,945,000 equity-linked units at 6.75% yielding net proceeds after fees of $239.6 million. See Note 6 for further details about this transaction.

In October 2005, PNMR completed a private offering of 4,000,000 equity-linked units at 6.625%. PNMR received $100.0 million in proceeds from this transaction and there were no underwriting discounts or commissions. PNMR used the proceeds to repay short-term borrowings, a portion of which was incurred to finance the acquisition of TNP. See Note 6 for further details about this transaction.

In conjunction with the acquisition of TNP, on June 6, 2005, PNMR made an equity investment of approximately $110.5 million in TNP, which TNP used to repay in full amounts owing under TNP’s credit agreement. In addition, pursuant to PNMR’s acquisition of TNP, PNMR agreed to provide funds to TNP to enable TNP to redeem (a) TNP's 14.5% Senior Redeemable Preferred Stock, Series C, (b) TNP's 14.5% Senior Redeemable Preferred Stock, Series D (collectively, “Preferred Stock”), and (c) TNP’s 10.25% Senior Subordinated Notes due 2010, Series B (“Senior Notes”). On July 6, 2005, TNP redeemed the Preferred Stock by tendering $224.6 million to the holders of the Preferred Stock and redeemed the Senior Notes by tendering $296.5 million to holders of the Senior Notes (tendered amounts include interest, as applicable). In order to fund a portion of the cost of redemption of TNP’s Preferred Stock and Senior Notes, PNMR issued $370.0 million of commercial paper short-term notes under the PNMR commercial paper program. The balance of the funds necessary for the redemption came from other cash available to PNMR and the total redemption amount was an equity investment by PNMR in TNP.

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As discussed above under “Proposed Twin Oaks Acquisition,” in addition to Altura, PNMR is a party to the purchase agreement and has agreed to provide parental guarantees for certain obligations of Altura relating to the acquisition. PNMR has arranged for bridge financing to close the transaction. It is expected that the permanent financing will come from the issuance of debt and equity structured to maintain PNMR’s investment grade rating. However, PNMR is at risk that it will be unable to obtain financing for the acquisition at a reasonable cost or terms that will permit PNMR to maintain its investment grade rating, due to conditions in the capital markets or PNMR’s financial condition.

PNM

PNM has a universal shelf registration statement filed with the SEC for the issuance of debt securities, equity securities, preferred stock, purchase contracts, purchase contract units and warrants. As of December 31, 2005, PNM had approximately $200.0 million of remaining unissued securities registered under its shelf registration statement. The amount of senior unsecured notes that may be issued is not limited by the senior unsecured notes indenture. However, debt-to-capital requirements in certain of PNM’s financial instruments and regulatory agreements could ultimately limit the amount of additional debt PNM could issue.

TNMP

Depending on TNMP’s future business strategy, capital needs and market conditions, TNMP could enter into additional long-term financings for the purpose of strengthening TNMP’s balance sheet, funding growth and reducing its cost of capital. The Company continues to evaluate its investment and debt retirement options to optimize its financing strategy and earnings potential. The amount of senior unsecured notes that may be issued is not limited by the senior unsecured notes indenture. However, debt-to-capital requirements in certain of TNMP’s financial instruments and regulatory agreements would ultimately limit the amount of additional debt TNMP would issue.

Dividends

The declaration of common dividends by PNMR is dependent upon a number of factors including the ability of PNMR’ subsidiaries to pay dividends. PNMR’s primary sources of dividends are PNM and TNMP.

PNM paid cash dividends of $91.0 million, $23.0 million and $49.6 million to PNMR for the years ended December 31, 2005, 2004 and 2003, respectively. In 2005, TNMP paid cash dividends of $12.0 million to its parent company, which were ultimately paid to PNMR.

As part of the order approving the formation of PNMR, the NMPRC placed certain restrictions on the ability of PNM and TNMP to pay dividends. The NMPRC order imposed the following conditions regarding dividends paid by PNM and TNMP: PNM or TNMP cannot pay dividends which cause its debt rating to fall below investment grade; and neither PNM nor TNMP can pay dividends in any year, as determined on a rolling four quarter basis, in excess of net earnings without prior NMPRC approval. The Global Electric Agreement (see Note 17) modified the PNM dividend restriction to allow PNM to dividend earnings as well as equity contributions made by PNMR. Additionally, PNM has various financial covenants that limit the transfer of assets, through dividends or other means.

In addition, the ability of PNMR to declare dividends is dependent upon the extent to which cash flows will support dividends, the availability of retained earnings, the financial circumstances and performance, the NMPRC’s and PUCT’s decisions in various regulatory cases currently pending and which may be docketed in the future, the effect of federal regulatory decisions, Congressional and legislative acts, and economic conditions in the United States. Conditions imposed by the NMPRC or PUCT, future growth plans and the related capital requirements and business considerations may also affect PNMR’s ability to pay dividends.

In July 2005, the Board of PNMR approved an 8.0% increase in the common stock dividend for an indicated annual dividend of $0.80 per share. In February 2006, the Board of PNMR approved a 10.0% increase in the common stock dividend for an indicated annual dividend of $0.88 per share. PNMR targets a payout ratio of 50% to 60% of consolidated earnings.

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Capital Structure

PNMR

PNMR’s capitalization, including current maturities of long-term debt, at December 31, 2005 and December 31, 2004 is shown below:

	December 31,			December 31,
	2005			2004
Common Equity		42.3	%		52.4	%
Preferred Stock		0.4	%		0.6	%
Long-term Debt		57.3	%		47.0	%
Total Capitalization		100.0	%		100.0	%

    Total capitalization does not include as debt the present value of PNM’s operating lease obligations for PVNGS Units 1 and 2, EIP and the Delta operating lease, which was approximately $170.9 million as of December 31, 2005 and $176.0 million as of December 31, 2004.

The change in PNMR’s capitalization is due to the issuance of common stock and equity-linked units in March 2005, the equity-linked units in October 2005 (see Note 6) and the acquisition of TNP on June 6, 2005 (see Note 2).

PNM

PNM’s capitalization, including current maturities of long-term debt, at December 31, 2005 and December 31, 2004 is shown below:

	December 31,			December 31,
	2005			2004
Common Equity		50.2	%		50.8	%
Preferred Stock		0.6	%		0.6	%
Long-term Debt		49.2	%		48.6	%
Total Capitalization		100.0	%		100.0	%

TNMP

TNMP’s capitalization, including current maturities of long-term debt, at December 31, 2005 and December 31, 2004 is shown below:

	December 31,			December 31,
	2005			2004
Common Equity		58.6	%		31.3	%
Long-term Debt		41.4	%		68.7	%
Total Capitalization		100.0	%		100.0	%

The change in TNMP’s capitalization is due to the acquisition of TNP on June 6, 2005 and the effects of purchase accounting.

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COMPETITION

Under current law, the Company is not in any direct retail competition with any other regulated electric and gas utility, except for sales of natural gas. Nevertheless, the Company is subject to varying degrees of competition in certain territories adjacent to or within the areas it serves with other utilities in its region as well as with rural electric cooperatives and municipal utilities. PNM Wholesale is involved in the generation and sale of electricity into the wholesale market. It is subject to competition from regional utilities with similar opportunities to generate and sell energy at market-based prices and larger trading entities that do not own or operate generating assets. The Company believes that it is well positioned to compete in this market due to its long history in the marketplace, its niche product offerings, and stringent risk management practices. The Texas electricity market has been open to retail competition since January 2002. Prior to 2002, TNMP operated as an integrated utility in Texas. In accordance with Senate Bill 7, TNMP separated its Texas utility operations into three components: (1) an unregulated retail sales business operated by First Choice; (2) a regulated power transmission and distribution business operated by TNMP and (3) power generation, a business which TNMP is no longer engaged in. The Company is exposed to competition in the unregulated Texas retail electricity market through First Choice, which serves customers at price-to-beat rates approved by the PUCT and customers at competitive rates. In order to compete effectively in the Texas retail electricity market, First Choice must be able to attract and retain customers on the basis of cost and service, while managing the cost of its energy supply.

Since 2002, electric consumers in Texas have been encouraged to switch from their traditional affiliated retail energy provider, such as TNMP, to a competitive retail energy provider, such as First Choice. Currently under TECA, consumers whose chosen retail energy provider has exited the Texas market are provided electric service by a “provider of last resort.” Rates of the provider of last resort are regulated by the PUCT and are fixed for the two-year period that each provider of last resort serves. The current contracts for default service offered by providers of last resort under TECA will expire on December 31, 2006. On January 1, 2007 new providers of last resort will be identified and those providers as well as the rates offered will be effective until December 31, 2008. Also on December 31, 2006, the price-to-beat rate mechanism will cease to exist and First Choice and other retail energy providers subject to providing price-to-beat rates will only market retail electricity at competitive rates. There is currently an open rulemaking at the PUCT evaluating the potential need for a replacement rate for the price-to-beat rate mechanism. Other services being evaluated in this rulemaking are provider of last resort functions and pricing and the possible creation of a default provider. The Company cannot currently predict what, if any, changes will occur to either mechanism and what, if any, impact such changes may have on its results of operations and financial position.

OTHER ISSUES FACING THE COMPANY

PNM is subject to the jurisdiction of the NMPRC, with respect to its retail electric and gas rates, service, accounting, issuance of securities, construction of major new generation and transmission facilities and other matters regarding retail utility services provided in New Mexico. The FERC has jurisdiction over rates and other matters related to wholesale electric sales and cost recovery for a portion of PNM’s transmission network.

In Texas, TNMP provides regulated transmission and distribution services and is subject to the jurisdiction of the PUCT and certain municipalities with respect to rates and service. Within New Mexico, TNMP is subject to the jurisdiction of the NMPRC. TNMP is subject to traditional cost-of-service regulation in both Texas and New Mexico. TNMP is subject in some of its activities, including the issuance of securities and the acquisition or disposition of properties in New Mexico, to the jurisdiction of the FERC. TNMP’s transmission and distribution activities in Texas are not subject to FERC regulation, because those activities occur solely within the ERCOT system of Texas.

First Choice is a member of ERCOT, the ISO, responsible for maintaining reliable operations of the bulk electric power supply system in the electric market served in Texas by ERCOT. The electric market served by ERCOT operates under the reliability standards set by the North American Electric Reliability Council. The PUCT has primary jurisdictional authority over the electric market served by ERCOT and the reliability of electricity across Texas' main interconnected power grid.

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See Notes 16, 17 and 18 for a discussion of commitments and contingencies, rate and regulatory matters and environmental issues facing the Company.

NEW ACCOUNTING STANDARDS

There have been no new accounting standards that materially affected PNMR, PNM or TNMP this period; however, see Note 1 for discussion of SFAS No. 123 (revised 2004),“Share Based Payment” and Note 15 for discussion of FASB Interpretation No. 47,“Accounting for Conditional Asset Retirement Obligations.”

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

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

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

·   The potential unavailability of cash at TNP and its subsidiaries,

·   The risk that TNP and its subsidiaries will not be integrated successfully into PNMR,

·   The risk that the benefits of the TNP acquisition will not be fully realized or will take longer to realize than expected,

·   Disruption from the TNP acquisition making it more difficult to maintain relationships with customers, employees, suppliers or other third parties,

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

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

·   Changes in ERCOT protocols,

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

·   Collections experience,

·   Insurance coverage available for claims made in litigation,

·   Fluctuations in interest rates,

·   Weather (including impacts of the hurricanes in the Gulf Coast region),

·   Water supply,

·   Changes in fuel costs,

·   Availability of fuel supplies,

·   The effectiveness of risk management and commodity risk transactions,

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

·   Variability of wholesale power prices and natural gas prices,

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

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

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

·   The market for electrical generating equipment,

·   The ability to secure long-term power sales,

·   The risks associated with completion of construction of Luna, including construction delays and unanticipated cost overruns,

·   State and federal regulatory and legislative decisions and actions,

·   The outcome of legal proceedings,

·   Changes in applicable accounting principles,

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

·   The other factors described in Item 1A. “Risk Factors” in this Form 10-K.

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See Item 7A. “Quantitative and Qualitative Disclosure About Market Risk” for information about the risks associated with the use of derivative financial instruments.

SECURITIES ACT DISCLAIMER

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company uses derivative financial instruments to manage risk as it relates to changes in natural gas and electric prices, changes in interest rates and, historically, adverse market changes for investments held by the Company’s various trusts. The Company also uses certain derivative instruments for wholesale power marketing and natural gas transactions in order to take advantage of favorable price movements and market timing activities in these power markets. The following additional information is provided.

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

The RMC’s responsibilities specifically include: establishment of a general policy regarding risk exposure levels and activities in each of the business segments; authority to approve the types of instruments traded; authority to establish a general policy regarding counterparty exposure and limits; authorization and delegation of transaction limits; review and approval of controls and procedures; review and approval of models and assumptions used to calculate mark-to-market and risk exposure; authority to approve and open brokerage and counterparty accounts; review of hedging and risk activities; and quarterly reporting to the Finance Committee and the PNMR Board on these activities.

The RMC also proposes risk limits, such as VaR and EaR, to the Finance Committee. The Finance Committee ultimately sets the Company's risk limits.

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

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

Commodity Risk

Marketing and procurement of energy often involve market risks associated with managing energy commodities and establishing open positions in the energy markets, primarily on a short-term basis. These risks fall into three different categories: price and volume volatility, credit risk of counterparties and adequacy of the control

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environment. The Company’s operations subject to market risk routinely enter into various derivative instruments such as forward contracts, option agreements and price basis swap agreements to hedge price and volume risk on their purchase and sale commitments, fuel requirements and to enhance returns and minimize the risk of market fluctuations.

PNM’s wholesale operations, including long-term contracts and short-term sales, are managed primarily through a net asset-backed marketing strategy, whereby PNM’s aggregate net open forward contract position is covered by its forecasted excess generation capabilities. PNM is exposed to market risk if its generation capabilities were to be disrupted or if its retail load requirements were to be greater than anticipated. If PNM were required to cover all or a portion of its net open contract position as a result of the aforementioned unexpected situations, it would have to meet its commitments through market purchases. As such, PNM is exposed to risks related to fluctuations in the market price of energy that could impact the sales price or purchase price of energy. In addition, the wholesale operations utilize discrete market-based transactions to take advantage of opportunities that present themselves in the ordinary course of business. These positions are subject to market risk that is not mitigated by PNM’s generation capabilities.

First Choice is responsible for energy supply related to the sale of electricity to retail customers in Texas. TECA contains no provisions for the specific recovery of fuel and purchased power costs. First Choice operates within a competitive marketplace; however, to the extent that it serves former TNMP customers under the provisions of the price-to-beat service, it has the ability to file with the PUCT to change the price-to-beat fuel factor twice each year, in the event of significant changes in natural gas prices. The rates charged to new customers acquired by First Choice outside of TNMP’s service territory are not regulated by the PUCT, but are negotiated with each customer. As a result, changes in fuel and purchased power costs will affect First Choice’s operating results. First Choice is exposed to market risk to the extent that its retail rates or cost of supply fluctuates with market prices. Additionally, fluctuations in First Choice retail load requirements greater than anticipated may subject First Choice to market risk. First Choice’s basic strategy is to minimize its exposure to fluctuations in market energy prices by matching fixed price sales contracts with fixed price supply. In addition, First Choice utilizes discrete market-based transactions to take advantage of opportunities that present themselves in the ordinary course of business. These positions are subject to market risk that is not mitigated by First Choice's retail operations.

Additionally, in connection with the issuance of a final stranded cost true-up order for TNMP, the PUCT will adjust First Choice’s fuel factor portion of the price-to-beat downward if natural gas prices are below the prices embedded in the then-current rates. (See Note 17.)

Accounting for Derivatives

Under the derivative accounting rules and the related accounting rules for energy contracts, the Company accounts for its various financial derivative instruments for the purchase and sale of energy differently based on the contract terms. Energy contracts that meet the definition of a derivative under SFAS 133 and do not qualify for a normal purchase or sale designation are recorded on the balance sheet at fair market value at each period end. The changes in fair market value are recognized in earnings unless specific hedge accounting criteria are met. Should an energy transaction qualify as a hedge under SFAS 133, fair market value changes from year to year are recognized on the balance sheet with a corresponding charge to other comprehensive income. Gains or losses are recognized when the hedged transaction settles. Derivatives that meet the normal sales and purchases exceptions within SFAS 133 are not marked to market but rather recorded in results of operations when the underlying transaction settles.

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PNMR

The acquisition of TNP occurred on June 6, 2005; therefore First Choice activity is included in the PNMR activity from June 6, 2005 through December 31, 2005.

The following table shows the net fair value of mark-to-market energy contracts for First Choice and PNM Wholesale included in PNMR’s Consolidated Balance Sheet:

	December 31,			December 31,
	2005			2004
	(In thousands)
Mark-to-Market Energy Contracts:
Current asset	$	14,555		$	6,890
Long-term asset		21,292			316
Total mark-to-market assets		35,847			7,206
Current liability		(11,198	)		(5,007	)
Long-term liability		(20,903	)		(126	)
Total mark-to-market liabilities		(32,101	)		(5,133	)
Net fair value of mark-to-market energy contracts	$	3,746		$	2,073

The mark-to-market energy transactions represent net assets at December 31, 2005 and December 31, 2004 after netting all applicable open purchase and sale contracts.

The market prices used to value PNMR mark-to-market energy transactions are based on index prices and broker quotations.

The following table details the changes in the net asset or liability balance sheet position from one period to the next for mark to market energy transactions for the operations of First Choice and PNM Wholesale:

	Year Ended
	December 31,
	2005			2004
	(In thousands)
Sources of Fair Value Gain/(Loss):
Fair value at beginning of year	$	2,073		$	433
Change in valuation method 1		-			(227	)
Amount realized on contracts delivered
during period		(1,535	)		(160	)
Changes in fair value		3,208			1,800
Net fair value at end of period	$	3,746		$	1,846
Net change recorded as mark-to-market	$	1,673		$	1,640

¹ Change in valuation method based on illiquid market data utilized for initial valuation of long-term physical option contract and long-term gas swap contract.

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

Fair Value at December 31, 2005

Maturities
Less than
1 year	1-3 Years	4+ Years	Total
	(In thousands)
$3,325	$194	$227	$3,746

As of December 31, 2005, a decrease in market pricing of PNMR’s mark-to-market energy transactions by 10% would have resulted in a decrease in net earnings of less than 1%. Conversely, an increase in market pricing of these transactions by 10% would have resulted in an increase in net earnings of less than 1%.

PNM

The following table shows the net fair value of mark-to-market energy contracts for PNM Wholesale included in the Consolidated Balance Sheet:

	December 31,			December 31,
	2005			2004
	(In thousands)
Mark-to-Market Energy Contracts:
Current asset	$	10,433		$	6,890
Long-term asset		21,292			316
Total mark-to-market assets		31,725			7,206
Current liability		(8,437	)		(5,007	)
Long-term liability		(20,903	)		(126	)
Total mark-to-market liabilities		(29,340	)		(5,133	)
Net fair value of mark-to-market energy contracts	$	2,385		$	2,073

The mark-to-market energy transactions represent net assets at December 31, 2005 and December 31, 2004 after netting all applicable open purchase and sale contracts.

The market prices used to value PNM Wholesale’s mark-to-market energy transactions are based on index prices and broker quotations.

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The following table details the changes in the net asset or liability balance sheet position from one period to the next for mark to market energy transactions for the operations of PNM Wholesale:

	Year Ended
	December 31,
	2005			2004
	(In thousands)
Sources of Fair Value Gain/(Loss):
Fair value at beginning of year	$	2,073		$	433
Change in valuation method 1		-			(227	)
Amount realized on contracts delivered
during period		(2,319	)		(160	)
Changes in fair value		2,631			1,800
Net fair value at end of period	$	2,385		$	1,846
Net change recorded as mark-to-market	$	312		$	1,640

¹ Change in valuation method based on illiquid market data utilized for initial valuation of long-term physical option contract and long-term gas swap contract.

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

Fair Value at December 31, 2005

Maturities
Less than
1 year	1-3 Years	4+ Years	Total
	(In thousands)
$1,964	$194	$227	$2,385

As of December 31, 2005, a decrease in market pricing of PNM Wholesale’s mark-to-market energy transactions by 10% would have resulted in a decrease in net earnings of less than 1%. Conversely, an increase in market pricing of these transactions by 10% would have resulted in an increase in net earnings of less than 1%.

Risk Management Activities

PNM’s Wholesale Operations measure the market risk of its long-term contracts and wholesale activities using a VaR calculation to maintain the Company’s total exposure within management-prescribed limits. The Company’s VaR calculation reports the possible market loss for the respective transactions. This calculation is based on the transaction’s fair market value on the reporting date. Accordingly, the VaR calculation is not a measure of the potential accounting mark-to-market loss. In 2005, the Company adopted the Monte Carlo simulation model of VaR. The Monte Carlo model utilizes a random generated simulation based on historical volatility to generate portfolio values. The Company continues to utilize the two-tailed confidence level at 99%. VaR models are relatively sophisticated. The quantitative risk information, however, is limited by the parameters established in creating the model. The instruments being evaluated may trigger a potential loss in excess of calculated amounts if changes in commodity prices exceed the confidence level of the model used. The VaR methodology employs the following critical parameters: volatility estimates, market values of open positions, appropriate market-oriented holding periods and seasonally adjusted correlation estimates. The Company’s VaR calculation considers the Company’s forward position for the next eighteen months. The Company uses a holding period of three days as the estimate of the length of time that will be needed to liquidate the positions. The volatility and the correlation estimates measure the impact of adverse price movements both at an individual position level as

A-84

well as at the total portfolio level. The two-tailed confidence level established is 99%. For example, if VaR is calculated at $10.0 million, it is estimated at a 99% confidence level that if prices move against PNM’s positions, the Company’s pre-tax gain or loss in liquidating the portfolio would not exceed $10.0 million in the three days that it would take to liquidate the portfolio.

In 2005, the Company revised its methodologies for calculating VaR in order to improve its ability to measure and manage risk. As a result, the Company also revised its VaR limits to be consistent with the new methodologies. As previously discussed, the Company adopted the Monte Carlo statistical simulation approach. In addition, the Company redefined the types of transactions on which it measures VaR. For PNM's wholesale operations, the Company measures VaR for all transactions that are not directly asset related and have economic risk. The VaR limit established for these transactions in February 2005 is $5.0 million. For the year ended December 31, 2005, the average VaR amount for these transactions was $1.7 million, with high and low VaR amounts for the period of $7.8 million and $0, respectively. The VaR amount for these transactions at December 31, 2005 was $3.5 million. In late 2005, the Company discontinued its use of VaR to manage risk from its asset-backed merchant operations; therefore, the Company no longer measures a total portfolio VaR. Management believes that the limitations inherent in the VaR calculation overstates the market risk related to its generation assets.

In 2004, the Company utilized the variance/covariance model of VaR, which is a probabilistic model that measures the risk of loss to earnings in market sensitive instruments. The variance/covariance model relies on statistical relationships to analyze how changes in different markets can affect a portfolio of instruments with different characteristics and market exposure. For the year ended December 31, 2004 the Company’s average total VaR amount was $15.7 million, with high and low VaR amounts for the period of $29.1 million and $5.1 million, respectively. The total VaR amount at December 31, 2004 was $20.0 million. In the prior year the Company also measured VaR for a subset of transactions that were marked-to-market in accordance with SFAS 133. The VaR limit established for these transactions was $2.0 million. For the year ended December 31, 2004, the average VaR amount for these transactions was $0.3 million, with high and low VaR amounts for the period of $1.1 million and $0, respectively. The total VaR amount for these transactions as reported at December 31, 2004 was $0.6 million. Because of the nature of the Monte Carlo simulation method now utilized by the Company, reporting of the 2004 VaR amounts using the Company’s new approach is neither practical nor representational of the Company’s management of risk in 2004.

First Choice measures the market risk of its activities using an EaR calculation to maintain the Company’s total exposure within management-prescribed limits. Because of its obligation to serve, First Choice must take its obligations to settlement. Accordingly, a measure that evaluates the settlement of First Choice’s positions against earnings provides management with a useful tool to manage its portfolio. First Choice’s EaR calculation reports the possible losses against forecasted earnings for its retail load and supply portfolio. This calculation is based on First Choice’s forecasted earnings on the reporting date. The Company utilizes a Delta/Gamma approximation model of EaR. The Delta/Gamma model calculates a price change within a given time frame, correlation and volatility parameters for each price curve utilized in valuing the mark-to-market of each position to develop a change in value for any position. This process is repeated multiple times to calculate a standard deviation, which is used to arrive at an EaR amount based on a certain confidence level. The model uses the Delta/Gamma approximation to model the optionality related to price-to-beat rate resets by both the Company and the PUCT as discussed above. First Choice utilizes the one-tailed confidence level at 95%. EaR models are relatively sophisticated. The quantitative risk information, however, is limited by the parameters established in creating the model. The instruments being evaluated may trigger a potential loss in excess of calculated amounts if changes in commodity prices exceed the confidence level of the model used. The EaR calculation considers the Company’s forward position for the next twelve months and holds each position to settlement. The volatility and the correlation estimates measure the impact of adverse price movements both at an individual position level as well as at the total portfolio level. For example, if EaR is calculated at $10.0 million, it is estimated at a 95% confidence level that if prices move against First Choice’s positions, the losses against the Company’s forecasted earnings over the next twelve months would not exceed $10.0 million.

For the period June 6 through December 31, 2005, the average total EaR amount was $19.5 million, with high and low EaR amounts for the period of $26.4 million and $14.6 million, respectively. The total EaR amount at December 31, 2005 was $14.6 million.

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In July 2005, the Finance Committee approved new risk measures for First Choice. These measures were designed to give First Choice management flexibility to execute its strategies to reduce the risk inherent in the portfolio and to take advantage of market opportunities in a controlled and limited fashion. The Company adopted an EaR limit of $25.0 million. Upon successful execution of First Choice’s strategy to mitigate risk by locking in its floating supply costs at favorable prices, these limits are expected to be lowered to match the new risk profile. In addition, the Company adopted two new VaR measures to monitor the market based mitigation strategies of First Choice management. The first VaR limit is based on the same total retail load and supply portfolio as the EaR measure; however, the VaR measure is intended to capture the effects of changes in market prices over a 10 day holding period. This holding period is considered appropriate given the nature of First Choice’s supply portfolio and the constraints faced by First Choice in the ERCOT market. The calculation utilizes the same Monte Carlo simulation approach described above at a 95% confidence level. This VaR limit was established at $7.5 million. The second VaR limit was established at $1.5 million for transactions that are subject to mark-to-market accounting as defined by SFAS 133 and SFAS 149, “Amendment of Statement 133 on Derivative Instruments and HedgingActivities.” This calculation captures the effect of changes in market prices over a three-day holding period and utilizes the same Monte Carlo simulation approach described above at a 95% confidence level.

The Company's risk measures are regularly monitored by the Company's RMC. The RMC has put in place procedures to ensure that increases in risk measures that exceed the prescribed limits are reviewed and, if deemed necessary, acted upon to reduce exposures. The VaR and EaR limits represent an estimate of the potential gains or losses that could be recognized on the Company’s portfolios, subject to market risk, given current volatility in the market, and are not necessarily indicative of actual results that may occur, since actual future gains and losses will differ from those estimated. Actual gains and losses may differ due to actual fluctuations in market prices, operating exposures, and the timing thereof, as well as changes to the underlying portfolios during the year.

Credit Risk

The Company uses derivative financial instruments to manage risk as it relates to changes in natural gas and electric prices, changes in interest rates and, historically, adverse market changes for investments held by the Company’s various trusts. The Company also uses certain derivative instruments for wholesale power marketing transactions in order to take advantage of favorable price movements and market timing activities in the wholesale power markets. The Company’s use of derivatives and the resulting credit risk is regularly monitored by the RMC.

In addition, counterparties expose the Company to credit losses in the event of non-performance or non-payment. The Company manages credit on a consolidated basis and uses a credit management process to assess and monitor the financial conditions of counterparties. Credit exposure is regularly monitored by the RMC. The RMC has put in place procedures to ensure that increases in credit risk measures that exceed the prescribed limits are reviewed and, if deemed necessary, acted upon to reduce exposures.

A-86

The following table provides information related to PNM Wholesale’s credit exposure as of December 31, 2005. The Company does not hold any credit collateral as of December 31, 2005. The table further delineates that exposure by the credit worthiness (credit rating) of the counterparties and provides guidance as to the concentration of credit risk to individual counterparties PNM Wholesale may have. Also provided is an indication of the maturity of a Company’s credit risk by credit ratings of the counterparties.

Schedule of PNM Wholesale Credit Risk Exposure

December 31, 2005

					Net
	(b)		Number		Exposure
	Net		of		of
	Credit		Counter		Counter-
	Risk		-parties		parties
Rating (a)	Exposure		>10%		>10%
	(Dollars in thousands)
Investment grade	$	117,734		2	$	38,887
Non-investment grade		985		-		-
Internal ratings
Investment grade		51		-		-
Non-investment grade		3,663		-		-
Total	$	122,433			$	38,887

(a)   The Ratingincluded 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 RiskExposure is the net credit exposure to PNM from PNM Wholesale operations. This includes long-term contracts, forward sales and short-term sales. The exposure captures the net amounts due to PNM from receivables/payables for realized transactions, delivered and unbilled revenues, and mark-to-market gains/losses (pursuant to contract terms). Exposures are offset according to legally enforceable netting arrangements and reduced by credit collateral. Credit collateral includes cash deposits, letters of credit and performance bonds received from counterparties. Amounts are presented before those reserves that are determined on a portfolio basis.

A-87

PNM Wholesale

Maturity of Credit Risk Exposure

December 31, 2005

							Total
	Less than						Net
Rating	2 Years		2-5 Years		>5 Years		Exposure
			(In thousands)
Investment grade	$	100,489	$	13,686	$	3,559	$	117,734
Non-investment grade		985		-		-		985
Internal ratings
Investment grade		51		-		-		51
Non-investment grade		3,663		-		-		3,663
Total	$	105,188	$	13,686	$	3,559	$	122,433

The Company provides for losses due to market and credit risk. PNM Wholesale credit risk with its largest counterparty as of December 31, 2005 and December 31, 2004 was $20.5 million and $26.2 million, respectively.

First Choice

First Choice is subject to credit risk from non-performance by its supply counterparties to the extent these contracts have a mark-to-market value in the favor of First Choice. The Constellation power supply agreement established FCPSP, a bankruptcy remote special purpose entity, to hold all of First Choice's customer contracts and wholesale power and gas contracts. Constellation received a lien on accounts receivable, customer contracts, cash, and the equity of FCPSP as security for FCPSP’s performance under the power supply agreement. The provisions of this agreement severely limit FCPSP’s ability to secure power from alternate sources. Additionally, the terms of the security agreement do not require Constellation to post collateral for any mark-to-market balances in FCPSP’s favor. At December 31, 2005, the supply contracted with Constellation was in a favorable mark-to-market position for FCPSP. When netted against amounts owed to Constellation, this exposure was approximately $8.0 million. The Constellation power supply agreement collateral provisions will continue until the expiration of the agreement on December 31, 2007. First Choice's credit exposure to other counterparties at December 31, 2005 was $14.6 million and the tenor of these exposures was less than two years.

First Choice has continued to experience a reduction in bad debt expense from its retail customers due to reduced customer receivables resulting partially from effective disconnect policies, increased collection activity and refined consumer credit and securitization policies. Bad debt expense for the period June 6, 2005 through December 31, 2005, was $2.5 million. First Choice expects bad debt expense to increase in 2006 due primarily to the continued increase in the price of natural gas and impacts from the Gulf Coast hurricanes, including waiver of customer deposits for hurricane victims.

PNM Gas Supply Hedging Activities

PNM hedges certain portions of natural gas supply contracts in order to protect its retail customers from adverse price fluctuations in the natural gas market. The financial impact of all hedge gains and losses, including the related costs of the program, is recoverable through the PGAC. As a result, earnings are not affected by gains and losses generated by these instruments.

In order to protect its natural gas customers from the risk of rising prices during the 2005-2006 heating season, in total, PNM spent approximately $6.8 million in 2005 to purchase gas options that essentially cap the amount PNM would pay for each volume of gas subject to the options during the winter heating season. PNM expects to recover its option premiums as a component of the PGAC during the months of October 2005 through February 2006.

A-88

Interest Rate Risk

PNMR

PNMR’s senior notes issued as part of the equity-linked units sold in March and October 2005 will be remarketed in 2008. If the remarketing is successful, the interest rate on the senior notes may change to a rate selected by the remarketing agent, and the maturity of the senior notes may be extended to a date selected by PNMR. If the remarketing of the senior notes is not successful, the maturity and interest rate of the senior notes will not change and holders of the equity-linked units will have the option of putting their senior notes to PNMR to satisfy their obligations under the purchase contracts. PNMR expects that the remarketing of the senior notes will be successful.

PNM

PNM has long-term debt which subjects it to the risk of loss associated with movements in market interest rates. The majority of PNM’s long-term debt is fixed-rate debt, and therefore, does not expose PNM’s earnings to a major risk of loss due to adverse changes in market interest rates. However, the fair value of all long-term debt instruments would increase by approximately 4.6%, or $48.3 million, if interest rates were to decline by 50 basis points from their levels at December 31, 2005. At December 31, 2005, the fair value of PNM's long-term debt was approximately $1.05 billion as compared to a book value of $1.02 billion. In general, an increase in fair value would impact earnings and cash flows to the extent not recoverable in rates if PNM were to re-acquire all or a portion of its debt instruments in the open market prior to their maturity.

PNM’s $146.0 million, 2.1% pollution control bonds due in 2033 are required to be remarketed in April 2006. Following a successful remarketing, the interest rate on the pollution control bonds may change to reflect current market conditions. If for some reason, the remarketing of the pollution control bonds were not successful, PNM would be required to repurchase the bonds.

During the year ended December 31, 2005, PNM contributed cash of approximately $9.7 million to PVNGS decommissioning, pension and other postretirement benefits for plan year 2005. The securities held by the trusts had an estimated fair value of $631.8 million at December 31, 2005, of which approximately 26.5% were fixed-rate debt securities that subject PNM to risk of loss of fair value with movements in market interest rates. If rates were to increase by 50 basis points from their levels at December 31, 2005, the decrease in the fair value of the securities would be 2.8% or $4.8 million. PNM does not currently recover or return through rates any losses or gains on these securities. PNM, therefore, is at risk for shortfalls in its funding of its obligations due to investment losses. PNM does not believe that long-term market returns over the period of funding will be less than required for PNM to meet its obligations. However, this belief is based on assumptions about future returns that are inherently uncertain.

TNMP

TNMP has long-term debt which subjects it to the risk of loss associated with movements in market interest rates. The majority of TNMP’s long-term debt is fixed-rate debt, and therefore, does not expose TNMP’s earnings to a major risk of loss due to adverse changes in market interest rates. However, the fair value of all long-term debt instruments would increase by approximately 1.2%, or $5.3 million, if interest rates were to decline by 50 basis points from their levels at December 31, 2005. At December 31, 2005, the fair value of TNMP's long-term debt was approximately $432.8 million as compared to a book value of $425.0 million. In general, an increase in fair value would impact earnings and cash flows to the extent not recoverable in rates if TNMP were to re-acquire all or a portion of its debt instruments in the open market prior to their maturity.

During the year ended December 31, 2005, TNMP contributed cash of approximately $0.9 million to other postretirement benefits for plan year 2005. The securities held by the trusts had an estimated fair value of $88.0 million at December 31, 2005, of which approximately 28.0% were fixed-rate debt securities that subject TNMP to risk of loss of fair value with movements in market interest rates. TNMP, therefore, is at risk for shortfalls in its funding of its obligations due to investment losses. TNMP does not believe that long-term market returns over the period of funding will be less than required for TNMP to meet its obligations. However, this belief is based on assumptions about future returns that are inherently uncertain.

A-89

Equity Market Risk

PNMR

Until October 2005, when the program was discontinued, PNMR had a cash management program that included a preferred stock dividend capture strategy and various absolute return strategies that had the objective of achieving returns higher than that associated with passive cash management plans and with bond-like volatility. The four investments under this program have been classified as trading securities in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS 115”). PNMR has requested and is in the process of requesting return of the cash held by investment managers under this program. At December 31, 2005, PNMR had received cash of $3.2 million held by one investment manager and cash of $6.7 million from two others was received in January and February 2006. As of December 31, 2005 and December 31, 2004, the total balance in this investment program was $3.5 million and $10.6 million, respectively.

During 2005, PNMR determined that one of its investments under this program, Wood River, had experienced a loss in market value. During the third quarter of 2005, PNMR wrote down the value of its investment in Wood River to zero and incurred a loss of approximately $3.6 million. In the fourth quarter of 2005, the assets held in the Wood River fund were transferred into receivership as part of a civil complaint filed by the SEC against Wood River. As noted above, prior to this, the investments in Wood River were classified and accounted for as trading securities. At December 31, 2005, due to the change in circumstances surrounding Wood River, PNMR’s investment was reclassified from trading to available-for-sale in accordance with SFAS 115. The fair value of PNMR’s investment in Wood River was determined to be zero at December 31, 2005. PNMR cannot predict when or if it will receive a return of the cash value of its investment in Wood River.

PNM

PNM contributes to trusts established to fund its share of the decommissioning costs of PVNGS and pension and other postretirement benefits. The trusts hold certain equity securities at December 31, 2005. These equity securities also expose the Company to losses in fair value. Approximately 60.4% of the securities held by the various trusts were equity securities as of December 31, 2005. Similar to the debt securities held for funding decommissioning and certain pension and other postretirement costs, PNM does not recover or earn a return through rates on any losses or gains on these equity securities.

TNMP

TNMP contributes to trusts established to fund the pension and other postretirement benefits. The trusts hold certain equity securities at December 31, 2005. These equity securities also expose the Company to losses in fair value. Approximately 62.7% of the securities held by the various trusts were equity securities as of December 31, 2005. TNMP does not recover or earn a return through rates on any losses or gains on these equity securities.

A-90

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

GLOSSARY

Afton	Afton Generating Station
ALJ	Administrative Law Judge
Altura	Altura Power L.P.
APB	Accounting Principles Board
APS	Arizona Public Service Company
ARO	Asset Retirement Obligation
Avistar	Avistar, Inc.
BLM	U.S. Department of the Interior Bureau of Land Management
BNCC	BHP Navajo Coal Company
Board	Board of Directors
BTU	British Thermal Unit
Cal PX	California Power Exchange
Cal ISO	California Independent System Operator
CCN	Certificate of Public Convenience and Necessity
Company	PNM Resources, Inc. and Subsidiaries
Congress	United States Congress
Constellation	Constellation Energy Commodities Group, Inc.
Decatherm	1,000,000 BTUs
Delta	Delta-Person Limited Partnership
DOJ	United States Department of Justice
Duke	Duke Energy Corporation
EaR	Earnings at Risk
EIP	Eastern Interconnection Project
EITF	Emerging Issues Task Force
EPE	El Paso Electric Company
EPA	United States Environmental Protection Agency
ERCOT	Electric Reliability Council of Texas
ESPP	Employee Stock Purchase Plan
FASB	Financial Accounting Standards Board
Farmington	City of Farmington, New Mexico
FCPSP	First Choice Power Special Purpose, L.P.
FERC	Federal Energy Regulatory Commission
First Choice	First Choice Power, L. P. and Subsidiaries
FIP	Federal Implementation Plan
Four Corners	Four Corners Power Plant
FPL	FPL Energy New Mexico Wind, LLC
GAAP	Generally Accepted Accounting Principles in the United
	States of America
GCT	Grand Canyon Trust

B-1

Global Electric Agreement	Signed by PNMR and other parties in 2003; provides for a five-year rate path for New Mexico jurisdictional customers that began in September 2003
Great Southwestern	Great Southwestern Construction, Inc.
IBLA	Interior Board of Land Appeals
IRS	United States Internal Revenue Service
ISO	Independent System Operator
LIBOR	London Interbank Offered Rate
Lordsburg	Lordsburg Generating Station
Luna	Luna Energy Facility
MMBTUs	Million British Thermal Units
Moody's	Moody’s Investor Services, Inc.
MW	Megawatt
MWh	Megawatt Hour
Navajo Acts	Navajo Nation Air Pollution Prevention and Control Act, the
	Navajo Nation Safe Drinking Water Act, and the Navajo
	Nation Pesticide Act
Ninth Circuit	United States Court of Appeals for the Ninth Circuit
NMED	New Mexico Environment Department
NMPRC	New Mexico Public Regulation Commission
NNHPD	Navajo Nation Historic Preservation Department
NRC	United States Nuclear Regulatory Commission
NSPS	New Source Performance Standards
NSR	New Source Review
OASIS	Open Access Same Time Information System
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 Subsidiary
PNMR	PNM Resources, Inc. and Subsidiaries
PPA	Power Purchase Agreement
PRG	Power Resource Group, Inc.
PSA	Power Supply Agreement
PSD	Prevention of Significant Deterioration
PUCT	Public Utility Commission of Texas
PUHCA	The Public Utility Holding Company Act
PURPA	Public Utility Regulatory Policy Act of 1978
PVNGS	Palo Verde Nuclear Generating Station
Reeves	Reeves Generating Station
REP	Retail Electricity Provider
Restructuring Act	New Mexico Electric Utility Industry Restructuring Act of
	1999, as amended
RMC	Risk Management Committee
RMRR	Routine Maintenance, Repair or Replacement
RTO	Regional Transmission Organization

B-2

SCE	Southern California Edison Company
SCPPA	Southern California Public Power Authority
SDG&E	San Diego Gas and Electric Company
SEC	United States Securities and Exchange Commission
Sempra	Sempra Energy
Senate Bill 7	Legislation that established retail competition in Texas
SESCO	San Angelo Electric Service Company
SFAS	Statement of Financial Accounting Standards
SJCC	San Juan Coal Company
SJGS	San Juan Generating Station
SO2	Sulfur Dioxide
S&P	Standard and Poors Ratings Services
SPS	Southwestern Public Service Company
SW Acquisition	SW Acquisition, L.P.
TCEQ	Texas Commission on Environmental Quality
TECA	Texas Electric Choice Act (also known as Senate Bill 7)
TNMP	Texas-New Mexico Power Company and Subsidiaries
TNP	TNP Enterprises, Inc. and Subsidiaries
Throughput	Volumes of gas delivered, whether or not owned by the Company
Tri-State	Tri-State Generation and Transmission Association, Inc.
Tucson	Tucson Electric Power Company
Twin Oaks	Assets of Twin Oaks Power, LP and Twin Oaks Power III, LP
UAMPS	Utah Associated Municipal Power Systems
USBR	United States Bureau of Reclamation
USFS	United States Forest Service
VaR	Value at Risk
Wood River	Wood River Partners, L.P.
WSPP	Western Systems Power Pool

B-3

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

INDEX

	Page
Glossary	B-1
Management’s Annual Report on Internal Control Over Financial Reporting	B-5
Report of Independent Registered Public Accounting Firm	B-7
Financial Statements:
PNM Resources, Inc. and Subsidiaries
Consolidated Statements of Earnings	B-13
Consolidated Statements of Retained Earnings	B-14
Consolidated Balance Sheets	B-15
Consolidated Statements of Cash Flows	B-17
Consolidated Statements of Capitalization	B-19
Consolidated Statements of Comprehensive Income (Loss)	B-20
Public Service Company of New Mexico and Subsidiary
Consolidated Statements of Earnings	B-21
Consolidated Statements of Retained Earnings	B-22
Consolidated Balance Sheets	B-23
Consolidated Statements of Cash Flows	B-25
Consolidated Statements of Capitalization	B-27
Consolidated Statements of Comprehensive Income (Loss)	B-28
Texas-New Mexico Power Company and Subsidiaries
Consolidated Statements of Earnings	B-29
Consolidated Statements of Retained Earnings	B-30
Consolidated Balance Sheets	B-31
Consolidated Statements of Cash Flows	B-33
Consolidated Statements of Capitalization	B-35
Consolidated Statements of Comprehensive Income (Loss)	B-36
Notes to Consolidated Financial Statements	B-37
Supplementary Data:
Report of Independent Registered Public Accounting Firm on Schedules	B-133
Schedule I Condensed Financial Information of Parent Company	B-135
Schedule II Valuation and Qualifying Accounts	B-138

B-4

Management’s Annual Report on Internal Control Over Financial Reporting

Management of PNM Resources, Inc. and subsidiaries (“the Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended.

Management assessed the effectiveness of the Company’s internal control over financial reporting based on the Internal Control - Integrated Framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment performed, management concludes that the Company’s internal control over financial reporting was effective as of December 31, 2005.

Management has excluded TNP Enterprises, Inc. and its subsidiaries Texas-New Mexico Power Company and First Choice Power from their report on internal control over financial reporting. The financial statements of TNP Enterprises, Inc. and its subsidiaries reflect total assets and revenues constituting 29 and 20 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2005. The Company has disclosed the material change in the Company’s internal control over financial reporting due to the acquisition, which occurred June 6, 2005.

Deloitte & Touche LLP, an independent registered public accounting firm, has issued an attestation report on management’s assessment of internal control over financial reporting which is included herein.

/s/ Jeffry E. Sterba

Jeffry E. Sterba,

Chairman, President and

Chief Executive Officer

/s/ Charles Eldred

Charles Eldred

Senior Vice President and

Chief Financial Officer

B-5

Management’s Annual Report on Internal Control Over Financial Reporting

Management of Public Service Company of New Mexico and subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended.

Management assessed the effectiveness of the Company’s internal control over financial reporting based on the Internal Control - Integrated Framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment performed, management concludes that the Company’s internal control over financial reporting was effective as of December 31, 2005.

Deloitte & Touche LLP, an independent registered public accounting firm, has issued an attestation report on management’s assessment of internal control over financial reporting which is included herein.

/s/ Jeffry E. Sterba

Jeffry E. Sterba,

Chairman, President and

Chief Executive Officer

/s/ Charles Eldred

Charles Eldred

Senior Vice President and

Chief Financial Officer

B-6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

PNM Resources, Inc.

Albuquerque, New Mexico

We have audited management's assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, that PNM Resources, Inc. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Annual Report on Internal Control Over Financial Reporting, management excluded from their assessment the internal control over financial reporting at TNP Enterprises, Inc., and its subsidiaries Texas-New Mexico Power Company and First Choice Power which were acquired on June 6, 2005 and whose financial statements reflect total assets and revenues constituting 29 and 20 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2005. Accordingly, our audit did not include the internal control over financial reporting at TNP Enterprises, Inc. and its subsidiaries. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing, and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005 is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2005 of the Company and our report dated March 8, 2006 expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph relating to the adoption of Financial Accounting Standards Board Financial

B-7

Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations and PNM Resources, Inc.’s acquisition of TNP Enterprises, Inc. in 2005.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

March 8, 2006

B-8

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Public Service Company of New Mexico

Albuquerque, New Mexico

We have audited management's assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, that Public Service Company of New Mexico and subsidiary (the “Company”) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing, and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005 is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2005 of the Company and our report dated March 8, 2006 expressed an unqualified opinion on those financial statements and included an explanatory paragraph relating to the adoption of Financial Accounting Standards Board Financial Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations in 2005.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

March 8, 2006

B-9

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

PNM Resources, Inc.

Albuquerque, New Mexico

We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of PNM Resources, Inc. and subsidiaries (the “Company”) as of December 31, 2005 and 2004, and the related consolidated statements of earnings, retained earnings, comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of PNM Resources, Inc. and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, effective January 1, 2003 and Financial Accounting Standards Board Financial Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations in 2005. As discussed in Note 12 to the consolidated financial statements, during 2003, the Company changed the actuarial valuation measurement date for the pension plan and other post-retirement benefit plans from September 30 to December 31. As discussed in Note 2 to the consolidated financial statements, the Company acquired TNP Enterprises, Inc. in 2005.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 8, 2006 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

March 8, 2006

B-10

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Public Service Company of New Mexico

Albuquerque, New Mexico

We have audited the accompanying consolidated balance sheets and statements of capitalization of Public Service Company of New Mexico and subsidiary (the “Company”) as of December 31, 2005 and 2004, and the related consolidated statements of earnings, retained earnings, comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Public Service Company of New Mexico and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, effective January 1, 2003 and Financial Accounting Standards Board Financial Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations in 2005. As discussed in Note 12 to the consolidated financial statements, during 2003, the Company changed the actuarial valuation measurement date for the pension plan and other post-retirement benefit plans from September 30 to December 31.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 8, 2006 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

March 8, 2006

B-11

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of

Texas-New Mexico Power Company

Fort Worth, Texas

We have audited the accompanying consolidated balance sheets and statements of capitalization of Texas-New Mexico Power Company and subsidiaries (the “Company”) as of December 31, 2005 and 2004, and the related consolidated statements of earnings, retained earnings, comprehensive income (loss), and cash flows for the periods June 6, 2005 to December 31, 2005, January 1, 2005 to June 6, 2005, and each of the years ended December 31, 2004 and 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Texas-New Mexico Power Company and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of periods June 6, 2005 to December 31, 2005, January 1, 2005 to June 6, 2005, and each of the years ended December 31, 2004 and 2003, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, PNM Resources, Inc. acquired Texas-New Mexico Power Company and its parent TNP Enterprises, Inc. in 2005. As discussed in Note 1 to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Financial Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations in 2005.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

March 8, 2006

B-12

PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
	Year Ended December 31,
	2005			2004			2003
	(In thousands, except per share amounts)
Operating Revenues:
Electric	$	1,564,077		$	1,113,046		$	1,097,075
Gas		510,801			490,921			358,267
Other		1,932			825			311
Total operating revenues		2,076,810			1,604,792			1,455,653
Operating Expenses:
Cost of energy sold		1,274,647			945,309			802,670
Administrative and general		217,983			168,095			158,706
Energy production costs		165,580			146,153			140,584
Depreciation and amortization		138,722			102,221			115,649
Transmission and distribution costs		70,465			59,447			60,070
Taxes, other than income taxes		52,594			34,607			31,310
Income taxes		19,450			36,062			28,072
Total operating expenses		1,939,441			1,491,894			1,337,061
Operating income		137,369			112,898			118,592
Other Income and Deductions:
Interest income		42,829			38,007			41,826
Other income		17,639			10,063			10,879
Carrying charges on regulatory assets		4,376			-			-
Other deductions		(24,104	)		(8,150	)		(46,153	)
Other income taxes		(13,411	)		(13,185	)		183
Net other income and deductions		27,329			26,735			6,735
Earnings before interest charges		164,698			139,633			125,327
Interest Charges:
Interest on long-term debt, net		75,736			46,702			59,429
Other interest charges		17,941			4,673			6,760
Net interest charges		93,677			51,375			66,189
Preferred Stock Dividend Requirements		2,868			572			586
Net Earnings Before Cumulative Effect of Changes in Accounting Principles		68,153			87,686			58,552
Cumulative Effect of Changes in Accounting Principles
Net of Tax (Expense) Benefit of $592, $0 and $(23,999)		(926	)		-			36,621
Net Earnings	$	67,227		$	87,686		$	95,173
Net Earnings per Common Share (see Note 10):
Basic	$	1.02		$	1.45		$	1.60
Diluted	$	1.00		$	1.43		$	1.58
Dividends Declared per Common Share	$	0.785		$	0.665		$	0.600
The accompanying notes, as they relate to PNMR, are an integral part of these financial statements.

B-13

PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
	Year Ended December 31,
	2005			2004			2003
	(In thousands)
Balance at Beginning of Year	$	550,566		$	503,069		$	444,651
Net earnings		67,227			87,686			95,173
Dividends:
Common stock		(53,170	)		(40,189	)		(36,755	)
Balance at End of Year	$	564,623		$	550,566		$	503,069
The accompanying notes, as they relate to PNMR, are an integral part of these financial statements.

B-14

PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
	December 31,
	2005		2004
	(In thousands)
ASSETS
Utility Plant:
Electric plant in service	$	3,315,642	$	2,488,961
Gas plant in service		711,823		680,487
Common plant in service and plant held for future use		135,849		140,818
		4,163,314		3,310,266
Less accumulated depreciation and amortization		1,374,599		1,135,510
		2,788,715		2,174,756
Construction work in progress		168,195		124,381
Nuclear fuel, net of accumulated amortization of $14,679 and $16,448		27,182		25,449
Net utility plant		2,984,092		2,324,586
Other Property and Investments:
Investment in lessor notes		286,678		308,680
Other investments		180,013		139,848
Non-utility property, net of accumulated depreciation of $22 and $1,773		4,214		1,437
Total other property and investments		470,905		449,965
Current Assets:
Cash and cash equivalents		68,199		17,195
Special deposits		534		-
Accounts receivable, net of allowance for uncollectible accounts of $3,653 and $1,329		128,834		96,600
Unbilled revenues		151,773		104,708
Other receivables		64,285		48,393
Inventories		52,037		41,352
Regulatory assets		28,058		3,339
Other current assets		102,577		51,967
Total current assets		596,297		363,554
Deferred charges:
Regulatory assets		347,279		217,196
Prepaid pension cost		91,444		87,336
Goodwill		499,155		-
Other intangible assets		78,512		-
Other deferred charges		57,025		44,998
Total deferred charges		1,073,415		349,530
	$	5,124,709	$	3,487,635
The accompanying notes, as they relate to PNMR, are an integral part of these financial statements.

B-15

PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
	December 31,
	2005			2004
	(In thousands)
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stockholders’ equity:
Common stock outstanding (no par value, 120,000,000 shares authorized:
issued 68,786,286 and 60,464,595 at December 31, 2005 and 2004, respectively)	$	813,425		$	638,826
Accumulated other comprehensive loss, net of tax		(91,589	)		(89,813	)
Retained earnings		564,623			550,566
Total common stockholders’ equity		1,286,459			1,099,579
Cumulative preferred stock of subsidiary without mandatory redemption
($100 stated value, 10,000,000 shares authorized: issued 115,293 at
December 31, 2005 and 2004)		11,529			11,529
Long-term debt		1,746,395			987,823
Total capitalization		3,044,383			2,098,931
Current Liabilities:
Short-term debt		332,200			94,700
Accounts payable		206,648			117,645
Accrued interest and taxes		27,815			15,796
Other current liabilities		156,833			128,476
Total current liabilities		723,496			356,617
Long-Term Liabilities:
Accumulated deferred income taxes		451,263			284,528
Accumulated deferred investment tax credits		33,806			35,360
Regulatory liabilities		402,253			327,419
Asset retirement obligations		55,646			50,361
Accrued pension liability and postretirement benefit cost		227,202			180,903
Other deferred credits		186,660			153,516
Total long-term liabilities		1,356,830			1,032,087
Commitments and Contingencies (see Note 16)		-			-
	$	5,124,709		$	3,487,635
The accompanying notes, as they relate to PNMR, are an integral part of these financial statements.

B-16

PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
	Year Ended December 31,
	2005			2004			2003
	(In thousands)
Cash Flows From Operating Activities:
Net earnings	$	67,227		$	87,686		$	95,173
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization		160,591			131,625			144,854
Allowance for equity funds used during construction		(1,892	)		(1,294	)		(2,589	)
Accumulated deferred income tax		28,318			39,966			90,175
Transition costs write-off		-			-			16,720
Loss on reacquired debt		-			-			16,576
Cumulative effect of a changes in accounting principles		1,518			-			(60,620	)
Net unrealized (gains)/losses on trading and investment securities		3,753			(1,640	)		(1,360	)
Realized gains on investment securities		(8,562	)		(2,584	)		(1,251	)
Carrying charges on deferred stranded costs		(4,376	)		-			-
Equity-linked units charge		11,348			-			-
Turbine impairment		14,958			-			-
Other, net		(1,384	)		-			(2,433	)
Changes in certain assets and liabilities, net of amounts acquired:
Accounts receivable		(14,375	)		(28,342	)		(21,344	)
Unbilled revenues		(13,291	)		(21,809	)		5,539
Accrued postretirement benefit costs		13,586			(6,089	)		(14,962	)
Other assets		(85,388	)		(2,085	)		(5,972	)
Accounts payable		45,839			30,429			(7,317	)
Accrued interest and taxes		20,474			(7,680	)		(22,712	)
Other liabilities		(27,893	)		16,959			(2,562	)
Net cash flows from operating activities		210,451			235,142			225,915
Cash Flows From Investing Activities:
Utility plant additions		(211,160	)		(135,795	)		(167,701	)
Nuclear fuel additions		(10,654	)		(9,915	)		(9,503	)
Redemption of available-for-sale investments		-			-			80,291
Proceeds from sales of securities		104,623			81,218			79,624
Purchases of securities		(109,795	)		(87,823	)		(84,068	)
Cash acquired from purchase of TNP, net of cash paid		45,965			-			-
Combustion turbine payments		-			-			(11,136	)
Bond purchase		-			-			(6,675	)
Return of principal PVNGS lessor notes		21,432			20,292			18,360
Luna investment		-			(13,379	)		-
Other, net		4,946			1,564			2,018
Net cash flows from investing activities		(154,643	)		(143,838	)		(98,790	)
The accompanying notes, as they relate to PNMR, are an integral part of these financial statements.

B-17

PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
	Year Ended December 31,
	2005			2004			2003
	(In thousands)
Cash Flows From Financing Activities:
Short-term borrowings (repayments), net		237,500			(31,218	)		(24,082	)
Long-term debt borrowings		339,832			-			483,882
Long-term debt repayments		(399,626	)		-			(476,572	)
Premium on long-term debt refinancing		-			-			(23,905	)
Refund costs of pollution control bonds		-			-			(31,427	)
Issuance of common stock		101,231			-			-
Redemption of TNP preferred stock		(224,564	)		-			-
Retirement of preferred stock		-			(1,118	)		-
Exercise of employee stock options		(9,735	)		(16,430	)		(9,639	)
Dividends paid		(51,128	)		(38,848	)		(36,702	)
Other, net		1,686			811			312
Net cash flows from financing activities		(4,804	)		(86,803	)		(118,133	)
Increase in Cash and Cash Equivalents		51,004			4,501			8,992
Beginning of Year		17,195			12,694			3,702
End of Year	$	68,199		$	17,195		$	12,694
Supplemental Cash Flow Disclosures:
Interest paid, net of capitalized interest	$	77,066		$	46,469		$	69,046
Income taxes paid (refunded), net	$	(4,174	)	$	14,459		$	(23,154	)
Supplemental schedule of noncash transactions:
Pension contribution of PNMR common shares	$	-		$	-		$	28,950
Supplemental schedule of noncash investing and financing activities:
During 2005, PNMR purchased all of the outstanding common shares of TNP for $74.6 million in cash
and $87.4 million in PNMR common stock. In conjunction with the acquisition, liabilities were
assumed as follows:
Fair value of assets acquired	$	1,501,114
Cash paid for transaction costs		(21,520	)
Cash paid for TNP common shares		(74,648	)
PNMR common stock exchanged for TNP common stock		(87,392	)
Liabilities assumed	$	1,317,554
The accompanying notes, as they relate to PNMR, are an integral part of these financial statements.

B-18

PNM RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CAPITALIZATION

	December 31,
	2005			2004
	(In thousands)
Common Stockholders’ Equity:
Common Stock, no par value	$	813,425		$	638,826
Accumulated other comprehensive income, net of tax		(91,589	)		(89,813	)
Retained earnings		564,623			550,566
Total common stockholders’ equity		1,286,459			1,099,579
Cumulative Preferred Stock:
Without mandatory redemption requirements:
1965 Series, 4.58% with a stated value of $100.00 and a
current redemption price of $102.00; outstanding shares
at December 31, 2005 and 2004 were 115,293		11,529			11,529
Long-Term Debt:
Issue and Final Maturity
First Mortgage Bonds, Pollution Control Revenue Bonds:
5.7% due 2016		65,000			65,000
Senior Unsecured Notes, Pollution Control Revenue Bonds:
6.30% due 2016		77,045			77,045
5.75% due 2022		37,300			37,300
5.80% due 2022		100,000			100,000
6.375% due 2022		90,000			90,000
6.30% due 2026		23,000			23,000
6.60% due 2029		11,500			11,500
2.10% due 2033		46,000			46,000
2.10% due 2033		100,000			100,000
4.00% due 2038		36,000			36,000
Total Senior Unsecured Notes, Pollution Control Revenue Bonds		520,845			520,845
Senior Unsecured Notes:
4.40% due 2008		300,000			300,000
7.50% due 2018		100,025			100,025
6.125% due 2008		248,935			-
6.25% due 2009		167,690			-
Other, including unamortized discounts		(3,350	)		1,953
Total Senior Unsecured Notes		813,300			401,978
Equity-Linked Units:
6.75% due 2010		247,250			-
6.625% due 2010		100,000			-
Total Equity-Linked Units		347,250			-
Total long-term debt		1,746,395			987,823
Total Capitalization	$	3,044,383		$	2,098,931
The accompanying notes, as they relate to PNMR, are an integral part of these financial statements.

B-19

PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
	Year Ended December 31,
	2005			2004			2003
	(In thousands)
Net Earnings	$	67,227		$	87,686		$	95,173
Other Comprehensive Income (Loss):
Unrealized gain (loss) on securities:
Unrealized holding gains arising during the period,
net of tax expense of $2,948, $1,212 and $1,256		4,498			1,849			1,916
Reclassification adjustment for gains included in net income,
net of tax expense of $2,925, $745 and $440		(4,464	)		(1,137	)		(672	)
Additional minimum pension liability adjustment, net of tax
(expense) benefit of $8,322, $14,415 and $(6,284)		(12,701	)		(21,996	)		9,589
Mark-to-market adjustment for certain derivative transactions:
Change in fair market value of designated cash flow hedges,
net of tax expense of $7,913, $3,567 and $6,816		11,844			5,443			10,401
Reclassification adjustment for gains included in net income,
net of tax expense of $624, $318 and $0		(953	)		(485	)		-
Total Other Comprehensive Income (Loss)		(1,776	)		(16,326	)		21,234
Total Comprehensive Income	$	65,451		$	71,360		$	116,407
The accompanying notes, as they relate to PNMR, are an integral part of these financial statements.

B-20

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
	Year Ended December 31,
	2005			2004			2003
	(In thousands)
Operating Revenues:
Electric	$	1,164,656		$	1,113,046		$	1,097,075
Gas		510,801			490,921			358,267
Total operating revenues		1,675,457			1,603,967			1,455,342
Operating Expenses:
Cost of energy sold		1,043,490			945,186			802,650
Administrative and general		176,641			165,942			160,200
Energy production costs		165,580			146,153			140,584
Depreciation and amortization		115,791			99,633			113,921
Transmission and distribution costs		58,231			59,447			61,169
Taxes, other than income taxes		31,175			31,270			29,670
Income taxes		8,217			37,964			28,262
Total operating expenses		1,599,125			1,485,595			1,336,456
Operating income		76,332			118,372			118,886
Other Income and Deductions:
Interest income		37,919			37,721			38,918
Other income		17,211			10,006			9,837
Other deductions		(7,141	)		(5,497	)		(39,625	)
Other income taxes		(17,077	)		(14,733	)		(2,328	)
Net other income and deductions		30,912			27,497			6,802
Earnings before interest charges		107,244			145,869			125,688
Interest Charges:
Interest on long-term debt, net		49,102			49,015			59,013
Other interest charges		5,022			4,416			6,697
Net interest charges		54,124			53,431			65,710
Net Earnings Before Cumulative Effect of Changes in Accounting Principles		53,120			92,438			59,978
Cumulative Effect of Changes in Accounting Principles,
Net of Tax (Expense) Benefit of $331, $0 and $(23,999)		(506	)		-			36,621
Net Earnings		52,614			92,438			96,599
Preferred Stock Dividend Requirements		528			572			586
Net Earnings Available for Common Stock	$	52,086		$	91,866		$	96,013
The accompanying notes, as they relate to PNM, are an integral part of these financial statements.

B-21

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
	Year Ended December 31,
	2005			2004			2003
	(In thousands)
Balance at Beginning of Year	$	371,455		$	302,589		$	256,157
Net earnings		52,614			92,438			96,599
Dividends:
Cumulative preferred stock		(528	)		(572	)		(586	)
Common stock dividends paid to parent company		(90,999	)		(23,000	)		(49,581	)
Balance at End of Year	$	332,542		$	371,455		$	302,589
The accompanying notes, as they relate to PNM, are an integral part of these financial statements.

B-22

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
	December 31,
	2005		2004
	(In thousands)
ASSETS
Utility Plant:
Electric plant in service	$	2,576,182	$	2,488,961
Gas plant in service		711,823		680,487
Common plant in service and plant held for future use		74,857		97,369
		3,362,862		3,266,817
Less accumulated depreciation and amortization		1,205,386		1,125,444
		2,157,476		2,141,373
Construction work in progress		137,663		110,406
Nuclear fuel, net of accumulated amortization of $14,679 and $16,448		27,182		25,449
Net utility plant		2,322,321		2,277,228
Other Property and Investments:
Investment in lessor notes		286,678		308,680
Other investments		170,422		116,134
Non-utility property		966		966
Total other property and investments		458,066		425,780
Current Assets:
Cash and cash equivalents		12,690		16,448
Special deposits		263		-
Accounts receivable, net of allowance for uncollectible accounts of $1,435 and $1,329		108,569		96,600
Unbilled revenues		121,453		104,708
Other receivables		53,546		45,717
Inventories		50,411		41,246
Regulatory assets		28,058		3,339
Other current assets		75,885		39,933
Total current assets		450,875		347,991
Deferred charges:
Regulatory assets		223,325		217,196
Prepaid pension cost		91,444		87,336
Other deferred charges		41,720		38,199
Total deferred charges		356,489		342,731
	$	3,587,751	$	3,393,730
The accompanying notes, as they relate to PNM, are an integral part of these financial statements.

B-23

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
	December 31,
	2005			2004
	(In thousands)
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stockholder’s equity:
Common stock outstanding (no par value, 40,000,000 shares authorized:
issued 39,117,799 at December 31, 2005 and 2004)	$	765,500		$	752,350
Accumulated other comprehensive loss, net of tax		(90,515	)		(89,813	)
Retained earnings		332,542			371,455
Total common stockholder’s equity		1,007,527			1,033,992
Cumulative preferred stock of subsidiary without mandatory redemption
($100 stated value, 10,000,000 shares authorized: issued 115,293 at
December 31, 2005 and 2004)		11,529			11,529
Long-term debt		987,068			987,676
Total capitalization		2,006,124			2,033,197
Current Liabilities:
Short-term debt		128,200			60,400
Accounts payable		170,517			116,763
Intercompany accounts payable		50,070			38,700
Accrued interest and taxes		15,951			28,783
Other current liabilities		98,753			91,765
Total current liabilities		463,491			336,411
Long-Term Liabilities:
Accumulated deferred income taxes		300,752			278,907
Accumulated deferred investment tax credits		32,266			35,360
Regulatory liabilities		346,007			327,419
Asset retirement obligations		54,940			50,361
Accrued pension liability and postretirement benefit cost		217,092			180,903
Other deferred credits		167,079			151,172
Total long-term liabilities		1,118,136			1,024,122
Commitments and Contingencies (see Note 16)		-			-
	$	3,587,751		$	3,393,730
The accompanying notes, as they relate to PNM, are an integral part of these financial statements.

B-24

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
	Year Ended December 31,
	2005			2004			2003
	(In thousands)
Cash Flows From Operating Activities:
Net earnings	$	52,614		$	92,438		$	96,599
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization		135,813			129,018			143,940
Allowance for equity funds used during construction		(1,757	)		(1,228	)		(2,551	)
Accumulated deferred income tax		20,039			38,162			82,799
Transition costs write-off		-			-			16,720
Loss on reacquired debt		-			-			16,576
Cumulative effect of changes in accounting principles		837			-			(60,620	)
Net unrealized gains on trading and investment securities		(5,749	)		(1,640	)		(1,360	)
Realized gains on investment securities		(8,562	)		(2,584	)		(1,251	)
Wholesale credit reserve		-			-			(2,433	)
Turbine impairment		14,958			-			-
Changes in certain assets and liabilities:
Accounts receivable		(11,969	)		(28,342	)		(21,344	)
Unbilled revenues		(16,745	)		(21,809	)		5,539
Accrued postretirement benefit costs		11,556			(6,090	)		(14,962	)
Other assets		(84,104	)		7,104			(3,716	)
Accounts payable		53,754			37,388			(12,905	)
Accrued interest and taxes		(12,833	)		19,905			(27,572	)
Other liabilities		23,691			(1,309	)		(19,285	)
Net cash flows from operating activities		171,543			261,013			194,174
Cash Flows From Investing Activities:
Utility plant additions		(157,092	)		(128,236	)		(159,322	)
Nuclear fuel additions		(10,654	)		(9,915	)		(9,503	)
Proceeds from sales of securities		104,623			81,218			79,624
Purchases of securities		(109,795	)		(87,823	)		(84,068	)
Combustion turbine payments		-			-			(11,136	)
EIP buyout		-			-			(36,925	)
Return of principal PVNGS lessor notes		21,432			20,292			18,360
Purchase of EIP investment		-			(12,247	)		-
Other, net		213			4,942			472
Net cash flows from investing activities		(151,273	)		(131,769	)		(202,498	)
The accompanying notes, as they relate to PNM, are an integral part of these financial statements.

B-25

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
	Year Ended December 31,
	2005			2004			2003
	(In thousands)
Cash Flows From Financing Activities:
Short-term borrowings (repayments), net		67,800			(64,500	)		(25,100	)
Long-term debt borrowings		-			-			483,780
Long-term debt repayments		(611	)		-			(450,420	)
Premium on long-term debt refinancing		-			-			(23,905	)
Refund costs of pollution control bonds		-			-			(31,427	)
Equity contribution from parent		-			-			126,053
Retirement of preferred stock		-			(1,118	)		-
Dividends paid		(91,527	)		(23,586	)		(49,581	)
Change in intercompany borrowings		25,555			(34,871	)		(12,340	)
Other, net		55			(328	)		(223	)
Net cash flows from financing activities		(24,028	)		(124,403	)		16,837
Increase (Decrease) in Cash and Cash Equivalents		(3,758	)		4,841			8,513
Beginning of Year		16,448			11,607			3,094
End of Year	$	12,690		$	16,448		$	11,607
Supplemental Cash Flow Disclosures:
Interest paid, net of capitalized interest	$	51,593		$	49,937		$	67,500
Income taxes paid (refunded), net	$	5		$	18,002		$	(5,084	)
The accompanying notes, as they relate to PNM, are an integral part of these financial statements.

B-26

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
	December 31,
	2005			2004
	(In thousands)
Common Stockholder’s Equity:
Common stock outstanding, no par value	$	765,500		$	752,350
Accumulated other comprehensive income, net of tax		(90,515	)		(89,813	)
Retained earnings		332,542			371,455
Total common stockholder’s equity		1,007,527			1,033,992
Cumulative Preferred Stock:
Without mandatory redemption requirements:
1965 Series, 4.58% with a stated value of $100.00 and a current redemption price of
$102.00; outstanding shares at December 31, 2005 and 2004 of 115,293		11,529			11,529
Long-Term Debt:
Issue and Final Maturity
First Mortgage Bonds, Pollution Control Revenue Bonds:
5.7% due 2016		65,000			65,000
Senior Unsecured Notes, Pollution Control Revenue Bonds:
6.30% due 2016		77,045			77,045
5.75% due 2022		37,300			37,300
5.80% due 2022		100,000			100,000
6.375% due 2022		90,000			90,000
6.30% due 2026		23,000			23,000
6.60% due 2029		11,500			11,500
2.10% due 2033		46,000			46,000
2.10% due 2033		100,000			100,000
4.00% due 2038		36,000			36,000
Total Senior Unsecured Notes, Pollution Control Revenue Bonds		520,845			520,845
Senior Unsecured Notes:
4.40% due 2008		300,000			300,000
7.50% due 2018		100,025			100,025
Other, including unamortized discounts		1,198			1,806
Total Senior Unsecured Notes		401,223			401,831
Total long-term debt		987,068			987,676
Total Capitalization	$	2,006,124		$	2,033,197
The accompanying notes, as they relate to PNM, are an integral part of these financial statements.

B-27

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
	Year Ended December 31,
	2005			2004			2003
	(In thousands)
Net Earnings Available for Common Stock	$	52,086		$	91,866		$	96,013
Other Comprehensive Income (Loss):
Unrealized gain (loss) on securities:
Unrealized holding gains arising from the period,
net of tax expense of $2,948, $1,212 and $1,545		4,498			1,849			2,357
Reclassification adjustment for gains included in net income,
net of tax expense of $2,925, $745 and $440		(4,464	)		(1,137	)		(672	)
Additional minimum pension liability adjustment, net of tax
(expense) benefit of $8,304, $14,415 and $(6,284)		(12,672	)		(21,996	)		9,589
Mark-to-market adjustment for certain derivative transactions:
Change in fair market value of designated cash flow hedges,
net of tax expense of $8,447, $3,567 and $6,140		12,889			5,443			9,369
Reclassification adjustment for gains included in net income,
net of tax expense of $624, $318 and $0		(953	)		(485	)		-
Total Other Comprehensive Income (Loss)		(702	)		(16,326	)		20,643
Total Comprehensive Income	$	51,384		$	75,540		$	116,656
The accompanying notes, as they relate to PNM, are an integral part of these financial statements.

B-28

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
	Post-Acquisition			Pre-Acquisition			Pre-Acquisition			Pre-Acquisition
	For the Period			For the Period			Year Ended			Year Ended
	June 6-			January 1-			December 31,			December 31,
	December 31, 2005			June 6, 2005			2004			2003
				(In thousands)
Operating Revenues:
Electric	$	154,350		$	112,820		$	269,665		$	249,488
Total operating revenues		154,350			112,820			269,665			249,488
Operating Expenses:
Cost of energy sold		58,014			43,885			101,361			89,818
Administrative and general		14,165			11,048			27,963			23,715
Depreciation and amortization		17,596			12,954			29,691			28,631
Transmission and distribution costs		12,403			9,111			19,314			20,289
Taxes, other than income taxes		14,261			9,228			22,884			21,227
Income taxes		7,965			5,055			13,680			13,044
Total operating expenses		124,404			91,281			214,893			196,724
Operating income		29,946			21,539			54,772			52,764
Other Income and Deductions:
Interest income		1,001			650			677			364
Other income		528			523			844			1,750
Carrying charges on regulatory assets		4,376			(1,407	)		32,006			-
Other deductions		(74	)		(79	)		(254	)		(35	)
Other income taxes		(2,071	)		154			(12,711	)		(661	)
Net other income and deductions		3,760			(159	)		20,562			1,418
Interest Charges:
Interest on long-term debt, net		14,650			11,077			25,855			25,279
Other interest charges		1,225			1,043			2,836			3,621
Net interest charges		15,875			12,120			28,691			28,900
Net Earnings Before Extraordinary Item
and Cumulative Effect of Change in
Accounting Principle		17,831			9,260			46,643			25,282
Extraordinary Item - Disallowance of
Stranded Costs, Net of Tax Benefit
of $57,317		-			-			(97,836	)		-
Cumulative Effect of Change in Accounting
Principle, Net of Tax Benefit of $234		(381	)		-			-			-
Net Earnings (Loss)	$	17,450		$	9,260		$	(51,193	)	$	25,282
The accompanying notes, as they relate to TNMP, are an integral part of these financial statements.

B-29

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
	Post-Acquisition			Pre-Acquisition			Pre-Acquisition			Pre-Acquisition
	For the Period			For the Period			Year Ended			Year Ended
	June 6-			January 1-			December 31,			December 31,
	December 31, 2005			June 6, 2005			2004			2003
				(In thousands)
Balance at Beginning of Period	$	-		$	(6,795	)	$	50,398		$	54,516
Net earnings		17,450			9,260			(51,193	)		25,282
Dividends:
Common stock dividends paid to parent
company		(12,000	)		-			(6,000	)		(29,400	)
Balance at End of Period	$	5,450		$	2,465		$	(6,795	)	$	50,398
The accompanying notes, as they relate to TNMP, are an integral part of these financial statements.

B-30

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
	December 31,
	2005		2004
	(In thousands)
ASSETS
Utility Plant:
Electric plant in service	$	877,893	$	845,900
Construction work in progress		7,138		4,261
Common plant in service and plant held for future use		589		589
		885,620		850,750
Less accumulated depreciation and amortization		296,611		276,081
Net utility plant		589,009		574,669
Other Property and Investments:
Other investments		548		530
Non-utility property, net of accumulated depreciation of $3 and $3		2,120		343
Total other property and investments		2,668		873
Current Assets:
Cash and cash equivalents		16,228		65,759
Special deposits		-		3,086
Accounts receivable, net of allowance for uncollectible accounts of $100 and $191		13,191		12,739
Federal income tax refund		36,392		22,912
Unbilled revenues		6,679		7,576
Other receivables		6,087		10,083
Inventories		1,478		1,505
Other current assets		1,211		7,526
Total current assets		81,266		131,186
Deferred charges:
Stranded costs		87,316		87,316
Carrying charges on stranded costs		33,918		48,130
Other regulatory assets		2,720		8,105
Goodwill		456,088		-
Other deferred charges		4,948		22,227
Total deferred charges		584,990		165,778
	$	1,257,933	$	872,506
The accompanying notes, as they relate to TNMP, are an integral part of these financial statements.

B-31

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
	December 31,
	2005			2004
	(In thousands)
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stockholder’s equity:
Common stock outstanding ($10 par value, 12,000,000 shares authorized:
issued 9,615 and 10,705 at December 31, 2005 and 2004, respectively)	$	96		$	107
Paid-in-capital		583,130			197,751
Accumulated other comprehensive loss, net of tax		(29	)		(1,761	)
Retained earnings		5,450			(6,795	)
Total common stockholder’s equity		588,647			189,302
Long-term debt		415,864			415,569
Total capitalization		1,004,511			604,871
Current Liabilities:
Accounts payable		11,913			15,649
Accrued interest and taxes		24,250			22,647
Accrued payroll and benefits		3,268			1,583
Other current liabilities		5,516			5,155
Total current liabilities		44,947			45,034
Long-Term Liabilities:
Accumulated deferred income taxes		139,405			138,249
Accumulated deferred investment tax credits		1,540			2,326
Regulatory liabilities		56,246			40,729
Accrued pension liability		3,585			4,844
Accrued postretirement benefit cost		6,525			2,693
Other deferred credits		1,174			33,760
Total long-term liabilities		208,475			222,601
Commitments and Contingencies (see Note 16)		-			-
	$	1,257,933		$	872,506
The accompanying notes, as they relate to TNMP, are an integral part of these financial statements.

B-32

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
	Post-Acquisition			Pre-Acquisition			Pre-Acquisition			Pre-Acquisition
	For the Period			For the Period			Year Ended			Year Ended
	June 6-			January 1-			December 31,			December 31,
	December 31, 2005			June 6, 2005			2004			2003
				(In thousands)
Cash Flows From Operating Activities:
Net earnings (loss)	$	17,450		$	9,260		$	(51,193	)	$	25,282
Adjustments to reconcile net
earnings to net cash flows
from operating activities:
Depreciation and amortization		18,619			14,042			32,279			31,472
Allowance for equity funds used
during construction		(112	)		(60	)		(384	)		(584	)
Accumulated deferred income tax		9,870			(1,267	)		43,135			2,179
Carrying charges on regulatory assets		(4,376	)		1,407			(32,006	)		-
Cumulative effect of change in
accounting principle		615			-			-			-
Disallowance of stranded costs,
net of tax benefit		-			-			97,836			-
Deferred purchased power and fuel costs		-			-			(511	)		18,373
Changes in certain assets and liabilities:
Accounts receivable		(481	)		29			820			3,131
Unbilled revenues		1,003			(106	)		1,225			(1,896	)
Accounts payable		86			(5,379	)		2,347			3,758
Accrued interest and taxes		8,799			(7,314	)		(16,621	)		1,088
Interest rate lock on issuance of senior
notes		-			-			-			(4,162	)
Acquisition related benefit programs		(2,604	)		-			-			-
Payments for stranded/fuel costs		(4,284	)		-			-			-
Receipt for retail competition
transition obligation		16,336			-			-			-
Other assets and liabilities		(9,347	)		4,741			(9,520	)		(6,927	)
Net cash flows from
operating activities		51,574			15,353			67,407			71,714
Cash Flows From Investing Activities:
Utility plant additions		(27,801	)		(17,822	)		(42,817	)		(44,548	)
Other, net		3,111			(242	)		(356	)		(2,909	)
Net cash flows from
investing activities		(24,690	)		(18,064	)		(43,173	)		(47,457	)
The accompanying notes, as they relate to TNMP, are an integral part of these financial statements.

B-33

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
	Post-Acquisition			Pre-Acquisition			Pre-Acquisition			Pre-Acquisition
	For the Period			For the Period			Year Ended			Year Ended
	June 6-			January 1-			December 31,			December 31,
	December 31, 2005			June 6, 2005			2004			2003
				(In thousands)
Cash Flows From Financing Activities:
Long-term debt costs and repayments		-			-			(9,382	)		(172,600	)
Redemption of common stock		(62,000	)		-			-			-
Repayments to affiliate		-			-			-			(14,557	)
Issuance of senior notes, net of discount		-			-			-			248,923
Dividends paid		(12,000	)		-			(6,000	)		(29,400	)
Other		169			127			-			-
Net cash flows from
financing activities		(73,831	)		127			(15,382	)		32,366
Increase (Decrease) in Cash and Cash
Equivalents		(46,947	)		(2,584	)		8,852			56,623
Beginning of Period		63,175			65,759			56,907			284
End of Period	$	16,228		$	63,175		$	65,759		$	56,907
Supplemental Cash Flow Disclosures:
Interest paid, net of capitalized interest	$	(609	)	$	12,868		$	26,145		$	27,424
Income taxes paid, net	$	(20,014	)	$	2,456		$	8,434		$	14,000
The accompanying notes, as they relate to TNMP, are an integral part of these financial statements.

B-34

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CAPITALIZATION

	December 31,
	2005			2004
	(In thousands)
Common Stockholder’s Equity:
Common stock outstanding, par value $10 per share	$	96		$	107
Paid-in-capital		583,130			197,751
Accumulated other comprehensive loss, net of tax		(29	)		(1,761	)
Retained earnings		5,450			(6,795	)
Total common stockholder’s equity		588,647			189,302
Long-Term Debt:
Issue and Final Maturity
Senior Notes:
6.125% due 2008		248,935			248,935
6.25% due 2009		167,690			167,690
Other, including unamortized discounts		(761	)		(1,056	)
Total long-term debt		415,864			415,569
Total Capitalization	$	1,004,511		$	604,871
The accompanying notes, as they relate to TNMP, are an integral part of these financial statements.

B-35

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
	Post-Acquisition			Pre-Acquisition		Pre-Acquisition			Pre-Acquisition
	For the Period			For the Period		Year Ended			Year Ended
	June 6-			January 1-		December 31,			December 31,
	December 31, 2005			June 6, 2005		2004			2003
				(In thousands)
Net Earnings (Loss)	$	17,450		$	9,260	$	(51,193	)	$	25,282
Other Comprehensive Income (Loss):
Interest rate hedge net of reclassification
adjustment, net of income tax benefit
(expense) of $0, $1,084, $317and $(685)		-			1,761		516			(1,111	)
Additional minimum pension liability
adjustment, net of tax (expense)
benefit of $18, $0, $0 and $(132)		(29	)		-		-			214
Total Comprehensive Income (Loss)	$	17,421		$	11,021	$	(50,677	)	$	24,385
In conjunction with the acquisition of TNP by PNMR, the interest rate hedge was fair valued at zero. The acquired book value
was $1.7 million.
The accompanying notes, as they relate to TNMP, are an integral part of these financial statements.

B-36

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005, 2004 and 2003

(1)       Summary of the Business and Significant Accounting Policies

Nature of Business

PNMR or the “Company” is an investor-owned holding company of energy and energy-related businesses. The Company’s three primary subsidiaries are PNM, TNMP and First Choice. PNM is an integrated public utility with regulated operations primarily engaged in the generation, transmission and distribution of electricity, transmission, distribution and sale of natural gas within New Mexico, and unregulated operations primarily focused on the sale and marketing of electricity in the western United States. TNMP is a regulated utility operating in Texas and New Mexico. In Texas, TNMP provides regulated transmission and distribution services. In New Mexico, TNMP provides integrated electric services that include the transmission, distribution, purchase and sale of electricity to its New Mexico customers. First Choice is a competitive retail electric provider operating in Texas. In addition, PNMR provides energy and technology related services through its wholly owned subsidiary, Avistar. The Company’s common stock trades on the New York Stock Exchange under the symbol PNM.

TNP Acquisition

As discussed in Note 2, on June 6, 2005, PNMR completed the previously announced acquisition of TNP effective at 8:00 AM Central Daylight Time. Prior to the consummation of the acquisition, TNP was a privately owned holding company based in Fort Worth, Texas. TNP’s principal subsidiaries are TNMP and First Choice.

The acquisition was accounted for using the purchase method of accounting. Under this method, the purchase price was allocated and fair market value adjustments were made to the assets acquired and the liabilities assumed. The excess of the purchase price over net assets acquired was allocated to goodwill in the amount of $499.2 million. Other intangible assets of $79.3 million were also recorded. Adjustments to goodwill and intangible assets were recorded in the third and fourth quarters of 2005 (see “Goodwill and Intangible Assets” below in this Note 1 and see also Note 2).

The purchase accounting entries are reflected on PNMR’s financial statements as of the purchase date. PNMR “pushed down” the effects of purchase accounting to the financial statements of TNMP and First Choice. Accordingly, TNMP’s post-acquisition financial statements reflect a new basis of accounting, and separate financial statements and footnote amounts in tabular format are presented for pre-acquisition and post-acquisition periods, separated by a heavy black line.

Presentation

The Notes to Consolidated Financial Statements include disclosures for PNMR, PNM and TNMP. For discussion purposes, this report will use the term “Company” when discussing matters of common applicability to PNMR, PNM and TNMP. Discussions regarding only PNMR, PNM or TNMP will be clearly indicated as such.

PNMR was established as a holding company in 2001. On December 30, 2004, PNMR became a registered holding company under PUHCA. As a result of the requirement to register as a holding company, PNMR created PNMR Services Company, a wholly owned services company, which began operation on January 1, 2005.

B-37

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

PNMR performed substantially all of the corporate activities of PNM from 2001 to 2004. These activities were billed to PNM on a cost basis and were allocated to the business units. The service functions previously performed by PNMR were assumed by PNMR Services Company effective January 1, 2005.

Until June 6, 2005, TNMP provided First Choice and TNP with corporate support services, including accounting, finance, information services, legal and human resources, under a shared services agreement with First Choice and a similar agreement with TNP. These services were billed at TNMP’s cost and, in return, TNP and First Choice compensated TNMP for the services provided. These agreements were in effect through June 6, 2005 when they were replaced by a new shared services arrangement with PNMR Services Company.

Effective with the close of the acquisition of TNP on June 6, 2005, all TNMP employees who were providing corporate support to TNP and First Choice became employees of PNMR Services Company. PNMR Services Company provides corporate services to all of PNMR's business units, including PNM, Avistar, TNP, TNMP and First Choice based on shared services agreements. These services are billed at cost on a monthly basis and allocated to the business units.

The Company maintains its accounting records in accordance with the uniform system of accounts prescribed by the FERC and the National Association of Regulatory Utility Commissioners, and adopted by the NMPRC.

The Company’s accounting policies conform to the provisions of SFAS No. 71, as amended, “Accounting for the Effects of Certain Types of Regulation,” (“SFAS 71”), as applicable. In accordance with SFAS 71, the Company has deferred certain costs and recorded certain liabilities pursuant to the rate actions of the FERC, the NMPRC and the PUCT. These “regulatory assets” and “regulatory liabilities” are enumerated and discussed in Note 4.

PNM discontinued the application of SFAS 71 as of December 31, 1999, for the generation portion of its business effective with the passage of the Restructuring Act in accordance with SFAS No. 101, “Accounting for the Discontinuation of Application of FASB Statement No. 71.” As a result of repeal of the Restructuring Act, the Company re-applied SFAS 71 to its generation portion of its business during the first quarter of 2003 as a result of NMPRC approval of the Global Electric Agreement (see Note 17) in January 2003.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and subsidiaries in which it owns a majority voting interest. Corporate administrative and general expenses, which represent costs that are driven primarily by corporate level activities, are allocated to the business segments. Other significant intercompany transactions between PNMR, PNM, TNP and TNMP in 2005 or 2004 include energy purchases and sales, dividends paid on common stock, the redemption of common stock by TNMP from its parent company, TNP, and consolidation of PVNGS capital trust. All significant intercompany transactions and balances have been eliminated. See Note 20.

PNM adopted SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”) effective in May 2003.SFAS 150 established standards for classifying and measuring certain financial instruments with characteristics of both liabilities and equity. Under SFAS 150, issuers are required to classify as liabilities a financial instrument that is within its scope as a liability because that financial instrument embodies an obligation of the issuer. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003. Upon adoption, the Company reclassified approximately $10.0 million from minority interest to other deferred credits on its Consolidated Balance Sheets.

Financial Statement Preparation

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual recorded amounts could differ from those estimated.

B-38

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

Cash and Cash Equivalents

Investments in highly liquid investments with maturities of three months or less at the date of purchase are considered cash equivalents.

Utility Plant

Utility plant is stated at cost, which includes capitalized payroll-related costs such as taxes, pension and other fringe benefits, administrative costs and allowance for funds used during construction as deemed appropriate.

It is Company policy to charge repairs and minor replacements of property to maintenance expense and to charge major replacements to utility plant as incurred. Gains or losses resulting from retirements or other dispositions of regulated property in the normal course of business are credited or charged to the accumulated provision for depreciation.

Allowance For Funds Used During Construction

As provided by the FERC uniform systems of accounts, allowance for funds used during construction is charged to utility plant. This allowance is a non-cash item designed to enable a utility to capitalize financing costs during periods of construction of property subject to rate regulation. It represents the cost of borrowed funds (allowance for borrowed funds used during construction) and a return on other funds (allowance for equity funds used during construction).

The calculation of allowance for funds used during construction should be performed if its subsequent inclusion in allowable costs for rate-making purposes is probable. In 2005, 2004 and 2003, PNM recorded $4.3 million, $3.0 million and $3.9 million, respectively, of allowance for funds used during construction on certain projects. In 2005, 2004 and 2003, TNMP recorded $0.4 million, $0.8 million and $1.0 million, respectively, of allowance for funds used during construction.

Capitalized Interest

In accordance with SFAS No. 34, “Capitalization of Interest Costs” (“SFAS 34”), PNM capitalizes interest on its construction projects not included in rate base because there were no specific charges and software costs. Interest was capitalized at the overall weighted average borrowing rate of 5.0%, 5.2% and 6.4% for 2005, 2004 and 2003, respectively. PNM’s capitalized interest was $1.4 million, $1.0 million and $1.2 million in 2005, 2004 and 2003, respectively.

Carrying Charges on Stranded Costs

TNMP’s estimate of allowable carrying charges on stranded costs that it may recover from its transmission and distribution customers is based on a United States Supreme Court ruling, and the PUCT’s application of that ruling. As of December 31, 2005, the accrual for carrying costs was $33.9 million (see Note 16).

Inventories

Inventory consists principally of materials and supplies, natural gas held in storage for eventual resale, and coal held for use in electric generation.

B-39

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

Generally, materials and supplies include the costs of transmission, distribution and generating plant materials. Materials and supplies are charged to inventory when purchased and are expensed or capitalized as appropriate when issued. Materials and supplies are valued using an average costing method. Obsolete materials and supplies are immediately expensed when identified.

Gas in underground storage is valued using a weighted average inventory method. Withdrawals are charged to sales service customers through the PGAC.

Coal is valued using a rolling weighted average costing method that is updated based on the current period cost per ton. Periodic aerial surveys are performed and any material adjustments would be recorded as identified.

Inventories consisted of the following at December 31:

	PNMR				PNM				TNMP
	2005		2004		2005		2004		2005		2004
	(In thousands)
Coal	$	11,410	$	9,802	$	11,410	$	9,802	$	-	$	-
Gas in underground storage		12,487		5,324		12,487		5,324		-		-
Materials and supplies		28,140		26,226		26,514		26,120		1,478		1,505
	$	52,037	$	41,352	$	50,411	$	41,246	$	1,478	$	1,505

Investments

The Company’s investments are comprised of United States, state, and municipal government obligations and corporate securities. Investments with maturities of less than one year are considered short-term and are carried at fair value. All investments are held in the Company’s name and are in the custody of major financial institutions. The specific identification method is used to determine the cost of securities disposed of, with realized gains and losses reflected in other income and deductions. At December 31, 2005 and 2004, substantially all of the Company’s investments were classified as available for sale. Unrealized gains and losses on these investments are included in other comprehensive income, net of any related tax effect.

PNMR also has investments in equity securities that are primarily classified as trading. The investment balance is included in other current assets and unrealized gains and losses on these investments are recorded in other income and deductions (see Note 8).

B-40

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

Goodwill and Other Intangible Assets

The excess purchase price over the fair value of the assets acquired and the liabilities assumed by PNMR for its June 6, 2005 acquisition of TNP was recorded as goodwill. Under the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), the Company does not amortize goodwill. Certain intangible assets are amortized over their estimated useful lives. Goodwill and unamortized intangible assets are evaluated for impairment at least annually, or more frequently if events and circumstances indicate that the goodwill and intangible assets might be impaired. Amortized other intangible assets are evaluated for impairment in accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”) when events and circumstances indicate that the assets might be impaired.

The changes in the carrying amount of goodwill by reportable segment (see Note 3) for the year ended December 31, 2005 were as follows:

	TNMP Electric		First Choice		Total PNMR
	(In thousands)
Balance as of January 1, 2005	$	-	$	-	$	-
Purchase of TNP during 2005		456,088		43,067		499,155
Balance as of December 31, 2005	$	456,088	$	43,067	$	499,155

Of the $79.3 million of acquired intangible assets, $68.8 million relates to the trade name “First Choice.” The trade name has an indefinite useful life; therefore, no amortization will be recognized, but the asset will be evaluated for impairment each reporting period. The other $10.5 million intangible asset relates to the First Choice customer list. The useful life of the customer list is estimated to be approximately eight years; therefore the asset will be amortized on a straight-line basis over an eight-year period.

The components of PNMR’s identifiable intangible assets at December 31, 2005 are as follows:

	Gross Carrying Amount		Accumulated Amortization
	(In thousands)
Amortized intangible asset:
First Choice customer list	$	10,480	$	742
Unamortized intangible asset:
First Choice trade name	$	68,774	$	-

Expected future amortization expense for this intangible asset is $1.3 million annually through 2010.

Asset Impairment

Tangible long-lived assets are evaluated in relation to the future undiscounted cash flows to assess recoverability in accordance with SFAS 144 when events and circumstances indicate that the assets might be impaired. Impairment testing of power generation assets excluded from jurisdictional rates is performed periodically in response to changes in market conditions. TNMP did not have any impairment on its long-lived assets for the years 2003 through 2005.

PNM had planned to convert its Afton plant from a combustion turbine to a combined-cycle unit using a turbine in storage. As part of a stipulation that will allow PNM to convert Afton to a combined cycle plant and include it as a jurisdictional resource, with 50% of Afton's capacity designated to serve PNM's customers and 50% designated to serve TNMP's New Mexico customers, an alternative equipment configuration will be used for Afton instead of the turbine in storage. In the fourth quarter of 2005, PNM management determined that it would make the

B-41

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

turbine available for sale. Based on its market survey, PNM recorded an impairment charge of approximately $15.0 million, included in energy production costs on the Consolidated Statement of Earnings for the year ended December 31, 2005. The impairment charge is recorded in the Corporate and Other segment (see Note 3).

Revenue Recognition

First Choice, PNM and TNMP record electric and gas operating revenues, as applicable, in the period of delivery, which includes estimated amounts for service rendered but unbilled at the end of each accounting period.

The determination of the energy sales by PNM, TNMP and First Choice to individual customers is based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, amounts of energy delivered to customers since the date of the last meter reading are estimated and the corresponding unbilled revenue is estimated. Unbilled electric revenue is estimated based on the daily generation volumes, estimated customer usage by class, weather factors, line losses and applicable customer rates based on regression analyses reflecting historical trends and experience.

PNM purchases gas on behalf of sales-service customers while other marketers or producers purchase gas on behalf of transportation-service customers. PNM collects a cost of service revenue for the transportation, delivery, and customer service provided to these customers. Sales-service tariffs are subject to the terms of the PGAC and billed under a cycle-bill basis. Transportation service customers are metered and billed on the last day of the month. Therefore, PNM estimates unbilled decatherms and records cost of service and PGAC revenues for sales-service customers only.

PNM wholesale revenues are recognized in the month the energy is delivered to the customer and are based on the actual amounts supplied to the customer. However, in accordance with the WSPP contract, these revenues are billed in the month subsequent to their delivery. Consequently, wholesale revenues for the last month in any reporting period are unbilled when reported.

PNM’s wholesale electricity sales are recorded as operating revenues and the wholesale electricity purchases are recorded as costs of energy sold. In accordance with EITF Issue 03-11, “Reporting Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and Not Held for Trading Purposes” (“EITF 03-11”), non-normal derivative contracts that are net settled or “booked-out” are recorded net in earnings. A book-out is the planned or unplanned netting of off-setting purchase and sale transactions. A book-out is a transmission mechanism to reduce congestion on the transmission system or administrative burden (see further discussion below in “Financial Instruments” in this Note 1). For accounting purposes, a book-out, as referred to above, is the recording of net revenues upon the settlement of a non-normal derivative contract.

PNM enters into merchant energy contracts to take advantage of market opportunities associated with the purchase and sale of electricity. Unrealized gains and losses resulting from the impact of price movements on PNM’s derivative energy contracts that are not designated normal purchases and sales or hedges are recognized as adjustments to operating revenues. The market prices used to value these transactions reflect Company management’s best estimate considering various factors including closing exchange and over-the-counter quotations, time value and volatility factors underlying the commitments.

B-42

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

Depreciation and Amortization

PNM’s provision for depreciation and amortization of utility plant is made based upon rates approved by the NMPRC. PNM’s average rates used are as follows:

	2005	2004	2003
Electric plant	3.10%	3.07%	3.33%
Gas plant	2.93%	2.87%	2.96%
Common plant	8.65%	8.08%	8.38%

TNMP’s provision for depreciation and amortization of utility plant is made based upon rates approved by the NMPRC and the PUCT. TNMP’s electric and common plant assets rates are both regulated rates and are depreciated on a straight-line basis. TNMP’s average rates used are as follows:

	2005	2004	2003
Electric plant and common plant	3.34%	3.62%	3.66%

The provision for depreciation of certain equipment is charged to depreciation expense and allocated to construction projects based on the use of the equipment. Depreciation of non-utility property is computed based on the straight-line method. Amortization of nuclear fuel for PNM is computed based on the units of production method.

Amortization of Debt Acquisition Costs

Discount, premium and expense related to the issuance of long-term debt are amortized over the lives of the respective issues. In connection with the early retirement of long-term debt, such amounts associated with resources subject to NMPRC regulation are amortized over the lives of the respective issues. Amounts associated with PNM's firm-requirements wholesale customers and its resources excluded from NMPRC retail rates are recognized immediately as expense or income as they are incurred.

Financial Instruments

The Company follows the provisions set forth under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), as amended. SFAS 133 establishes accounting and reporting standards requiring derivative instruments to be recorded in the balance sheet as either an asset or liability measured at their fair value. SFAS 133 also requires that changes in the derivatives’ fair value be recognized currently in earnings unless specific hedge accounting or normal purchase and sale criteria are met. Special accounting for qualifying hedges allows derivative gains and losses to offset related results on the hedged item in the statement of earnings, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS 133 provides that the effective portion of the gain or loss on a derivative instrument designated and qualifying as a cash flow hedging instrument be reported as a component of other comprehensive income and be reclassified into earnings in the period during which the hedged forecasted transaction affects earnings. The results of hedge ineffectiveness and the change in fair value of a derivative that an entity has chosen to exclude from hedge effectiveness are required to be presented in current earnings.

SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS 149”) was effective for all derivative contracts entered into by the Company or modified after June 30, 2003. Under SFAS 149, the Company treats all forward electric purchases and sales contracts subject to unplanned netting or book-out by the transmission provider as derivative instruments subject to mark-to-market accounting, unless the contract qualifies for the normal exception by meeting the definition in SFAS 149 of a capacity contract. Under this definition, the contract cannot permit net settlement, the seller must have the resources to serve the contract and the buyer must be a load serving entity. Upon adoption, SFAS 149 did not have a material impact on the Company’s financial condition or results of operations.

B-43

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

In addition, the Company follows the provisions of EITF 02-3, “Issues Related to Accounting for Contracts Involved in Energy Trading and Risk Management Activities.” Under EITF 02-3all energy contracts held for trading purposes are presented on a net margin basis in the statement of earnings. Energy contracts that do not meet the definition of a derivative under SFAS 133 are recognized in current earnings and are not marked to market.

EITF 03-11 was effective for PNM on October 1, 2003. EITF 03-11 gives guidance on whether realized gains and losses on derivative contracts not held for trading purposes should be reported on a net or gross basis and concludes such classification is a matter of judgment that depends on the relevant facts and circumstances. PNM nets all realized gains and losses on non-normal derivative transactions that do not physically deliver and that are offset by similar transactions during settlement. For the years ended December 31, 2005, 2004 and 2003, wholesale purchases of $30.9 million, $33.6 million and $15.0 million, respectively, were netted with electric revenues in the Consolidated Statements of Earnings (see Note 3).

Decommissioning Costs

Accounting for decommissioning costs for nuclear and fossil-fuel generation involves significant estimates related to costs to be incurred many years in the future after plant closure. Changes in these estimates could significantly impact PNMR’s and PNM’s financial position, results of operations and cash flows. PNM owns and leases nuclear and fossil-fuel facilities that are within and outside of its retail service areas. In accordance with SFAS No. 143, "Accounting for Asset Retirement Obligations” (“SFAS 143”), PNM is only required to recognize and measure decommissioning liabilities for tangible long-lived assets for which a legal obligation exists (see Note 15). Adoption of the statement changed the method of accounting for both nuclear generation decommissioning and fossil-fuel generation decommissioning. Nuclear decommissioning costs are based on site-specific estimates of the costs for removing all radioactive and other structures at the site. PVNGS Unit 3 is excluded from PNM’s retail rates while PVNGS Units 1 and 2 are included. PNM collects a provision for ultimate decommissioning of PVNGS Units 1 and 2 in its rates and recognizes a corresponding expense and liability for these amounts. PNM believes that it will continue to be able to collect in rates for its legal asset retirement obligations for nuclear generation activities included in the ratemaking process.

In addition, PNM has a contractual obligation with the PVNGS participants to fund separately the nuclear decommissioning cost at a level in excess of what PNM has identified as its legal asset retirement obligation under SFAS 143. The contractual funding obligation is based on a site-specific estimate prepared by a third party. PNM’s most recent site-specific estimates for nuclear decommissioning costs were developed in 2004, using 2004 cost factors, and are based on prompt dismantlement decommissioning, reflecting the costs of removal discussed above, with such removal occurring shortly after operating license expiration. PNM’s share of the contractual funding obligation through the end of the licensing terms is approximately $216.7 million (measured in 2004 dollars). The estimates are subject to change based on a variety of factors, including cost escalation, changes in technology applicable to nuclear decommissioning and changes in federal, state or local regulations. The operating licenses for PVNGS Units 1, 2 and 3 will expire in 2025, 2026, and 2027, respectively. PNM does not have a similar contractual funding obligation related to its fossil-fuel plants.

Pension and Other Postretirement Benefits

See Note 12 for a comprehensive discussion of pension and postretirement benefits expense, including a discussion of the actuarial assumptions.

Stock Based Compensation

PNMR accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employee" ("APB 25"). Compensation cost for

B-44

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

stock options, if any, is measured as the excess of the quoted market price of PNMR’s stock at the date of grant over the exercise price of the granted stock option. Compensation cost for restricted stock awards are recorded over the requisite vesting period based on the market value on the date of grant. Compensation cost for performance shares are recorded on the measurement date. All stock-based compensation is granted through stock-based employee compensation plans maintained by PNMR. Although certain PNM and TNMP employees participate in the PNMR plans, PNM and TNMP do not have separate employee stock-based compensation plans.

At December 31, 2005, PNMR had three stock-based employee compensation plans. Stock options continue to be granted under only one of the plans. Had compensation expense for PNMR’s stock options been recognized based on the fair value on the grant date under the methodology prescribed by SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), the effect on PNMR’s pro forma net earnings and pro forma diluted earnings per share would be as follows:

	Year Ended December 31,
	2005			2004			2003
	(In thousands, except per share data)
PNMR net earnings:	$	67,227		$	87,686		$	95,173
Add: Stock compensation expense included
in reported net income, net of related tax effects		761			1,362			-
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects		(3,072	)		(4,177	)		(2,200	)
PNMR pro forma net earnings	$	64,916		$	84,871		$	92,973
PNMR earnings per share:
Basic - as reported	$	1.02		$	1.45		$	1.60
Basic - pro forma	$	0.98		$	1.40		$	1.56
Diluted - as reported	$	1.00		$	1.43		$	1.58
Diluted - pro forma	$	0.97		$	1.38		$	1.54

SFAS No. 123 (revised 2004), “Share Based Payment” (“SFAS 123R”), supersedes APB 25. SFAS 123R requires the recognition of compensation expense, over the requisite service period, in an amount equal to the fair value of share-based payments granted to employees. The fair value of the share-based payments, excluding liability awards, is computed at the date of grant and will not be remeasured. The fair value of liability awards will be remeasured at each reporting date through the settlement date with the change in fair value recognized as compensation expense over that period. SFAS No. 123R also requires the benefits of tax deductions in excess of recognized compensation costs to be reported as financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. PNMR does not believe this reclassification will have a material impact on its Consolidated Statements of Cash Flows.

SFAS 123R was effective for PNMR beginning January 1, 2006. PNMR adopted SFAS 123R using the modified prospective application transition method. PNMR estimates that 2006 compensation expense related to employee stock options is expected to be in the range of $4.0 million to $6.0 million. PNMR estimates that total 2006 expense for all of its stock-based compensation is expected to be in the range of $6.0 million to $9.0 million.

B-45

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

Income Taxes

Income taxes are accounted for in accordance with the provisions of SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”), which uses the asset and liability method for accounting for income taxes. Under SFAS 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying value of existing assets and liabilities and their respective tax basis. Current NMPRC and PUCT approved rates include the tax effects of the majority of these differences. SFAS 109 requires that rate-regulated enterprises record deferred income taxes for temporary differences accorded flow-through treatment at the direction of a regulatory commission. The resulting deferred tax assets and liabilities are recorded at the expected cash flow to be reflected in future rates. Because the NMPRC and the PUCT have consistently permitted the recovery of tax effects previously flowed-through earnings, the Company has established regulatory liabilities and assets offsetting such deferred tax assets and liabilities. Items accorded flow-through treatment under rate orders, deferred income taxes and the future ratemaking effects of such taxes, as well as corresponding regulatory assets and liabilities, are recorded in the financial statements.

Excise Taxes

The Company pays certain fees or taxes which are either considered to be an excise tax or similar to an excise tax. These excise and excise-type taxes are recorded on both a net basis and a gross basis.

Cumulative Effect of Changes in Accounting Principles

In 2005, PNMR, PNM and TNMP adopted FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”), and recognized a cumulative effect of a change in accounting principle that decreased 2005 earnings. The amount is net of amounts expensed in prior years for cost of removal included in depreciation. FIN 47 requires the accrual of costs associated with conditional retirement obligations. PNMR, PNM and TNMP 2005 earnings were decreased $0.9 million, $0.5 million and $0.4 million, respectively, net of income tax benefits. PNMR’s 2005 net earnings per diluted common share was decreased $0.01.

In 2003, the Company changed the actuarial valuation measurement date for its pension plan and other postretirement benefits plan from September 30 to December 31 to better reflect the actual plan balances as of the year end balance sheet date. PNMR and PNM recognized a cumulative effect of a change in accounting principle that decreased 2003 earnings by $0.8 million, net of income tax benefit, or, for PNMR, $0.01 per diluted common share.

Also, in 2003, PNM adopted SFAS 143 and PNMR and PNM recognized a cumulative effect of a change in accounting principle that increased 2003 earnings by $37.4 million, net of income tax expense, or, for PNMR, $0.62 per diluted common share, representing amounts expensed in prior years for PNM’s asset retirement obligations in excess of the actual legal obligations as established under the new accounting standard.

Extraordinary Item

During 2004, TNMP recorded a loss of $97.8 million related to the PUCT true-up proceeding regarding TNMP’s stranded costs. The purpose of the true-up proceeding was to quantify and reconcile the amount of stranded costs that TNMP may recover from its transmission and distribution customers. The PUCT decision established $128.4 million as TNMP’s stranded costs and allowed TNMP to recover $87.3 million of the $266.5 million that TNMP requested for its true-up balance. This decision resulted in a loss of $155.2 million before tax ($97.8 million after tax). TNMP recorded the $97.8 million after tax loss as an extraordinary item in accordance with the requirements of SFAS No. 101, “Regulated Enterprises - Accounting for the Discontinuance of the Application of FASB Statement No. 71.”

B-46

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

Change in Presentation

Certain amounts in the 2004 and 2003 Consolidated Financial Statements and Notes thereto for PNMR, PNM and TNMP have been reclassified to conform to the 2005 financial statement presentation. Specifically, certain amounts in the 2004 and 2003 Consolidated Financial Statements and Notes thereto of TNMP have been reclassified to conform to PNMR’s presentation for comparability.

(2)       TNP Acquisition

On June 6, 2005, PNMR acquired all of the outstanding common shares of TNP, including its principal subsidiaries, TNMP and First Choice. The results of TNP’s operations have been included in the Consolidated Financial Statements of PNMR from that date. PNMR acquired TNP in order to complement its existing New Mexico electric operations and to expand into the retail and wholesale markets in Texas.

The aggregate purchase price was $1,221 million, including a net payment to the previous owner of $162.0 million consisting of $74.6 million of cash and common stock valued at $87.4 million. The value of the 4,326,337 common shares issued was determined based on $20.20 per common share as provided for in the Stock Purchase Agreement, dated as of July 24, 2004, by and between PNMR and SW Acquisition. In addition, the aggregate purchase price included $1,037 million of TNP debt and preferred stock and incurred transaction and other costs of $21.5 million. During the fourth quarter of 2005, PNMR completed the valuations of acquired property and intangible assets.

Pursuant to the Stock Purchase Agreement, PNMR provided SW Acquisition its proposed final purchase price, reflecting a reduction from the estimated purchase price of approximately $37.0 million. SW Acquisition filed a lawsuit that disputed PNMR’s proposed final purchase price. In November 2005, the parties reached a settlement of the lawsuit resulting in a reduction of approximately $13.0 million to the original purchase price based on working capital adjustments from the closing of the second-quarter financial statements and stranded cost recovery payments. PNMR received the $13.0 million payment from SW Acquisition in the fourth quarter of 2005. The net cash paid and purchase price stated above reflect this reduction.

B-47

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The following table presents the estimated fair values of the assets acquired and liabilities assumed at June 6, 2005, updated for subsequent adjustments to the purchase price.

(In thousands)
Net utility plant	$	580,427
Other property and investments		3,785
Current assets		213,229
Goodwill		499,155
Other intangible assets		79,254
Deferred assets		125,264
Total assets acquired	$	1,501,114
Current liabilities	$	70,815
Long-term debt		814,725
Preferred stock		222,224
Deferred liabilities		209,790
Total liabilities assumed	$	1,317,554
Net assets acquired	$	183,560

As part of the acquisition of TNP, PNMR determined the fair value of a First Choice contractual obligation to purchase power. In comparing the pricing terms of the contractual obligation against the forward price of electricity in the relevant market, First Choice concluded that the contract was above market. In accordance with SFAS No. 141, as amended, “Business Combinations” (“SFAS 141”), the contract was recorded at fair value and a deferred liability of $3.8 million was recorded that will be amortized as a reduction in cost of energy over the contract life, or approximately three years. The amortization matches the difference between the forward price curve and the contractual obligation for each month in accordance with the contract as of the acquisition date.

PNMR also determined the fair value of a First Choice contractual obligation to sell power to certain commercial and industrial customers. The valuation was based on the difference between the current market rates charged by First Choice for these customers compared to the contractual rate embedded in the customer agreement. As a result of the analysis, First Choice determined that its rates for these contractual customers are below market rates and recorded a deferred liability of $3.5 million that will be amortized into revenues over the contract life, or approximately three years. The amortization matches the difference between the retail market rate and the contractual obligation for each month as of the date of acquisition.

TNP’s largest subsidiary, TNMP, is a regulated utility; therefore, in accordance with SFAS 71, the valuations of the majority of the assets and liabilities did not change significantly.

The $499.2 million of goodwill was allocated to the TNMP and First Choice segments in the amounts of $456.1 million and $43.1 million, respectively. Of that total goodwill amount, none is expected to be deductible under Section 197 of the Internal Revenue Code.

B-48

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The following unaudited pro forma financial information presents a summary of PNMR’s consolidated results of operations for the years ended December 31, 2005 and 2004, assuming the acquisition of TNP had been completed as of January 1, 2004. The pro forma financial information does not include other items or synergy savings that may result from the business combination and is not necessarily indicative of the results of operations if the acquisition had been effective as January 1, 2004. Specifically, it does not include a charge of $11.3 million ($7.3 million net of tax) that was recorded during 2005 in conjunction with the issuance of equity-linked units in connection with the acquisition (see Note 6).

	For the Year Ended December 31,
	2005		2004
	(In thousands, except per share amounts)
Operating revenues	$	2,301,333	$	2,286,680
Operating expenses	$	2,141,382	$	2,094,219
Earnings before extraordinary item and cumulative
effect of change in accounting principle	$	81,077	$	147,565
Net earnings	$	80,151	$	49,729
Net earnings per common share before extraordinary
item and cumulative effect of change in
accounting principle:
Basic	$	1.18	$	2.15
Diluted	$	1.16	$	2.12
Net earnings per common share:
Basic	$	1.17	$	0.72
Diluted	$	1.15	$	0.71

(3)       Segment Information

The following segment presentation is based on the methodology that the Company’s management uses for making operating decisions and assessing performance of its various business activities. The following presentation reports operating results without regard to the effect of accounting or regulatory changes and similar other items not related to normal operations. A reconciliation from the segment presentation to the GAAP financial statements is provided.

REGULATED OPERATIONS

PNM Electric

PNM Electric is an integrated electric utility that consists of the generation, transmission and distribution of electricity for retail electric customers in New Mexico and the sale of transmission to third parties as well as to PNM Wholesale and TNMP Electric. PNM Electric provides retail electric service to a large area of north central New Mexico, including the cities of Albuquerque and Santa Fe, and certain other areas of New Mexico. Customer rates for retail electric service are set by the NMPRC based on the provisions of the Global Electric Agreement (see Note 17). PNM Electric owns or leases transmission lines, interconnected with other utilities in New Mexico, and south and east into Texas, west into Arizona, and north into Colorado and Utah.

TNMP Electric

TNMP Electric consists of the operations of TNMP. TNMP is a regulated utility operating in Texas and New Mexico. In Texas, TNMP provides regulated transmission and distribution services under the provisions of TECA. In New Mexico, TNMP provides integrated electricity services that include the transmission, distribution, purchase and sale of electricity to its New Mexico customers as well as transmission to third parties and to PNM. TNMP’s Texas and New Mexico operations are subject to traditional cost-of-service regulation.

B-49

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

PNM Gas

PNM Gas distributes natural gas to most of the major communities in New Mexico, including two of New Mexico’s three largest metropolitan areas, Albuquerque and Santa Fe. The customer base of PNM Gas includes both sales-service customers and transportation-service customers. PNM Gas purchases natural gas in the open market and resells it at cost to its distribution customers. As a result, increases or decreases in gas revenues resulting from wholesale gas price fluctuations do not impact PNMR’s or PNM’s consolidated gross margin or earnings.

UNREGULATED OPERATIONS

PNM Wholesale

PNM Wholesale consists of the generation and sale of electricity into the wholesale market. PNM Wholesale sells the unused capacity of PNM's jurisdictional assets as well as the capacity of PNM’s wholesale plants excluded from retail rates. Both regulated and unregulated generation is jointly dispatched in order to improve reliability, provide the most economic power to retail customers, and maximize profits on any wholesale transactions. Although the FERC has jurisdiction over the rates of PNM Wholesale, the Company includes PNM Wholesale in the unregulated portion of its business because PNM Wholesale is not subject to traditional rate of return regulation.

Long-term contracts include sales to firm-requirements and other wholesale customers with multi-year arrangements. Short-term sales generally include transactions entered into for up to two years. They also include spot market, hour ahead, day ahead, week ahead and forward market opportunities in which PNM Wholesale utilizes its asset backed strategy. Also included in short-term sales are sales of any excess generation not required to fulfill PNM Electric’s retail load and contractual commitments.

Adjustments related to EITF Issue 03-11, “Reporting Realized Gains and Losses on Derivative Instruments that are subject to FASB statement No. 133 and Not Held for Trading Purposes,” are included in Corporate and Other. This requires a net presentation of trading gains and losses and realized gains and losses for certain non-trading derivatives. Management evaluates PNM Wholesale operations on a gross presentation basis due to its primarily net asset-backed marketing strategy and the importance it places on the Company’s ability to repurchase and remarket previously sold capacity.

First Choice

First Choice is a certified retail electric provider operating in Texas, which allows it to provide electricity to residential, small and large commercial, industrial and institutional customers. First Choice performs all activities for its Texas retail customers, including acquiring new retail customers, setting up retail accounts, handling customer inquiries and complaints, and acting as a liaison between the transmission and distribution companies and retail customers. First Choice was organized in 2000 to act as TNMP’s affiliated retail electric provider, as required by TECA. Although First Choice is regulated in certain respects by the PUCT under ERCOT, the Company includes First Choice in the unregulated portion of its business because First Choice is not subject to traditional rate of return regulation.

CORPORATE AND OTHER

On December 30, 2004, PNMR became a registered holding company under PUHCA. As a result of the requirement to register as a holding company, PNMR created PNMR Services Company, a services company, which began operation on January 1, 2005. The comprehensive energy legislation enacted in August 2005 resulted in the repeal of PUHCA effective February 2006. PNMR is in the process of evaluating the effects of that repeal, along with the other provisions of the legislation (see Note 17).

B-50

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

PNMR provides energy and technology related services through its wholly owned subsidiary, Avistar and those results are included in the Corporate and Other segment.

B-51

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

PNMR Segment Information

Summarized financial information for PNMR by business segment for the year ended December 31, 2005 is as follows (in thousands):

	Regulated									Unregulated
Segments of Business	PNM			TNMP			PNM			PNM			First			Corporate
	Electric			Electric *			Gas			Wholesale			Choice *			& Other				Consolidated
2005:
Operating revenues	$	567,270		$	108,475		$	510,801		$	602,939		$	316,330		$	(29,005	)	(a)	$	2,076,810
Intersegment revenues		6,706			45,875			641			25,089			-			(78,311	)			-
Total revenues		573,976			154,350			511,442			628,028			316,330			(107,316	)			2,076,810
Less: Cost of energy		210,169			58,014			364,205			506,935			243,053			(107,729	)	(a)		1,274,647
Intersegment energy
transfer		(35,829	)		-			-			35,829			-			-				-
Gross margin		399,636			96,336			147,237			85,264			73,277			413				802,163
Operating expenses		263,446			39,576			98,402			44,827			27,897			32,474		(b)		506,622
Depreciation and
amortization		69,798			17,596			22,548			15,669			1,094			12,017		(c)		138,722
Income taxes		13,065			8,442			5,853			3,612			15,450			(26,972	)	(b,c,e)		19,450
Operating income		53,327			30,722			20,434			21,156			28,836			(17,106	)			137,369
Interest Income		27,459			1,001			3,769			5,249			1,545			3,806				42,829
Other income/(deductions)		6,859			4,829			689			2,856			(79	)		(20,111	)	(d)		(4,957	)
Other income taxes		(13,586	)		(2,071	)		(1,765	)		(3,209	)		(528	)		7,748		(d)		(13,411	)
Interest charges		(33,392	)		(15,875	)		(11,503	)		(15,644	)		(905	)		(16,358	)	(e)		(93,677	)
Segment net income (loss)**	$	40,667		$	18,606		$	11,624		$	10,408		$	28,869		$	(42,021	)		$	68,153
Total assets at
December 31, 2005	$	1,937,811		$	1,257,933		$	721,021		$	421,377		$	229,977		$	556,590			$	5,124,709
Goodwill	$	-		$	456,088		$	-		$	-		$	43,067		$	-			$	499,155
Gross property additions	$	135,632		$	27,801		$	31,019		$	14,595		$	482		$	12,285			$	221,814

(a)   Reflects EITF 03-11 impact, under which wholesale revenues and the associated cost of energy of $30.9 million are reclassified to a net margin basis in accordance with GAAP.

(b)   Includes the impairment of a turbine of $15.0 million, TNP acquisition related costs of $17.0 million and regulatory costs associated with the NMPRC’s approval of the acquisition of $2.3 million in operating expense and an income tax benefit of $13.5 million in income taxes.

(c)   Includes a write-off of software costs of $4.5 million in depreciation and amortization and an income tax benefit of $1.8 million in income taxes.

(d)   Includes an $11.3 million charge related to the issuance of equity-linked units in October 2005, TNP debt refinancing costs of $1.0 million in other income/(deductions) and an income tax benefit of $3.5 million in other income taxes.

(e)   Includes TNP debt refinancing costs of $5.3 million in interest charges and an income tax benefit of $2.0 million in income taxes.

*Includes results from June 6 through December 31, 2005.

** Net earnings before cumulative effect of change in accounting principle.

B-52

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

Summarized financial information for PNMR by business segment for the year ended December 31, 2004 is as follows (in thousands):

	Regulated			Unregulated
Segments of Business	PNM	TNMP	PNM	PNM	First	Corporate
	Electric	Electric	Gas	Wholesale	Choice	& Other		Consolidated
2004:
Operating revenues	$  552,563	$    -	$ 489,767	$   588,243	$    -	$  (32,784)	(a)	$1,597,789
Intersegment revenues	5,849	-	1,154	-	-	-		7,003
Total revenues	558,412	-	490,921	588,243	-	(32,784)		1,604,792
Less: Cost of energy	186,517	-	343,219	449,059	-	(33,486)	(a)	945,309
Intersegment energy					-
transfer	(42,769)	-	-	42,769	-	-		-
Gross margin	414,664	-	147,702	96,415	-	702		659,483
Operating expenses	258,182	-	97,412	46,442	-	6,266		408,302
Depreciation and
amortization	63,050	-	18,894	14,809	-	5,468		102,221
Income taxes	23,141	-	8,063	8,537	-	(3,679)		36,062
Operating income	70,291	-	23,333	26,627	-	(7,353)		112,898
Interest Income	28,445	-	2,253	5,468	-	1,841		38,007
Other income/(deductions)	2,045	-	190	1,640	-	(2,534)		1,341
Other income taxes	(12,072)	-	(967)	(2,814)	-	2,668		(13,185)
Interest charges	(34,981)	-	(11,029)	(13,601)	-	8,236		(51,375)
Segment net income (loss)	$     53,728	$    -	$ 13,780	$   17,320	$    -	$     2,858		$     87,686
Total assets at
December 31, 2004	$1,764,032	$    -	$ 512,538	$ 430,493	$    -	$ 780,572		$3,487,635
Gross property additions	$     89,124	$    -	$   35,547	$     8,023	$    -	$   13,016		$   145,710

(a) Reflects EITF 03-11 impact, under which wholesale revenues and the associated cost of energy of $33.6 million are reclassified to a net margin basis in accordance with GAAP.

B-53

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

Summarized financial information for PNMR by business segment for the year ended December 31, 2003 is as follows (in thousands):

	Regulated			Unregulated
Segments of Business	PNM	TNMP	PNM	PNM	First	Corporate
	Electric	Electric	Gas	Wholesale	Choice	& Other		Consolidated
2003:
Operating revenues	$ 553,979	$    -	$ 356,872	$ 551,625	$     -	$ (14,703)	(a)	$1,447,773
Intersegment revenues	6,485	-	1,395	1,535	-	(1,535)		7,880
Total revenues	560,464	-	358,267	553,160	-	(16,238)		1,455,653
Less: Cost of energy	177,767	-	228,345	413,089	-	(16,531)	(a)	802,670
Intersegment energy					-
transfer	(34,760)	-	-	34,760	-	-		-
Gross margin	417,457	-	129,922	105,311	-	293		652,983
Operating expenses	252,634	-	96,746	44,928	-	(3,638)		390,670
Depreciation and
amortization	73,532	-	22,186	14,230	-	5,701		115,649
Income taxes	23,750	-	(956)	12,111	-	(6,833)		28,072
Operating income	67,541	-	11,946	34,042	-	5,063		118,592
Interest Income	28,669	-	2,437	5,493	-	5,227		41,826
Other income/(deductions)	4,828	-	587	1,097	-	(42,372)		(35,860)
Other income taxes	(13,830)	-	(1,197)	(2,609)	-	17,819	(b)	183
Interest charges	(31,303)	-	(13,406)	(15,562)	-	(5,918)		(66,189)
Segment net income (loss)	$ 55,905	$    -	$ 367	$ 22,461	$    -	$ (20,181)	(b)	$ 58,552
Total assets at
December 31, 2003	$1,704,592	$    -	$ 509,111	$ 425,372	$    -	$ 739,554		$3,378,629
Gross property additions	$ 108,823	$    -	$ 45,616	$ 14,620	$    -	$ 8,145		$ 177,204

(a) Reflects EITF 03-11 impact, under which certain wholesale revenues and the associated cost of energy of $15.0 million are reclassified to a net margin basis in accordance with GAAP.

(b) Includes $9.5 million write-off of transition costs, net of tax benefit of $7.2 million, due to the repeal of deregulation in New Mexico, and the $10.0 million write-off related to refinancing of long-term debt, net of tax benefit of $6.6 million, that reduced consolidated net earnings.

B-54

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

PNM Segment Information

Summarized financial information for PNM by business segment for the year ended December 31, 2005 is as follows (in thousands):

Segments of Business	PNM	PNM	PNM
	Electric	Gas	Wholesale	Other		Consolidated
2005:
Operating revenues	$ 567,270	$ 510,801	$ 602,939	$ (34,228)	(a)	$1,646,782
Intersegment revenues	6,706	641	25,089	(3,761)		28,675
Total revenues	573,976	511,442	628,028	(37,989)		1,675,457
Less: Cost of energy	210,169	364,205	506,935	(37,819)	(a)	1,043,490
Intersegment energy transfer	(35,829)	-	35,829	-		-
Gross margin	399,636	147,237	85,264	(170)		631,967
Operating expenses	263,446	98,402	44,827	24,952	(b)	431,627
Depreciation and amortization	69,798	22,548	15,669	7,776	(c)	115,791
Income taxes	13,065	5,853	3,612	(14,313)	(b,c)	8,217
Operating income	53,327	20,434	21,156	(18,585)		76,332
Interest Income	27,459	3,769	5,249	1,442		37,919
Other income/(deductions)	6,859	689	2,856	(862)		9,542
Other income taxes	(13,586)	(1,765)	(3,209)	1,483		(17,077)
Interest charges	(33,392)	(11,503)	(15,644)	6,415		(54,124)
Segment net income (loss) *	$  40,667	$ 11,624	$ 10,408	$ (10,107)		$     52,592
Total assets at
December 31, 2005	$1,937,811	$ 721,021	$ 421,377	$  507,542		$3,587,751
Gross property additions	$   135,632	$   31,019	$   14,595	$ (13,500)		$   167,746

(a)   Reflects EITF 03-11 impact, under which wholesale revenues and the associated cost of energy of $30.9 million are reclassified to a net margin basis in accordance with GAAP.

(b)   Includes the impairment of a turbine of $15.0 million, TNP acquisition related costs of $8.7 million and regulatory costs associated with the NMPRC's approval of the acquisition of $2.3 million in operating expenses and an income tax benefit of $10.3 million in income taxes.

(c) Includes a write-off of software costs of $4.5 million in depreciation and amortization and an income tax benefit of $1.8 million in income taxes.

* Net earnings available for common stock before cumulative effect of change in accounting principle.

B-55

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

Summarized financial information for PNM by business segment for the year ended December 31, 2004 is as follows (in thousands):

Segments of Business	PNM	PNM	PNM
	Electric	Gas	Wholesale	Other		Consolidated
2004:
Operating revenues	$ 552,563	$ 489,767	$ 588,243	$ (33,609)	(a)	$1,596,964
Intersegment revenues	5,849	1,154	-	-		7,003
Total revenues	558,412	490,921	588,243	(33,609)		1,603,967
Less: Cost of energy	186,517	343,219	449,059	(33,609)	(a)	945,186
Intersegment energy
transfer	(42,769)	-	42,769	-		-
Gross margin	414,664	147,702	96,415	-		658,781
Operating expenses	258,182	97,412	46,442	776		402,812
Depreciation and
amortization	63,050	18,894	14,809	2,880		99,633
Income taxes	23,141	8,063	8,537	(1,777)		37,964
Operating income	70,291	23,333	26,627	(1,879)		118,372
Interest Income	28,445	2,253	5,468	1,555		37,721
Other income/(deductions)	2,045	190	1,640	62		3,937
Other income taxes	(12,072)	(967)	(2,814)	1,120		(14,733)
Interest charges	(34,981)	(11,029)	(13,601)	6,180		(53,431)
Segment net income (loss)	$    53,728	$   13,780	$   17,320	$    7,038		$     91,866
Total assets at
December 31, 2004	$1,764,032	$ 512,538	$ 430,493	$ 686,667		$3,393,730
Gross property additions	$     89,124	$   35,547	$     8,023	$     5,457		$   138,151

(a)   Reflects EITF 03-11 impact, under which wholesale revenues and the associated cost of energy of $33.6 million are reclassified to a net margin basis in accordance with GAAP.

B-56

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

Summarized financial information for PNM by business segment for the year ended December 31, 2003 is as follows (in thousands):

Segments of Business	PNM	PNM	PNM
	Electric	Gas	Wholesale	Other		Consolidated
2003:
Operating revenues	$ 553,979	$ 356,872	$ 551,625	$ (15,014)	(a)	$1,447,462
Intersegment revenues	6,485	1,395	1,535	(1,535)		7,880
Total revenues	560,464	358,267	553,160	(16,549)		1,455,342
Less: Cost of energy	177,767	228,345	413,089	(16,551)	(a)	802,650
Intersegment energy
transfer	(34,760)	-	34,760	-		-
Gross margin	417,457	129,922	105,311	2		652,692
Operating expenses	252,634	96,746	44,928	(2,685)		391,623
Depreciation and
amortization	73,532	22,186	14,230	3,973		113,921
Income taxes	23,750	(956)	12,111	(6,643)		28,262
Operating income	67,541	11,946	34,042	5,357		118,886
Interest Income	28,669	2,437	5,493	2,319		38,918
Other income/(deductions)	4,828	587	1,097	(36,886)		(30,374)
Other income taxes	(13,830)	(1,197)	(2,609)	15,308	(b)	(2,328)
Interest charges	(31,303)	(13,406)	(15,562)	(5,439)		(65,710)
Segment net income (loss)	$     55,905	$        367	$ 22,461	$ (19,341)	(b)	$      59,392
Total assets at
December 31, 2003	$1,704,592	$ 509,111	$ 425,372	$ 660,229		$3,299,304
Gross property additions	$   108,823	$   45,616	$   14,620	$       (234)		$   168,825

(a)   Reflects EITF 03-11 impact, under which certain wholesale revenues and the associated cost of energy of $15.0 million are reclassified to a net margin basis in accordance with GAAP.

(b)   Includes $9.5 million write-off of transition costs, net of tax benefit of $7.2 million, due to the repeal of deregulation in New Mexico, and the $10.0 million write-off related to refinancing of long-term debt, net of tax benefit of $6.6 million, that reduced consolidated net earnings.

TNMP

TNMP operates in only one reportable segment; therefore tabular presentation of segment data is not required.

(4) Regulatory Assets and Liabilities

The Company's operations are regulated by the NMPRC, PUCT and the FERC and the Company applies the provisions of SFAS 71to its regulated operations as applicable. Regulatory assets represent probable future recovery of previously incurred costs, which will be collected from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking process. Regulatory assets and liabilities reflected in the Consolidated Balance Sheets are presented below.

B-57

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

PNMR

	December 31,
	2005			2004
	(In thousands)
Assets:
Current:
PGAC	$	24,885		$	-
Gas Take-or-Pay Costs		1,065			3,339
Underground Rate		790			-
Gas Mark-to-Market - Off System Sales		1,318			-
Subtotal		28,058			3,339
Non-Current:
Mine Reclamation Costs		94,758			90,587
Deferred Income Taxes		78,671			71,471
Financing Costs		25,362			26,253
Loss on Reacquired Debt		17,398			19,044
Renewable Energy Certificates		5,739			3,448
Stranded Costs		87,316			-
Carrying Charges on Stranded Costs		33,918			-
Other		4,117			6,393
Subtotal		347,279			217,196
Total Regulatory Assets		375,337			220,535
Liabilities:
Current:
PGAC		-			(657	)
Gas Mark-to-Market - PGAC		(7,085	)		-
Subtotal		(7,085	)		(657	)
Non-Current:
Cost of Removal		(298,307	)		(247,350	)
Retail competition transition obligation		(16,621	)		-
Deferred Income Taxes		(30,070	)		(33,020	)
Asset Retirement Obligation		(33,367	)		(30,702	)
Unrealized Gain on PVNGS Decommissioning Trust		(7,251	)		(8,153	)
PVNGS Prudence Audit		(3,555	)		(3,931	)
Settlement Due Customers		(1,075	)		(1,158	)
Gain on Reacquired Debt		(692	)		(1,012	)
Gas Mark-to-Market - PGAC		(5,564	)		-
TNP Acquisition - Settlement Due Customers		(2,448	)		-
Other		(3,303	)		(2,093	)
Subtotal		(402,253	)		(327,419	)
Total Regulatory Liabilities		(409,338	)		(328,076	)

B-58

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

PNM

	December 31,
	2005			2004
	(In thousands)
Assets:
Current:
PGAC	$	24,885		$	-
Gas Take-or-Pay Costs		1,065			3,339
Underground Rate		790			-
Gas Mark-to-Market - Off System Sales		1,318			-
Subtotal		28,058			3,339
Non-Current:
Mine Reclamation Costs		94,758			90,587
Deferred Income Taxes		75,951			71,471
Financing Costs		25,362			26,253
Loss on Reacquired Debt		17,398			19,044
Renewable Energy Certificates		5,739			3,448
Other		4,117			6,393
Subtotal		223,325			217,196
Total Regulatory Assets		251,383			220,535
Liabilities:
Current:
PGAC		-			(657	)
Gas Mark-to-Market - PGAC		(7,085	)		-
Subtotal		(7,085	)		(657	)
Non-Current:
Cost of Removal		(258,682	)		(247,350	)
Deferred Income Taxes		(30,070	)		(33,020	)
Asset Retirement Obligation		(33,367	)		(30,702	)
Unrealized Gain on PVNGS Decommissioning Trust		(7,251	)		(8,153	)
PVNGS Prudence Audit		(3,555	)		(3,931	)
Settlement Due Customers		(1,075	)		(1,158	)
Gain on Reacquired Debt		(692	)		(1,012	)
Gas Mark-to-Market - PGAC		(5,564	)		-
TNP Acquisition - Settlement Due Customers		(2,448	)		-
Other		(3,303	)		(2,093	)
Subtotal		(346,007	)		(327,419	)
Total Regulatory Liabilities		(353,092	)		(328,076	)

B-59

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

TNMP

	December 31,
	2005			2004
	(In thousands)
Assets:
Non-Current:
Stranded Costs	$	87,316		$	87,316
Carrying Charges on Stranded Costs		33,918			48,130
Deferred Income Taxes		2,720			2,484
Texas System Benefit Fund		-			4,006
Other		-			1,615
Subtotal		123,954			143,551
Total Regulatory Assets		123,954			143,551
Liabilities:
Non-Current:
Cost of Removal		(39,625	)		(40,729	)
Retail competition transition obligation		(16,621	)		-
Total Regulatory Liabilities		(56,246	)		(40,729	)

Substantially all of the Company’s regulatory assets and regulatory liabilities are reflected in rates charged to customers or have been addressed in a regulatory proceeding. The Company receives or pays a rate of return on these regulatory assets and regulatory liabilities, except for mine reclamation costs and financing costs. Recovery of mine reclamation costs is provided for up to $100.0 million with a remaining recovery period of 15 years. Financing costs are amortized over the life of the debt, with the remaining amortization periods ranging from 3 to 30 years.

The Company is permitted, under rate regulations, to accrue and record a regulatory liability for the estimated cost of removal and salvage associated with certain of its assets through depreciation expense.

In 2004, the PUCT issued its first order in TNMP’s stranded cost true-up proceeding. The purpose of the true-up proceeding was to quantify and reconcile the amount of stranded costs that TNMP may recover from its transmission and distribution customers. See Note 17.

PNM records a regulatory asset for renewable energy certificates at $0.005 per KWh. A renewable energy certificate represents one KWh of energy produced from a renewable energy source as defined by the New Mexico Renewable Energy Act. The source of the renewable energy certificates is PNM’s PPA to purchase renewable energy from the New Mexico Wind Energy Center.

PNM’s cost-of-gas revenues collected from sales-service customers are recovered in accordance with NMPRC regulations through the PGAC and represent a pass-through of the cost of natural gas to the customer. An order was issued by the NMPRC in 2001 that approved an agreement regarding the hedging strategy of PNM and the implementation of a price management fund program which includes a continuous monthly balancing account with a carrying charge. This carrying charge has the effect of keeping PNM whole on purchases of gas since it is compensated for the time value of money that exists due to any delay in collections from customers.

Five forward starting interest rate swaps were terminated in May 2003 for a cash settlement of $27.1 million. This amount has been capitalized by PNM as a financing cost and will be amortized over the life of the bonds.

B-60

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

Based on a current evaluation of the various factors and conditions that are expected to impact future cost recovery, the Company believes that its regulatory assets are probable of future recovery.

(5)       Stockholders’ Equity

PNMR

Stock Split

In May 2004, the Board of PNMR approved a 3-for-2 stock split for shareholders of record on June 1, 2004. All references in the accompanying Consolidated Financial Statements and Notes thereto to PNMR’s shares outstanding and per share amounts have been restated to reflect the stock split.

Changes in common stock for PNMR are as follows:

	Common Stock
	Number		Aggregate
	of Shares		Value
	(Dollars in thousands)
Balance at December 31, 2003		60,388,496	$	647,722
Exercise of stock options		-		(16,430	)
Tax benefit from exercise of stock options		-		6,246
Stock split costs		-		(142	)
Retirement of preferred stock		-		153
ESPP purchase		76,099		1,277
Balance at December 31, 2004		60,464,595	$	638,826
Exercise of stock options		-		(16,261	)
Tax benefit from exercise of stock options		-		6,527
Issuance of equity-linked units		-		(18,769	)
Other charge - equity-linked units		-		11,348
Restricted stock		-		1,259
Sale of common stock		3,910,000		101,231
Common stock issued for TNP acquisition		4,326,337		87,392
ESPP purchase		85,354		1,872
Balance at December 31, 2005		68,786,286	$	813,425

B-61

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

PNM

Changes in common stock for PNM are as follows:

	Common Stock
	Number		Aggregate
	of Shares		Value
	(Dollars in thousands)
Balance at December 31, 2003		39,117,799	$	752,197
Retirement of preferred stock		-		153
Balance at December 31, 2004		39,117,799	$	752,350
Equity from parent		-		13,150
Balance at December 31, 2005		39,117,799	$	765,500

TNMP

Changes in common stock and additional paid-in capital for TNMP are as follows:

	Common Stock
							Additional
	Number			Aggregate			Paid-In
	of Shares			Par Value			Capital
	(Dollars in thousands)
Pre-Acquisition:
Balance at December 31, 2003		10,705		$	107		$	197,751
Balance at December 31, 2004		10,705		$	107		$	197,751
Post-Acquisition:
Balance at June 6, 2005		10,705		$	107		$	-
Purchase accounting adjustments		-			-			645,130
Stock redemption		(1,090	)		(11	)		(62,000	)
Balance at December 31, 2005		9,615		$	96		$	583,130

Dividends

The declaration of common dividends by PNMR is dependent upon a number of factors including the ability of PNMR’s subsidiaries to pay dividends. PNMR’s primary sources of dividends are PNM and TNMP.

PNM paid cash dividends of $91.0 million, $23.0 million and $49.6 million to PNMR for the years ended December 31, 2005, 2004 and 2003, respectively. TNMP paid cash dividends of $12.0 million to PNMR for the year ended December 31, 2005.

B-62

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

As part of the order approving the formation of PNMR, the NMPRC placed certain restrictions on the ability of PNM and TNMP to pay dividends to PNMR. The NMPRC order imposed the following conditions regarding dividends paid by PNM and TNMP to PNMR: PNM or TNMP cannot pay dividends which cause its debt rating to fall below investment grade; and neither PNM nor TNMP can pay dividends in any year, as determined on a rolling four quarter basis, in excess of net earnings without prior NMPRC approval. The Global Electric Agreement (see Note 17) modified the PNM dividend restriction to allow PNM to pay dividends from earnings to PNMR as well as equity contributions made by PNMR. Additionally, PNM has various financial covenants that limit the transfer of assets, through dividends or other means.

In addition, the ability of PNMR to declare dividends is dependent upon the extent to which cash flows will support dividends, the availability of retained earnings, the financial circumstances and performance, the NMPRC’s and PUCT’s decisions in various regulatory cases currently pending and which may be docketed in the future, the effect of federal regulatory decisions, Congressional and legislative acts and economic conditions in the United States. Conditions imposed by the NMPRC or PUCT, future growth plans and the related capital requirements and business considerations may also affect PNMR’s ability to pay dividends.

In February 2004, the Board of PNMR approved a 4.3% increase in the common stock dividend for an indicated annual dividend of $0.64 per share. In December 2004, the Board of PNMR approved a 15.6% increase in the common stock dividend for an indicated annual dividend of $0.74 per share. In July 2005, the Board of PNMR approved an 8.0% increase in the common stock dividend for an indicated annual dividend of $0.80 per share. In February 2006, the Board of PNMR approved a 10.0% increase in the common stock dividend for an indicated annual dividend of $0.88 per share.

Cumulative Preferred Stock

PNMR has no preferred stock outstanding. PNMR’s restated articles of incorporation authorize 10 million shares of preferred stock, which may be issued without restriction.

The number of authorized shares of PNM cumulative preferred stock is 10 million shares. During 2004, PNM retired 12,707 shares for $1.1 million. PNM preferred stock does not have a mandatory redemption requirement but may be redeemed at 102% of the stated value with accrued dividends. The holders of the preferred stock are entitled to payment before the holders of common stock in the event of any liquidation or dissolution or distribution of assets of PNM. In addition, PNM’s preferred stock is not entitled to a sinking fund and cannot be converted into any other class of stock of PNM.

TNMP has no preferred stock outstanding. The number of authorized shares of TNMP cumulative preferred stock is 1 million shares.

PNMR Equity-Linked Units and Common Stock

See Note 6 below for details about PNMR’s issuance of equity-linked units and common stock and the other charge related to this transaction.

TNMP Common Stock

In September 2005, as part of the TNP acquisition financing, TNMP redeemed and cancelled 1,090 shares of its privately held stock held by TNP at the book value of $56,888.91 per share, for a total of $62.0 million. TNP subsequently paid a cash dividend of $62.0 million to PNMR.

B-63

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

(6)Financing

PNMR

Long-Term Debt

During 2005, PNMR issued senior notes in conjunction with private and public offerings (see “Equity-Linked Units Offerings” below).

Revolving and Other Credit Facilities

In August 2005, PNMR completed arrangements to expand the size, extend the maturity and modify certain terms and conditions of its previous unsecured revolving credit facility and executed an amended and restated credit agreement (the “PNMR Facility”). The PNMR Facility expands the size of its previous revolving credit facility from $400.0 million to $600.0 million. Under the PNMR Facility, the borrowing availability of First Choice was increased from $100.0 million to $300.0 million to support First Choice’s future business activities. The PNMR Facility has an expiration date of August 15, 2010 and includes two one-year extension options that are subject to approval by a majority of the lenders. At December 31, 2005, $10.0 million was outstanding under the PNMR Facility (see First Choice below).

At December 31, 2005, PNMR also had $15.0 million in local lines of credit. There were no outstanding borrowings under the local lines of credit at December 31, 2005.

In June 2005, PNMR established a commercial paper program under which it may issue up to $400.0 million in commercial paper for up to 270 days. The commercial paper is unsecured and the proceeds are used for short-term cash management needs. The PNMR Facility serves as a backstop for the outstanding commercial paper. At December 31, 2005, PNMR had $190.1 million of commercial paper outstanding.

At December 31, 2005, First Choice had up to $300.0 million of borrowing capacity under the PNMR Facility. Any borrowings made by First Choice under this sublimit are guaranteed by PNMR. At December 31, 2005, First Choice had $10.0 million outstanding under the PNMR Facility; however, First Choice had $15.6 million of letters of credit outstanding, which reduces the available capacity under the PNMR Facility. TNMP is also a borrower under the PNMR Facility (see “TNMP” below).

Financing Activities

PNMR has a universal shelf registration statement filed with the SEC for the issuance of debt securities and equity securities, preferred stock, purchase contracts, purchase contract units and warrants. As of December 31, 2005, PNMR had approximately $400.9 million of remaining unissued securities under this registration statement.

PNMR has entered into three fixed-to-floating interest rate swaps with an aggregate notional principal amount of $150.0 million. Under these swaps, PNMR receives a 4.40% fixed interest payment on the notional principal amount on a semi-annual basis and pays a floating rate equal to the six month LIBOR plus 58.15 basis points (0.5815%) on the notional amount through September 15, 2008. The initial floating rate was 1.91% and will be reset every six months. The floating rate was reset on September 15, 2005, to 4.60%. The swap is accounted for as a fair-value hedge with a liability position of approximately $3.9 million as of December 31, 2005.

During October 2004, PNMR entered into two forward starting floating-to-fixed rate interest rate swaps with an aggregate notional principal amount of $100.0 million. These swaps became effective August 1, 2005 and terminate November 15, 2009. Under these swaps, PNMR receives a floating rate equal to the three month LIBOR rate on the notional principal amount and pays a fixed interest rate of 3.975% on the notional principal amount on a quarterly basis. The initial floating rate was set on August 1, 2005, at 3.693% and will be reset every three months. From November 2004 through June 30, 2005, the swaps were accounted for as a cash flow hedge against

B-64

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

borrowings under a five-year $400.0 million PNMR revolving credit agreement dated November 15, 2004. The PNMR Facility replaced the November 2004 credit agreement in August 2005. Effective June 30, 2005, the swaps were de-designated as cash flow hedges due to a change in the underlying borrowings being hedged from the November 2004 credit agreement at the inception of the hedge to commercial paper. The mark-to-market change in the fair value of theses swaps was subsequently recognized on PNMR’s Consolidated Statement of Earnings. At December 31, 2005, the increase in fair value related to these swaps was $2.8 million. Of this increase, $0.4 million was recorded in accumulated other comprehensive income on PNMR’s Consolidated Balance Sheet and $2.4 million was recognized in other income on PNMR’s Consolidated Statement of Earnings for the year ended December 31, 2005.

In conjunction with the acquisition of TNP, on June 6, 2005, PNMR made an equity investment of approximately $110.5 million in TNP, which TNP used to repay in full amounts owing under TNP’s credit agreement. In addition, pursuant to PNMR’s acquisition of TNP, PNMR agreed to provide funds to TNP to enable TNP to redeem (a) TNP's 14.5% Senior Redeemable Preferred Stock, Series C, (b) TNP's 14.5% Senior Redeemable Preferred Stock, Series D (collectively, “Preferred Stock”), and (c) TNP’s 10.25% Senior Subordinated Notes due 2010, Series B (“Senior Notes”). On July 6, 2005, TNP redeemed the Preferred Stock by tendering $224.6 million to the holders of the Preferred Stock and redeemed the Senior Notes by tendering $296.5 million to holders of the Senior Notes (tendered amounts include interest, as applicable). In order to fund a portion of the cost of redemption of TNP’s Preferred Stock and Senior Notes, PNMR issued $370.0 million of commercial paper short-term notes under the PNMR commercial paper program. The balance of the funds necessary for the redemption came from other cash available to PNMR and the total redemption amount was an equity investment by PNMR in TNP.

Equity-Linked Units Offering - Private

In October 2005, PNMR completed a private offering of 4,000,000 equity-linked units at 6.625%. PNMR received $100.0 million in proceeds from this transaction and there were no underwriting discounts or commissions. PNMR used the proceeds to repay short-term borrowings, which included borrowings for the acquisition of TNP.

Each equity-linked unit consists of a purchase contract and a 2.5% undivided beneficial ownership interest in one of PNMR’s senior notes with a stated amount of $1,000, which corresponds to a $25.00 stated amount of PNMR’s senior notes. The ownership interest in the senior notes is initially pledged to secure the purchaser’s obligation to purchase PNMR common stock under the related purchase contract. The senior notes are scheduled to mature in August 2010 (subject to the remarketing described below) and bear interest initially at the annual rate of 5.1%. The purchase contracts entitle the purchaser to quarterly contract adjustment payments of 1.525% per year on the stated amount of $25.00.

Each purchase contract contains a mandatory obligation for the holder to purchase, and PNMR to sell, at a purchase price of $25.00 in cash, shares of PNMR’s common stock (or preferred stock under certain circumstances in a ratio of 1/10 of a preferred share for each share of common stock) on or before November 16, 2008. Generally, the number of shares the purchaser is obligated to purchase depends on the average closing price per share of PNMR’s common stock over a 20-day trading period ending on the third trading day immediately preceding November 16, 2008, subject to anti-dilution adjustments. If the average closing price for the 20-day trading period is equal to or greater than approximately $25.116 per share, the settlement rate will be 0.9954 shares of common stock. If the average closing price for the trading period is less than approximately $25.116 per share but greater than $20.93 per share, the settlement rate is equal to $25.00 divided by the average closing price of PNMR’s common stock for the trading period. If the average closing price for the trading period is less than or equal to $20.93 per share, the settlement rate will be 1.1945 shares of common stock. The purchaser has the option to settle its obligations under the purchase contracts at any time on or prior to the fifth business day immediately preceding November 16, 2008. Prior to November 16, 2008, the senior notes will be remarketed. If the remarketing is successful, the interest rate on the senior notes may change to a rate selected by the remarketing agent, and the maturity of the senior notes may be extended to a date selected by PNMR, but no later than November 2011. If the remarketing of the senior notes is not successful, the maturity and interest rate of the senior notes will not change and holders of the equity-linked units will have the option of putting their senior notes to PNMR to satisfy their obligations under the purchase contracts. PNMR expects that the remarketing of the senior notes will be successful.

B-65

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The purchase contracts are forward transactions in PNMR’s common stock. Upon issuance in October 2005, a liability for the present value of the purchase contract adjustment payments of $4.6 million was recorded as a reduction to stockholders’ equity, with an offsetting increase to other long-term liabilities. Subsequent contract adjustment payments will reduce this liability. In addition, other charges of $11.3 million was recorded based on the increase in PNMR's stock price from August 2004, when the agreement was signed, to October 2005, when the equity-linked units were issued. Upon settlement of each purchase contract, PNMR will receive the stated amount of $25.00 on the purchase contract and will issue the requisite number of shares of common stock (or preferred stock under certain circumstances in a ratio of 1/10 of a preferred share for each share of common stock). The stated amount received will be recorded as an increase to stockholders’ equity.

Before the issuance of common stock (or preferred stock under certain circumstances in a ratio of 1/10 of a preferred share for each share of common stock) upon settlement of the purchase contracts, the equity-linked units will be reflected in diluted earnings per share calculations using the treasury stock method as defined by SFAS No. 128, “Earnings per Share” (“SFAS 128”). Under this method, the number of shares of common stock used in calculating diluted earnings per share (based on the settlement formula applied at the end of the reporting period) is deemed to be increased by the excess, if any, of the number of shares that would be issued upon settlement of the purchase contracts less the number of shares that could be purchased by PNMR in the market at the average market price during the period, using the proceeds to be received upon settlement. Therefore, dilution will occur for periods when the average market price of PNMR’s common stock for the reporting period is above approximately $25.116, and will potentially occur when the average price of PNMR’s common stock for the 20-day trading period preceding the end of the reporting period is lower than the average price of PNMR’s common stock for the full reporting period. The dilution effect for the year ended December 31, 2005 was approximately 317,600 shares.

Common Stock Offering

In March 2005, PNMR issued 3,910,000 shares of its common stock at $26.76 per share. PNMR received net proceeds from this offering, after deducting underwriting discounts and commissions and estimated expenses, of approximately $101.0 million. PNMR used the net proceeds to retire high cost TNP debt and preferred stock and to complete the construction of Luna, a partially constructed, combined-cycle power plant near Deming, New Mexico and for other general corporate purposes.

Equity-Linked Units Offering - Public

In March 2005, PNMR completed a public offering of 4,945,000 6.75% equity-linked units, yielding net proceeds after fees of $239.6 million. PNMR used the net proceeds to retire high cost TNP debt and preferred stock, to complete the construction of Luna and for other general corporate purposes.

Each equity-linked unit consists of a purchase contract and a 5.0% undivided beneficial ownership interest in one of PNMR’s senior notes with a stated amount of $1,000, which corresponds to a $50.00 stated amount of PNMR’s senior notes. The ownership interest in the senior notes is initially pledged to secure the corporate unit holder’s obligation to purchase PNMR common stock under the related purchase contract. The senior notes are scheduled to mature in May 2010 (subject to the remarketing described below) and bear interest at a rate of 4.8% per year. The purchase contracts entitle their holders to contract adjustment payments of 1.95% per year on the stated amount of $50.00.

Each purchase contract contains a mandatory obligation for the holder to purchase, and PNMR to sell, at a purchase price of $50.00 in cash, shares of PNMR’s common stock on or before May 16, 2008. Generally, the number of shares each holder of the equity-linked units is obligated to purchase depends on the average closing price per share of PNMR’s common stock over a 20-day trading period ending on the third trading day immediately preceding May 16, 2008, subject to anti-dilution adjustments. If the average closing price for the 20-day trading

B-66

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

period is equal to or greater than approximately $32.65 per share, the settlement rate will be 1.5315 shares of common stock. If the average closing price for the trading period is less than approximately $32.65 per share but greater than $26.76 per share, the settlement rate is equal to $50.00 divided by the average closing price of the Company’s common stock for the trading period. If the average closing price for the trading period is less than or equal to $26.76 per share, the settlement rate will be 1.8685 shares of common stock. The holders of equity-linked units have the option to settle their obligations under the purchase contracts at any time on or prior to the seventh business day immediately preceding May 16, 2008. Prior to May 16, 2008, the senior notes will be remarketed. If the remarketing is successful, the interest rate on the senior notes may change to a rate selected by the remarketing agent, and the maturity of the senior notes may be extended to a date selected by PNMR, but no later than May 2038. If the remarketing of the senior notes is not successful, the maturity and interest rate of the senior notes will not change and holders of the equity-linked units will have the option of putting their senior notes to PNMR to satisfy their obligations under the purchase contracts. PNMR expects that the remarketing of the senior notes will be successful.

The purchase contracts are forward transactions in PNMR’s common stock. Upon issuance, a liability for the present value of the purchase contract adjustment payments of $13.9 million was recorded as a reduction to stockholders’ equity, with an offsetting increase to other long-term liabilities. Subsequent contract adjustment payments will reduce this liability. Upon settlement of each purchase contract, PNMR will receive the stated amount of $50.00 on the purchase contract and will issue the requisite number of shares of common stock. The stated amount received will be recorded as an increase to stockholders’ equity. PNMR has reserved 10 million shares of its common stock for issuance pursuant to the purchase contracts.

Before the issuance of common stock upon settlement of the purchase contracts, the equity-linked units will be reflected in diluted earnings per share calculations using the treasury stock method as defined by SFAS 128. Dilution will occur for periods when the average market price of PNMR’s common stock for the reporting period is above approximately $32.65, and will potentially occur when the average price of PNMR’s common stock for the 20-day trading period preceding the end of the reporting period is lower than the average price of PNMR’s common stock for the full reporting period. The dilution effect for the year ended December 31, 2005 was approximately 122,636 shares.

PNM

Long-Term Debt

Under PNM’s modified 1947 Indenture of Mortgage and Deed of Trust, no future bonds can be issued under the mortgage. While first mortgage bonds continue to serve as collateral for pollution control bonds in the outstanding principal amount of $65.0 million, the lien of the mortgage covers only PNM’s ownership interest in PVNGS. Senior unsecured notes, which were issued under a senior unsecured note indenture, serve as collateral for the pollution control bonds in the outstanding principal amount of $520.8 million. With the exception of the $65.0 million of pollution control bonds secured by first mortgage bonds, the senior unsecured notes are the senior debt of PNM.

Revolving and Other Credit Facilities

In August 2005, PNM entered into a new $400.0 million unsecured credit agreement (the “PNM Facility”) to replace its existing $300.0 million facility. The PNM Facility is for a one-year term and expires August 17, 2006. Upon receiving approval by the NMPRC, it is expected that the term will be extended through August 17, 2010. The PNM Facility also includes two one-year extension options, subject to regulatory approval and approval by a majority of the lenders. In connection with entering into the new PNM Facility, PNM simultaneously terminated the previously existing $300.0 million facility, which would otherwise have terminated on November 21, 2006. Many of the same lenders were parties to the prior agreement. The terms and conditions of the new PNM Facility are generally similar to, or improvements over, the terms and conditions in the terminated agreement. At the time the previous credit facility was terminated, there was no balance on the facility and there were no fees or penalties related to the termination.

B-67

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

At December 31, 2005, PNM also had $23.5 million in local lines of credit and a $20.0 million borrowing arrangement with PNMR. There were no outstanding borrowings under the PNM Facility, the local lines of credit or the borrowing arrangement with PNMR at December 31, 2005; however, $4.5 million of letters of credit were outstanding, which reduces the available capacity under the PNM Facility.

PNM has a commercial paper program under which PNM may issue up to $300.0 million in commercial paper for up to 365 days. The commercial paper is unsecured and the proceeds are used for short-term cash management needs. The PNM Facility serves as a backstop for the outstanding commercial paper. As of December 31, 2005, PNM had $127.9 million in commercial paper outstanding.

Financing Activities

PNM has a universal shelf registration statement filed with the SEC for the issuance of debt securities, equity securities, preferred stock, purchase contracts, purchase contract units and warrants. As of December 31, 2005, PNM had approximately $200.0 million of remaining unissued securities registered under its shelf registration statement.

Asset Securitization

PNM has an accounts receivable securitization program with a maximum borrowing capacity of $70.0 million. This program provides for the securitization of PNM’s retail electric service accounts receivable and retail gas service accounts receivable. Under the securitization program, PNM will periodically sell its accounts receivable, principally retail receivables, to a bankruptcy remote subsidiary, PNM Receivables Corporation, which in turn pledges an undivided interest in the receivables to an unaffiliated conduit commercial paper issuer. As of December 31, 2005 and 2004, PNM had no outstanding borrowings under the accounts receivable securitization program, which was secured by $129.5 million and $143.7 million of accounts receivable, respectively. PNM Receivables Corporation is consolidated in PNM’s financial statements. The accounts receivable program expires in April 2006.

TNMP

Long-Term Debt

In 1999 and 2003, respectively, TNMP issued $175.0 million, 6.25% senior unsecured notes that mature in 2009 and $250.0 million, 6.125% senior notes that mature in 2008. On or after May 1, 2005, TNMP will be required to redeem the 6.125% senior notes to the extent that it receives proceeds from the securitization of stranded costs.

Revolving and Other Credit Facilities

In July 2005, the NMPRC approved TNMP's application to become a borrower and issue notes of up to $100.0 million under the PNMR Facility. SEC approval was received in September 2005 and TNMP was added as a borrower under the PNMR Facility in September 2005. Any borrowings made by TNMP under this sublimit are not guaranteed by PNMR. At December 31, 2005, TNMP had no outstanding borrowings under the PNMR Facility. However, TNMP had $2.4 million letters of credit outstanding, which reduces the available capacity under the PNMR facility.

B-68

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

Financing Activities

In June 2003, TNMP issued $250.0 million of 6.125% senior notes due in 2008. In May 2003, TNMP executed a $250.0 million Treasury rate lock transaction designed to manage interest rate risk associated with the issuance of the senior notes. TNMP paid $4.2 million upon the issuance of senior notes in June 2003 to settle the rate lock. Through the date of the acquisition, the cost of the rate lock was recorded in accumulated other comprehensive income and was amortized to interest expense over the life of the senior notes. The book value of the rate lock acquired was $1.7 million. In conjunction with the acquisition of TNP by PNMR on June 6, 2005, the balance for the rate lock remaining in accumulated other comprehensive income was recorded at fair market value as of the date of acquisition, which was zero.

(7)Lease Commitments

PNMR

PNMR’s operating lease expense, including TNP lease expense from June 6, 2005 through December 31, 2005, was approximately $36.7 million in 2005, $33.0 million in 2004 and $33.4 million in 2003. Aggregate minimum payments to be received in future periods under non-cancelable subleases are approximately $1.2 million.

PNMR’s future minimum operating lease payments at December 31, 2005 are:

	(In thousands)
2006	$	34,363
2007		34,634
2008		34,371
2009		31,478
2010		31,271
Later years		214,476
Total minimum lease payments	$	380,593

PNM

PNM leases interests in Units 1 and 2 of PVNGS, certain transmission facilities, office buildings and other equipment under operating leases. Covenants in PNM’s PVNGS Units 1 and 2 lease agreements, expiring in 2015 and 2016, limit PNM’s ability, without consent of the owner participants in the lease transactions, (i) to enter into any merger or consolidation, or (ii) except in connection with normal dividend policy, to convey, transfer, lease or dividend more than 5% of its assets in any single transaction or series of related transactions.

PNM’s other significant operating lease obligations include a leased interest in the EIP transmission line with annual lease payments of $2.8 million and a PPA for the entire output of Delta, a gas-fired generating plant in Albuquerque, New Mexico, with imputed annual lease payments of $6.0 million. See Note 9 and Note 16 for additional information about the Delta operating lease. PNM’s operating lease expense was approximately $28.5 million in 2005, $27.6 million in 2004 and $28.0 million in 2003. Aggregate minimum payments to be received in future periods under non-cancelable subleases are approximately $1.2 million.

B-69

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

PNM has several capital leases for certain fleet vehicles. At December 31, 2005 and 2004, $1.5 million and $2.2 million of these capital leases were recorded in long-term debt.

PNM’s future minimum operating lease payments at December 31, 2005 are:

	(In thousands)
2006	$	29,322
2007		30,206
2008		31,147
2009		28,995
2010		28,995
Later years		204,765
Total minimum lease payments	$	353,430

TNMP

TNMP’s operating lease expense was approximately $1.4 million in 2005, $1.1 million in 2004 and $1.0 million in 2003.

TNMP’s future minimum operating lease payments at December 31, 2005 are:

	(In thousands)
2006	$	3,159
2007		2,545
2008		1,342
2009		600
2010		393
Later years		454
Total minimum lease payments	$	8,493

(8)       Fair Value of Financial Instruments

PNMR and PNM

Interest Rate Management

The Company may enter into agreements for derivative instruments, including options and swaps, to manage risks related to changes in interest rates. At the inception of any such transaction, the Company documents relationships between the hedging instruments and the items being hedged. This documentation includes the strategy that supports executing the specific transaction. See Note 6 for details regarding interest rate swaps PNMR has entered into.

GAAP defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Although management uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique. Therefore, the fair value estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current transaction. Fair value is based on market quotes provided by the Company’s investment bankers and trust advisors. The market prices used to value PNM’s mark-to-market energy portfolio are based on closing exchange prices and over-the-counter quotations.

B-70

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

PNMR

Carrying Amount/Fair Value

The carrying amounts reflected on PNMR’s Consolidated Balance Sheets approximate fair value for cash, temporary investments, receivables, and payables due to the short period of maturity. The carrying amount and fair value of PNMR’s financial instruments (including current maturities) are:

	December 31, 2005				December 31, 2004
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
	(In thousands)
Long-term debt	$	1,746,395	$	1,828,990	$	987,823	$	1,026,131
Investment in PVNGS lessors' notes	$	286,678	$	331,961	$	308,680	$	390,244

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

	At and For the Year Ended December 31, 2005
	Unrealized Gains		Unrealized Losses			Fair Value
Available-for-sale:
Equity securities	$	19,155	$	(459	)	$	73,562
Municipal bonds		932		(58	)		24,621
U.S. Government securities		163		(76	)		6,786
Corporate bonds		10		(72	)		2,569
Other investments		30		(5	)		3,569
	$	20,290	$	(670	)	$	111,107

B-71

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

	At and For the Year Ended December 31, 2004
	Unrealized Gains		Unrealized Losses			Fair Value
Available-for-sale:
Equity securities	$	20,089	$	(186	)	$	62,873
Municipal bonds		1,220		(52	)		24,103
U.S. Government securities		226		(18	)		6,592
Corporate bonds		31		(18	)		2,508
Other investments		6		(2	)		4,410
	$	21,572	$	(276	)	$	100,486

At December 31, 2005, the available-for-sale securities held by PNMR had the following maturities:

	Fair Value
	(In thousands)
Within 1 year	$	2,923
After 1 year through 5 years		4,938
After 5 years through 10 years		5,285
Over 10 years		20,830
Equity securities		73,562
Other investments		3,569
	$	111,107

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

	Year Ended December 31,
	2005			2004			2003
	(In thousands)
Proceeds from sales	$	106,624		$	51,213		$	123,030
Gross realized gains	$	11,825		$	6,737		$	7,685
Gross realized losses	$	(3,176	)	$	(4,068	)	$	(5,694	)

During 2005, PNMR determined that one of its investments, Wood River, had experienced a loss in market value. During the third quarter of 2005, PNMR wrote down the value of its investment in Wood River to zero and incurred a loss of approximately $3.6 million. In the fourth quarter of 2005, the assets held in the Wood River fund were transferred into receivership as part of a civil complaint filed by the SEC against Wood River. As noted above, prior to this, the investments in Wood River were classified and accounted for as trading securities. At December 31, 2005, due to the change in circumstances surrounding Wood River, PNMR’s investment was reclassified from trading to available-for-sale in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS 115”). The fair value of PNMR’s investment in Wood River was determined to be zero at December 31, 2005. PNMR cannot predict when or if it will receive a return of the cash value of its investment in Wood River.

B-72

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

First Choice Natural Gas Contracts

During July 2005, First Choice began entering into various gas contracts. These contracts are marked to market in accordance with GAAP. The change in mark-to-market valuation is recognized in earnings each period and is recorded in operating revenues if a sales position, and cost of energy if a purchase position, as applicable. For the year ended December 31, 2005, First Choice had a net settled gain of $0.7 million related to natural gas contracts. As of December 31, 2005, First Choice had a net mark-to-market liability loss of $2.8 million recorded in other current liabilities for these contracts.

First Choice Energy Contracts

During July 2005, First Choice also began entering into various forward physical contracts for the purchase and sale of electricity with the intent of optimizing market opportunities. These contracts, which are derivatives, do not qualify for normal purchase and sale designation pursuant to GAAP, and are marked to market. For the year ended December 31, 2005, First Choice had a net settled gain of $88,879 related to these forward energy contracts. As of December 31, 2005, First Choice had a net mark-to-market asset gain of $4.1 million recorded in other current assets for these contracts.

First Choice Natural Gas Hedges

First Choice also enters into natural gas transactions to hedge the variable component of certain heat-rate based power products used to serve customer load. These products are priced based on gas to power conversion rates using the spot price for natural gas. The hedges are effective in offsetting future cash flow volatility caused by increases in natural gas prices. The fair value of the natural gas hedges as of December 31, 2005, was a liability of $0.5 million, which is recorded on PNMR’s Consolidated Balance Sheet as a current liability. There was no hedge ineffectiveness on these transactions because the hedges and the underlying contracts are both indexed to New York Mercantile Exchange rates and movement in the hedge offsets movement in the contract. For the year ended December 31, 2005, (after June 6, 2005) First Choice’s cost of energy includes gains of $6.0 million related to the settlement of natural gas hedges.

PNM

Carrying Amount/Fair Value

The carrying amounts reflected on PNM’s Consolidated Balance Sheets approximate fair value for cash, temporary investments, receivables, and payables due to the short period of maturity. The carrying amount and fair value of PNM’s financial instruments (including current maturities) are:

	December 31, 2005				December 31, 2004
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
	(In thousands)
Long-term debt	$	987,068	$	1,052,736	$	987,676	$	1,025,983
Investment in PVNGS lessors' notes	$	286,678	$	331,961	$	308,680	$	390,244

PNM’s investment in the EIP transmission line and related facilities includes a 60% ownership and a 10.25% note investment maturing in 2012. It is carried at cost on the Consolidated Balance Sheet in other investments. The balance as of December 31, 2005 and 2004 was $12.0 million and $12.2 million, respectively.

B-73

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

Retail Natural Gas Contracts

The NMPRC has authorized PNM to hedge certain portions of natural gas supply contracts to protect PNM’s natural gas customers from the risk of adverse price fluctuations in the natural gas market. Hedge gains and losses are recoverable through PNM’s PGAC if deemed prudently incurred by the NMPRC. As a result, earnings are not affected by gains or losses generated by these instruments.

PNM purchased $6.8 million and $7.8 million of natural gas options during the year ended December 31, 2005 and 2004, respectively, to protect its natural gas customers from the risk of rising prices during the 2005-2006 and 2004-2005 heating seasons. These gas options cap the amount PNM would pay for each volume of gas subject to the options during the winter heating season. At December 31, 2005 and 2004, PNM had $3.4 million and $3.1 million of unrecovered premium costs included in other current assets on its Consolidated Balance Sheet. Expense of $3.4 million and $4.7 million is included on PNM’s Consolidated Statement of Earnings for the year ended December 31, 2005 and 2004, respectively. PNM recovered $3.1 million of its option premiums as a component of the PGAC during January 2005 through February 2005.

PNM entered into fixed-for-float financial transactions to hedge a portion of its winter gas purchase portfolio and has applied hedge accounting to these transactions. PNM has hedged 10.9 million MMBTUs utilizing the fixed-for-float strategy for 2005-2006 and the 2006-2007 winter heating seasons.

Wholesale Electricity Contracts

PNM Wholesale has entered into various forward physical contracts for the purchase and sale of electricity with the intent to optimize its net generation position. These contracts, which are derivatives, do not qualify for normal purchase and sale designation pursuant to GAAP, and are marked to market.

For the year ended December 31, 2005, PNM Wholesale settled derivative forward contracts for the sale of electricity that generated $168.1 million of electric revenues by delivering 2.9 million MWh. For the year ended December 31, 2005, PNM Wholesale settled derivative forward contracts for the purchase of electricity of $168.2 million or 2.8 million MWh to support these contractual sales and other open market sales opportunities. For the year ended December 31, 2004, PNM Wholesale settled derivative forward contracts for the sale of electricity that generated $159.3 million of electric revenues by delivering 3.0 million MWh. PNM Wholesale settled derivative forward contracts for the purchase of electricity of $143.0 million or 2.8 million MWh to support these contractual sales and other open market sales opportunities.

As of December 31, 2005, PNM Wholesale had open derivative forward contract positions to buy $52.6 million and to sell $72.4 million of electricity. At December 31, 2005, PNM Wholesale had a gross mark-to-market gain (asset position) on these derivative forward contracts of $17.1 million and a gross mark-to-market loss (liability position) of $16.7 million, recorded in other assets and liabilities, respectively. As of December 31, 2004, PNM Wholesale had open derivative forward contract positions to buy $35.2 million and to sell $39.2 million of electricity. At December 31, 2004, PNM Wholesale had a gross mark-to-market gain (asset position) on these derivative forward contracts of $6.5 million and a gross mark-to-market loss (liability position) of $5.3 million, recorded in other assets and liabilities, respectively. The change in mark-to-market valuation is recognized in earnings each period and is recorded in operating revenues if a sales position, and cost of energy if a purchase position, as applicable. There is no hedge ineffectiveness on these transactions because the hedged transactions and the hedged item are based on the same forward curve.

PNM Wholesale also entered into forward physical contracts for the sale of PNM’s electric capacity in excess of its retail and wholesale firm requirement needs, including reserves. In addition, PNM Wholesale entered into forward physical contracts for the purchase of retail needs, including reserves, when resource shortfalls exist. PNM Wholesale generally accounts for these as normal sales and purchases as defined by SFAS 133. From time to time PNM Wholesale makes forward purchases to serve its retail needs when the cost of purchased power is less than the incremental cost of its generation. At December 31, 2005, PNM Wholesale had open forward positions classified as normal sales of electricity of $138.9 million and normal purchases of electricity of $11.2 million, which will be reflected in the financial statements upon physical delivery.

B-74

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The operations of PNM Wholesale, including both firm commitments and other wholesale sale activities, are managed primarily through a net asset-backed strategy, whereby PNM Wholesale’s aggregate net open position is covered by its own excess generation capabilities. PNM Wholesale is exposed to market risk if its generation capabilities were disrupted or if its retail load requirements were greater than anticipated. If PNM Wholesale were required to cover all or a portion of its net open contract position, it would have to meet its commitments through market purchases.

Counterparties to its financial and physical derivative instruments expose PNM Wholesale to credit risk in the event of non-performance or non-payment. PNM Wholesale uses a credit management process to assess and monitor the financial conditions of counterparties. PNM Wholesale's credit risk with its largest counterparty as of December 31, 2005 and December 31, 2004 was $20.5 million and $26.2 million, respectively.

Wholesale Gas Contracts

PNM Wholesale enters into various fixed-for-float price swaps to manage the price risk of certain forward sales of power. These contracts, along with the underlying power sales, are marked to market in accordance with GAAP.

For the year ended December 31, 2005, PNM Wholesale settled derivative forward contracts for the sale of gas that generated $26.5 million of revenues and settled derivative forward contracts for the purchase of gas of $25.3 million. For the year ended December 31, 2004, PNM Wholesale settled derivative forward contracts for the sale of gas that generated $24.5 million of revenues and settled derivative forward contracts for the purchase of gas of $22.9 million.

As of December 31, 2005, PNM Wholesale had open derivative forward contract positions to sell $26.7 million of natural gas and to purchase $1.9 million of natural gas. At December 31, 2005, PNM Wholesale had a gross mark-to-market gain (asset position) on these derivative forward contracts of $14.5 million and a gross mark-to-market loss (liability position) of $12.6 million, recorded in other current assets and liabilities, respectively. As of December 31, 2004, PNM Wholesale had open derivative forward contract positions to sell $13.3 million of gas. At December 31, 2004, PNM Wholesale had a gross mark-to-market gain (asset position) on these derivative forward contracts of $0.9 million and a gross mark-to-market loss (liability position) of $0.3 million, recorded in other assets and liabilities, respectively. The change in mark-to-market valuation is recognized in earnings each period and is recorded in operating revenues, if a sales position, and cost of energy, if a purchase position, as applicable. There is no hedge ineffectiveness on these transactions because the hedged transactions and the hedged item are based on the same forward curve.

B-75

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

TNMP

Carrying Amount/Fair Value

The carrying amounts reflected on TNMP’s Consolidated Balance Sheets approximate fair value for cash, temporary investments, receivables, and payables due to the short period of maturity. The carrying value for these items reflects the fair value recorded at the date of acquisition, June 6, 2005, in accordance with SFAS 71. The carrying amount and fair value of TNMP’s financial instruments (including current maturities) are:

	December 31, 2005				December 31, 2004
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
	(In thousands)
Long-term debt	$	415,864	$	432,792	$	415,569	$	434,773

Normal Purchases and Sales

In the normal course of business, TNMP enters into commodity contracts, which include components for additional purchases or sales of electricity, in order to meet customer requirements. Criteria by which option-type and forward contracts for electricity can qualify for the normal purchase and sales exception has been defined by SFAS 133. In accordance with these GAAP pronouncements, management has determined that its contracts for electricity qualify for the normal purchases and sales exception. Accordingly, TNMP does not account for its electricity contracts as derivatives.

(9)      Variable Interest Entities

FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (Revised December 2003) (“FIN 46R”), became effective January 1, 2004 for those entities considered to be special purpose entities, and March 31, 2004 for others. Under the model for consolidation promulgated by FIN 46R, a PPA may qualify as a variable interest if its terms expose the purchaser to variability in supply or operating costs and the contract is for a significant portion of the entity’s generating capacity. PNM evaluated its PPAs under the provisions of FIN 46R and determined that one purchase contract entered into prior to December 31, 2003 qualifies as a variable interest. Although PNM has continued to make ongoing efforts to obtain information, PNM was unable to obtain the necessary information needed to determine if PNM was the primary beneficiary and if consolidation was needed despite efforts including a formal written request to the operator of the entity supplying power under the PPA. The operator cited legal and competitive reasons for refusing to provide the information.

This variable interest PPA is a contract under an operating lease to purchase 132 MW of capacity and energy expiring in June 2020. See Note 7 and Note 16 for more information about the Delta operating lease. The contract contains a fixed capacity charge, a fixed O&M charge, and a variable energy charge that subjects PNM to the changes in the cost of fuel and O&M. For the year ended December 31, 2005, the capacity and O&M charge was $6.4 million and the energy charges were $1.1 million. For the year ended December 31, 2004, the capacity and O&M charge was $6.0 million and the energy charges were $0.9 million. The contract is for the full output of a specific gas generating plant and is currently accounted for as an operating lease by PNM. Under this contract PNM is exposed to changes in the costs to produce energy and operate the plant.

PNM also has interests in other variable interest entities created before January 31, 2003, for which PNM is not the primary beneficiary. These arrangements include PNM’s investment in a limited partnership and certain PNM leases. The aggregate maximum loss exposure at December 31, 2005 that PNM could be required to record in its Consolidated Statement of Earnings as a result of these arrangements totals approximately $5.3 million. The creditors of these variable interest entities do not have recourse to the general credit of PNMR in excess of the aggregate maximum loss exposure.

B-76

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

(10)    Earnings Per Share

In accordance with SFAS No. 128, “Earnings per Share,” dual presentation of basic and diluted earnings per share has been presented in the Consolidated Statements of Earnings. Prior years' share amounts have been adjusted to reflect the effects of 2004 stock split. The following reconciliation illustrates the impact on the share amounts of potential common shares and the earnings per share amounts:

	Year Ended December 31,
	2005			2004		2003
	(In thousands, except per share amounts)
Basic:
Net Earnings Before Cumulative Effect of Changes in	$	68,153		$	87,686	$	58,552
Accounting Principle
Cumulative Effect of Changes in Accounting Principle,
net of tax of $592 and $23,999		(926	)		-		36,621
Net Earnings	$	67,227		$	87,686	$	95,173
Average Number of Common Shares Outstanding		65,928			60,414		59,620
Net Earnings per Share of Common Stock (Basic)	$	1.02		$	1.45	$	1.60
Earnings Before Cumulative Effect of Changes in
Accounting Principles		1.03			1.45		0.99
Cumulative Effect of Changes in Accounting Principles, net of tax		(0.01	)		-		0.61
Net Earnings per Share of Common Stock (Basic)	$	1.02		$	1.45	$	1.60
Diluted:
Net Earnings Before Cumulative Effect of Changes in
Accounting Principle	$	68,153		$	87,686	$	58,552
Cumulative Effect of Changes in Accounting Principle,
net of tax of $592 and $23,999		(926	)		-		36,621
Net Earnings	$	67,227		$	87,686	$	95,173
Average Number of Common Shares Outstanding		65,928			60,414		59,620
Diluted Effect of Common Stock Equivalents (a)		1,152			926		585
Average Common and Common Equivalent Shares Outstanding		67,080			61,340		60,205
Net Earnings per Share of Common Stock (Diluted)	$	1.00		$	1.43	$	1.58
Earnings Before Cumulative Effect of Changes in
Accounting Principles		1.01			1.43		0.97
Cumulative Effect of Changes in Accounting Principles, net of tax		(0.01	)		-		0.61
Net Earnings per Share of Common Stock (Diluted)	$	1.00		$	1.43	$	1.58

(a) Excludes the effect of average anti-dilutive common stock equivalents related to out of-the-money options of 433,957 shares, 5,883 shares and 871,493 shares for the years ended December 31, 2005, 2004 and 2003, respectively.

B-77

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

(11)     Income Taxes

PNMR

PNMR’s income taxes before cumulative effect of changes in accounting principles consist of the following components:

	Year Ended December 31,
	2005			2004			2003
	(In thousands)
Current federal income tax	$	4,390		$	10,634		$	(27,621	)
Current state income tax		81			2,495			(6,169	)
Deferred federal income tax		28,070			31,725			52,154
Deferred state income tax		3,872			7,495			12,646
Amortization of accumulated investment tax credits		(3,552	)		(3,102	)		(3,121	)
Total income taxes	$	32,861		$	49,247		$	27,889
Charged to operating expenses	$	19,450		$	36,062		$	28,072
Charged to other income and deductions		13,411			13,185			(183	)
Total income taxes	$	32,861		$	49,247		$	27,889

PNMR’s provision for income taxes, before cumulative effect of changes in accounting principles, differed from the federal income tax computed at the statutory rate for each of the years shown. The differences are attributable to the following factors:

	Year Ended December 31,
	2005			2004			2003
	(In thousands)
Federal income tax at statutory rates	$	36,362		$	48,127		$	30,459
Investment tax credits		(3,552	)		(3,102	)		(3,121	)
Flow-through of depreciation items		1,903			2,091			2,033
Gains on the sale and leaseback of PVNGS Units 1 and 2		(527	)		(527	)		(527	)
Annual reversal of deferred income taxes accrued at prior tax rates		(2,086	)		(1,963	)		(1,963	)
Research and development credit		-			-			(966	)
Affordable housing credit		(750	)		(789	)		(969	)
Allowance for funds used during construction		(623	)		(453	)		(906	)
Charitable contribution of appreciated property		-			(960	)		-
State income tax		3,356			6,357			4,161
Other		(1,222	)		466			(312	)
Total income taxes	$	32,861		$	49,247		$	27,889
Effective tax rate		31.63	%		35.81	%		32.05	%

B-78

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The components of PNMR’s net accumulated deferred income tax liability were:

	December 31,
	2005			2004
	(In thousands)
Deferred Tax Assets:
Nuclear decommissioning costs	$	27,610		$	31,632
Regulatory liabilities related to income taxes		38,331			31,805
Minimum pension liability		72,443			64,139
Other		58,863			43,526
Total deferred tax assets		197,247			171,102
Deferred Tax Liabilities:
Depreciation		(346,693	)		(263,542	)
Investment tax credit		(33,806	)		(35,360	)
Regulatory assets related to income taxes		(86,931	)		(70,256	)
Asset retirement obligations		(16,213	)		(24,524	)
Deferred charges		(10,745	)		-
Other intangibles		(26,861	)		-
Recoverable stranded costs		(46,585	)		-
Other		(114,482	)		(97,308	)
Total deferred tax liabilities		(682,316	)		(490,990	)
Net Accumulated deferred income tax liabilities	$	(485,069	)	$	(319,888	)

The following table reconciles the change in PNMR’s net accumulated deferred income tax liability to the deferred income tax expense included in the Consolidated Statement of Earnings:

	Year Ended
	December 31, 2005
	(In thousands)
Net change in deferred income tax liability per above table	$	165,181
Inclusion of TNP deferred tax liabilities		(124,947	)
Change in tax effects of income tax related regulatory assets and liabilities		(7,725	)
Tax effect of mark-to-market on investments available for sale		(6,999	)
Tax effect of excess pension liability		8,304
Tax effect of cumulative effect of change in accounting principle		591
Other		(6,015	)
Deferred income tax expense	$	28,390

The Company defers investment tax credits related to rate regulated assets and amortizes them over the estimated useful lives of those assets.

PNMR’s tax years 2001 through 2004 and TNP’s tax years 2002 and 2003 are currently under examination by the IRS. Although the Company does not expect any significant adjustments to the tax provision as a result of the IRS examination, management is unable to determine the final outcome of the IRS examination at this time.

B-79

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

PNM

PNM’s income taxes before cumulative effect of changes in accounting principles consist of the following components:

	Year Ended December 31,
	2005			2004			2003
	(In thousands)
Current federal income tax	$	10,070		$	15,057		$	(19,824	)
Current state income tax		2,289			3,327			(4,123	)
Deferred federal income tax		12,792			30,252			46,761
Deferred state income tax		3,237			7,163			10,897
Amortization of accumulated investment tax credits		(3,094	)		(3,102	)		(3,121	)
Total income taxes	$	25,294		$	52,697		$	30,590
Charged to operating expenses		8,217			37,964			28,262
Charged to other income and deductions		17,077			14,733			2,328
Total income taxes	$	25,294		$	52,697		$	30,590

PNM’s provision for income taxes, before cumulative effect of changes in accounting principles, differed from the federal income tax computed at the statutory rate for each of the years shown. The differences are attributable to the following factors:

	Year Ended December 31,
	2005			2004			2003
	(In thousands)
Federal income tax at statutory rates	$	27,445		$	50,797		$	31,699
Investment tax credits		(3,094	)		(3,102	)		(3,121	)
Flow-through of depreciation items		1,903			2,091			2,033
Gains on the sale and leaseback of PVNGS Units 1 and 2		(527	)		(527	)		(527	)
Annual reversal of deferred income taxes accrued at prior tax rates		(1,963	)		(1,963	)		(1,963	)
Research and development credit		-			-			(966	)
Allowance for funds used during construction		(615	)		(430	)		(893	)
Charitable contribution of appreciated property		-			(960	)		-
State income tax		3,694			6,682			4,300
Other		(1,549	)		109			28
Total income taxes	$	25,294		$	52,697		$	30,590
Effective tax rate		32.26	%		36.31	%		33.78	%

B-80

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The components of PNM’s net accumulated deferred income tax liability were:

	December 31,
	2005			2004
	(In thousands)
Deferred Tax Assets:
Nuclear decommissioning costs	$	27,610		$	31,632
Regulatory liabilities related to income taxes		28,351			31,805
Minimum pension liability		72,443			64,139
Other		40,105			47,252
Total deferred tax assets		168,509			174,828
Deferred Tax Liabilities:
Depreciation		(264,437	)		(262,039	)
Investment tax credit		(32,266	)		(35,360	)
Regulatory assets related to income taxes		(74,231	)		(70,256	)
Asset retirement obligations		(16,222	)		(24,524	)
Other		(114,371	)		(96,916	)
Total deferred tax liabilities		(501,527	)		(489,095	)
Net Accumulated deferred income tax liabilities	$	(333,018	)	$	(314,267	)

The following table reconciles the change in PNM’s net accumulated deferred income tax liability to the deferred income tax expense included in the Consolidated Statement of Earnings:

	Year Ended
	December 31, 2005
	(In thousands)
Net change in deferred income tax liability per above table	$	18,751
Change in tax effects of income tax related regulatory assets and liabilities		(7,429	)
Tax effect of mark-to-market on investments available for sale		(6,999	)
Tax effect of excess pension liability		8,304
Tax effect of cumulative effect of change in accounting principle		331
Other		(23	)
Deferred income tax expense	$	12,935

B-81

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

TNMP

TNMP’s income taxes before extraordinary item and cumulative effect of change in accounting principle consist of the following components:

	Post-			Pre-			Pre-			Pre-
	Acquisition			Acquisition			Acquisition			Acquisition
	June 6-			January 1-			Year Ended			Year Ended
	December 31,			June 6,			December 31,			December 31,
	2005			2005			2004			2003
	(In thousands)
Current federal income tax	$	958		$	5,634		$	6,364		$	13,619
Current state income tax		(60	)		676			3,048			1,354
Deferred federal income tax		8,328			(954	)		15,049			(388	)
Deferred state income tax		1,268			(127	)		2,652			(6	)
Amortization of accumulated investment
tax credits		(458	)		(328	)		(722	)		(874	)
Total income taxes	$	10,036		$	4,901		$	26,391		$	13,705
Charged to operating expenses	$	7,965		$	5,055		$	13,680		$	13,044
Charged to other income and deductions		2,071			(154	)		12,711			661
Total income taxes	$	10,036		$	4,901		$	26,391		$	13,705

TNMP’s provision for income taxes, before extraordinary item and cumulative effect of change in accounting principle, differed from the federal income tax computed at the statutory rate for each of the periods shown. The differences are attributable to the following factors:

	Post-			Pre-			Pre-			Pre-
	Acquisition			Acquisition			Acquisition			Acquisition
	June 6-			January 1-			Year Ended			Year Ended
	December 31,			June 6,			December 31,			December 31,
	2005			2005			2004			2003
	(In thousands)
Federal income tax at statutory rates	$	9,753		$	4,956		$	24,342		$	13,451
Investment tax credits		(458	)		(328	)		(722	)		(874	)
Annual reversal of deferred income taxes accrued
at prior tax rates		(123	)		(93	)		(216	)		(198	)
State income tax		1,208			549			3,048			1,354
Other		(344	)		(183	)		(61	)		(28	)
Total income taxes	$	10,036		$	4,901		$	26,391		$	13,705
Effective tax rate		36.01	%		34.61	%		36.14	%		35.15	%

B-82

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The components of TNMP’s net accumulated deferred income tax liability at December 31 were:

	December 31,
	2005			2004
	(In thousands)
Deferred Tax Assets:
Regulatory liabilities related to income taxes	$	9,980		$	10,602
Other		2,753			2,658
Total deferred tax assets		12,733			13,260
Deferred Tax Liabilities:
Utility plant, principally due to depreciation and basis
differences, including TNP One recoverable stranded cost		(82,108	)		(86,606	)
Deferred charges		(10,745	)		(5,232	)
Investment tax credit		(1,540	)		(2,326	)
Other recoverable stranded costs (non-current)		(46,585	)		(46,585	)
Regulatory assets related to income taxes		(12,700	)		(13,086	)
Total deferred tax liabilities		(153,678	)		(153,835	)
Net Accumulated deferred income tax liabilities	$	(140,945	)	$	(140,575	)

The following table reconciles the change in TNMP’s net accumulated deferred income tax liability to the deferred income tax expense included in the Consolidated Statement of Earnings:

	Post-			Pre-
	Acquisition			Acquisition
	June 6-			January 1-
	December 31,			June 6,
	2005			2005
	(In thousands)
Net change in deferred income tax liability per above table	$	1,636		$	(1,266	)
Change in tax effects of income tax related regulatory assets
and liabilities		(296	)		60
Other		7,798			(203	)
Deferred income tax expense	$	9,138		$	(1,409	)

(12)     Pension and Other Postretirement Benefits

PNMR and its subsidiaries maintain a qualified defined benefit pension plan, a plan providing medical and dental benefits to eligible retirees, and an executive retirement program (“PNM Plans”). PNMR maintains the legal obligation for the benefits owed to participants under these plans. TNMP also maintains a qualified defined benefit pension plan covering substantially all of its employees, a plan providing medical and death benefits to eligible retirees and an executive retirement program (“TNMP Plans”).

Participants in the PNM Plans include eligible employees and retirees of PNMR and other subsidiaries of PNMR. Participants in the TNMP Plans include eligible employees and retirees of TNMP, First Choice and other subsidiaries of TNP. The PNM pension plan was frozen at the end of 1997 with regard to new participants, salary levels and benefits. Additional credited service can be accrued under the PNM pension plan up to a limit determined by age and service. The TNMP pension plan was frozen at December 31, 2005 with regard to new participants, salary levels and benefits.

B-83

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The total net periodic benefit cost or income from the PNM Plans, in addition to the net periodic benefit cost from the TNMP Plans from the date of PNMR’s acquisition of TNP, or June 6, 2005 through December 31, 2005, is included in the Consolidated Statement of Earnings of PNMR. The TNMP Plan amounts included in the results of PNMR are as follows: pension plan income of approximately $0.3 million, other postretirement benefit expense of approximately $0.4 million and executive retirement plan expense of less than $0.1 million.

The Company has in place, for the PNM and TNMP pension plans and postretirement benefits plans, a policy that defines the investment objectives, establishes performance goals of the asset managers and provides procedures for the manner in which investments are to be reviewed. The plans implement investment strategies to achieve the following objectives:

·   Maximize the return on assets, commensurate with the risk that the Corporate Investment Committee deem appropriate to: meet the obligations of the pension plans and other postretirement benefits plans; minimize the volatility of expense; and account for contingencies; and

·   Generate a rate of return for the total portfolio that equals or exceeds the actuarial investment rate assumption.

Management is responsible for the determination of the asset target mix and the expected rate of return. Under SFAS No. 87, “Employers' Accounting for Pensions” (“SFAS 87”) and SFAS No. 106, “Employers' Accounting for Postretirement Benefits Other Than Pensions” (“SFAS 106”), the expected long-term rate of return on pension and postretirement plan assets is calculated on the market-related value of assets. SFAS 87 and SFAS 106 require that actual gains and losses on pension and postretirement plan assets be recognized in the market-related value of assets equally over a period of not more than five years, which reduces year-to-year volatility. For the PNM Plans and TNMP Plans, the market-related value of assets is equal to the prior years’ market related value of assets adjusted for contributions, benefit payments and investment gains and losses that lie within a corridor of plus or minus 4.0% around the expected return on market value. Gains and losses that lie outside the corridor are amortized over five years, i.e., if investment return is outside a range of 5.0% to 13.0% (expected long-term rate of return plus or minus 4.0%), this market-related valuation recognizes the portion of return that is outside the range over a five-year period from the year in which the return occurs. As such, the future value of assets will be impacted as previously deferred returns are recorded. A December 31 measurement date is used for calculating the values reported for plan assets and benefit obligations.

In 2003, PNM changed the actuarial valuation measurement date for its pension plan and other postretirement benefits from September 30 to December 31 to better reflect the actual pension balances as of PNM’s balance sheet dates and recognized a cumulative effect of a change in accounting principle of $0.8 million, net of taxes at $0.5 million.

Pension Plans

For defined benefit pension plans, the benefit obligation is the “projected benefit obligation,” the actuarial present value, as of the measurement date, of all benefits attributed by the pension benefit formula to employee service rendered to that date.

B-84

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The following tables present a reconciliation of the beginning and ending balances of the projected benefit obligation and show the change in the benefit obligation:

	PNM Plan
	Year Ended December 31,
	2005			2004
	(In thousands)
Benefit obligation at beginning of year	$	517,225		$	463,794
Service cost		1,907			3,524
Interest cost		30,267			29,891
Actuarial loss		26,453			44,691
Benefits paid		(25,927	)		(24,675	)
Benefit obligation at end of year	$	549,925		$	517,225

	TNMP Plan
	Post-			Pre-			Pre-
	Acquisition			Acquisition			Acquisition
	June 6-			January 1-			Year Ended
	December 31,			June 6,			December 31,
	2005			2005			2004
	(In thousands)
Benefit obligation at beginning of period	$	85,083		$	81,290		$	81,833
Service cost		1,353			848			1,876
Interest cost		2,499			1,875			4,590
Actuarial loss		(2,691	)		3,708			304
Benefits paid		(4,501	)		(2,638	)		(7,313	)
Amendments		(2,419	)		-			-
Benefit obligation at end of period	$	79,324		$	85,083		$	81,290

B-85

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The following tables present the change in the value of pension plan assets and the pension plans’ funded status:

	PNM Plan
	Year Ended December 31,
	2005			2004
	(In thousands)
Fair value of plan assets at beginning of year	$	445,101		$	425,654
Actual return on plan assets		40,911			44,122
Benefits paid		(25,927	)		(24,675	)
Fair value of plan assets at end of year		460,085			445,101
Funded status		(89,840	)		(72,124	)
Unrecognized net actuarial loss		178,991			156,850
Unrecognized prior service cost		2,293			2,610
Prepaid pension cost	$	91,444		$	87,336

	TNMP Plan
	Post-			Pre-			Pre-
	Acquisition			Acquisition			Acquisition
	June 6-			January 1-			Year Ended
	December 31,			June 6,			December 31,
	2005			2005			2004
	(In thousands)
Fair value of plan assets at beginning of period	$	80,176		$	82,364		$	85,052
Actual return on plan assets		6,162			450			4,625
Benefits paid		(4,501	)		(2,638	)		(7,313	)
Fair value of plan assets at end of period		81,837			80,176			82,364
Funded status		2,513			(4,907	)		1,074
Unrecognized net actuarial loss		(4,697	)		4,284			(1,361	)
Unrecognized prior service cost		-			(791	)		(840	)
Accrued pension liability	$	(2,184	)	$	(1,414	)	$	(1,127	)

The following table presents the amounts recognized in the Consolidated Balance Sheets:

	PNM Plan						TNMP Plan
	December 31,						December 31,
	2005			2004			2005			2004
	(In thousands)
Prepaid pension cost/(Accrued pension liability)	$	91,444		$	87,336		$	(2,184	)	$	(1,127	)
Additional minimum pension liability		(181,284	)		(159,460	)		-			-
Intangible asset		2,293			2,610			-			-
Deferred tax asset		70,863			62,096			-			-
Additional minimum pension liability adjustment *		108,128			94,754			-			-
Net amount recognized	$	91,444		$	87,336		$	(2,184	)	$	(1,127	)

* Included in accumulated other comprehensive income (loss).

B-86

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The following table presents the components of PNM net pension cost/(income) recognized in the Consolidated Statements of Earnings:

PNM Plan	Pension Benefits
	Year Ended December 31,
	2005			2004			2003
	(In thousands)
Service cost	$	1,907		$	3,524		$	5,189
Interest cost		30,267			29,891			28,089
Expected long-term rate of return on plan assets		(40,168	)		(39,037	)		(35,109	)
Amortization of net loss		3,569			3,956			3,910
Amortization of prior service cost		317			317			317
Net pension cost/(income)	$	(4,108	)	$	(1,349	)	$	2,396

The following significant weighted-average assumptions were used to determine the PNM projected benefit obligation and net pension cost/(income):

PNM Plan
	2005			2004			2003
Discount rate for determining projected benefit obligation
at December 31		5.75	%		6.00	%		6.50	%
Discount rate for determining net pension cost/(income)		6.00	%		6.50	%		6.75	%
Expected long-term rate of return on plan assets		9.00	%		9.00	%		9.00	%
Rate of compensation increase		N/A			N/A			N/A

The assumed discount rate for determining the projected benefit obligation of 5.75% at December 31, 2005 was determined based on a review of long-term high-grade bonds and management’s expectations. The discount rate was reduced at December 31, 2005 and 2004 by 0.25% and 0.50% respectively, resulting in an increase in the PNM pension benefit obligation of approximately $16.5 million and $31.0 million at December 31, 2005 and 2004. Should actual experience differ from actuarial assumptions, the projected benefit obligation and net pension cost/(income) would be affected.

The expected long-term rate of return on plan assets of 9.0% at December 31, 2005 reflects the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the PNM projected benefit obligations. Factors that are considered include, but are not limited to, historic returns on plan assets, current market information on long-term returns (e.g., long-term bond rates) and current and target asset allocations between asset categories. The target asset allocation is determined based on consultations with external investment advisors. The expected long-term rate of return assumption for the PNM pension plan compares to the actual return of 9.7% for the year ended December 31, 2005. If all other factors were to remain unchanged, it is expected that a 1% decrease in the expected long-term rate of return would cause PNM’s 2006 net pension income to decrease approximately $4.5 million (analogous change would result from a 1% increase).

B-87

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The following table presents the components of TNMP net pension cost/(income) recognized in the Consolidated Statements of Earnings:

TNMP Plan	Pension Benefits
	Post-			Pre-			Pre-			Pre-
	Acquisition			Acquisition			Acquisition			Acquisition
	June 6-			January 1-			Year Ended			Year Ended
	December 31,			June 6,			December 31,			December 31,
	2005			2005			2004			2003
	(In thousands)
Service cost	$	1,353		$	848		$	1,876		$	1,784
Interest cost		2,499			1,875			4,590			4,897
Expected long-term rate of return on plan assets		(4,155	)		(2,387	)		(6,040	)		(6,960	)
Amortization of prior service cost		-			(49	)		(116	)		(116	)
Net pension benefit cost/(income)	$	(303	)	$	287		$	310		$	(395	)

The following significant weighted-average assumptions were used to determine the TNMP projected benefit obligation and net pension cost/(income):

TNMP Plan
	Post-			Pre-			Pre-			Pre-
	Acquisition			Acquisition			Acquisition			Acquisition
	June 6-			January 1-			Year Ended			Year Ended
	December 31,			June 6,			December 31,			December 31,
	2005			2005			2004			2003
	(In thousands)
Discount rate for determining projected benefit
obligation at the end of the period		5.75	%		5.25	%		5.75	%		6.00	%
Discount rate for determining net pension
cost/(income)		5.25	%		5.75	%		6.00	%		6.50	%
Expected long-term rate of return on plan assets		9.00	%		7.80	%		7.80	%		8.50	%
Rate of compensation increase		3.50	%		3.50	%		3.50	%		3.50	%

The assumed discount rate for determining the projected benefit obligation of 5.75% at December 31, 2005 was determined based on a review of long-term high-grade bonds and management’s expectations. The discount rate was increased by 0.50% at December 31, 2005 over June 6, 2005, resulting in a decrease in the TNMP pension benefit obligation of approximately $3.3 million at December 31, 2005. The discount rate was reduced at December 31 2004 by 0.25%, resulting in an increase in the TNMP pension benefit obligation of approximately $1.7 million at December 31, 2004. Should actual experience differ from actuarial assumptions, the projected benefit obligation and net pension cost/(income) would be affected.

The expected long-term rate of return on plan assets of 9.0% at December 31, 2005 reflects the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the TNMP projected benefit obligations. Factors that are considered include, but are not limited to, historic returns on plan assets, current market information on long-term returns (e.g., long-term bond rates) and current and target asset allocations between asset categories. The target asset allocation is determined based on consultations with external investment advisors. The expected long-term rate of return assumption for the TNMP pension plan compares to the actual return of 8.4% for the year ended December 31, 2005. If all other factors were to remain unchanged, it is expected that a 1% decrease in the expected long-term rate of return would cause TNMP’s 2006 net pension income to decrease approximately $0.8 million (analogous change would result from a 1% increase).

B-88

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

At December 31, 2005 and 2004, the projected and accumulated benefit obligation for the PNM pension plan are the same, as the PNM pension plan was frozen in 1997, as discussed above. At December 31, 2005, the projected and accumulated benefit obligation for the TNMP pension plan are the same, as the TNMP pension plan was frozen in 2005. The following sets forth the pension plans’ projected and accumulated benefit obligation and the fair value of plan assets at the pension plans’ measurement date:

	PNM Plan				TNMP Plan
	December 31,				December 31,
	2005		2004		2005		2004
	(In thousands)
Projected benefit obligation	$	549,925	$	517,225	$	79,324	$	81,290
Accumulated benefit obligation	$	549,925	$	517,225	$	79,324	$	79,126
Fair value of plan assets	$	460,085	$	445,101	$	81,837	$	82,634

The following tables set forth the increase (decrease) in minimum liability, net of tax, included in other comprehensive income:

	PNM Plan
	Year Ended December 31,
	2005		2004		2003
	(In thousands)
Included in other comprehensive income	$	13,376	$	21,539	$	(13,972	)

There were no amounts included in other comprehensive income for the TNMP plan for the years ended December 31, 2005, 2004 or 2003.

B-89

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The following table outlines the asset allocations for the pension plans:

	PNM Plan		TNMP Plan
	December 31,		December 31,
	2005	2004	2005	2004
Equity securities	60%	60%	66%	23%
Debt securities	23%	23%	24%	-
Real estate	6%	7%	-	-
Other	11%	10%	10%	77%
	100%	100%	100%	100%

The pension plans are currently targeting the following asset allocations for the year ended December 31, 2006:

	PNM		TNMP
	Plan		Plan
Domestic equity		47.5%		47.5%
Non-US equity		10.0%		10.0%
Fixed income		22.5%		22.5%
Real estate		5.0%		5.0%
Private equity		5.0%		5.0%
Absolute return		10.0%		10.0%
		100%		100%

The following pension benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

	PNM		TNMP
	Plan		Plan
	(In thousands)
2006	$	27,096	$	7,724
2007	$	27,939	$	7,346
2008	$	29,077	$	7,500
2009	$	30,507	$	7,901
2010	$	32,275	$	7,415
Years 2011 - 2015	$	188,000	$	35,957

Other Postretirement Benefits

For postretirement benefit plans, the benefit obligation is the “accumulated postretirement benefit obligation,” the actuarial present value as of a date of all future benefits attributed under the terms of the postretirement benefit plan to employee service rendered to that date.

B-90

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The following table presents a reconciliation of the beginning and ending balances of the accumulated postretirement benefit obligation and shows the change in the obligation:

	PNM Plan
	Year Ended December 31,
	2005			2004
	(In thousands)
Benefit obligation at beginning of year	$	112,592		$	114,812
Service cost		2,764			2,286
Interest cost		6,765			6,941
Participant contributions		1,240			1,179
Amendments		8,641			(17,621	)
Unrecognized actuarial loss		7,605			12,031
Benefits paid		(7,918	)		(7,036	)
Benefit obligation at end of year	$	131,689		$	112,592

	TNMP Plan
	Post-			Pre-			Pre-
	Acquisition			Acquisition			Acquisition
	June 6-			January 1-			Year Ended
	December 31,			June 6,			December 31,
	2005			2005			2004
	(In thousands)
Benefit obligation at beginning of period	$	12,864		$	12,209		$	10,864
Service cost		290			195			411
Interest cost		376			282			679
Participant contributions		505			438			857
Amendments		517			-			-
Unrecognized actuarial loss		(817	)		514			1,465
Benefits paid		(928	)		(774	)		(2,067	)
Benefit obligation at end of period	$	12,807		$	12,864		$	12,209

B-91

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The following table sets forth the change in the value of plan assets for the years ended December 31, the plans’ funded status and the accrued postretirement benefit obligation liability recognized in the Consolidated Balance Sheets:

	PNM Plan
	Year Ended December 31,
	2005			2004
	(In thousands)
Fair value of plan assets at beginning of year	$	56,689		$	50,957
Actual return on plan assets		2,063			5,187
Employer contributions		6,410			6,402
Participant contributions		1,240			1,179
Benefits paid		(7,918	)		(7,036	)
Fair value of plan assets at end of year		58,484			56,689
Funded status		(73,205	)		(55,902	)
Unrecognized net actuarial loss		84,511			79,773
Unrecognized prior service cost		(27,993	)		(42,924	)
Accrued postretirement benefit obligation	$	(16,687	)	$	(19,053	)

	TNMP Plan
	Post-			Pre-			Pre-
	Acquisition			Acquisition			Acquisition
	June 6-			January 1-			Year Ended
	December 31,			June 6,			December 31,
	2005			2005			2004
	(In thousands)
Fair value of plan assets at beginning of period	$	5,979		$	5,956		$	5,689
Actual return on plan assets		120			15			369
Employer contributions		786			344			1,099
Participant contributions		505			438			853
Benefits paid		(928	)		(774	)		(2,054	)
Fair value of plan assets at end of period	$	6,462		$	5,979		$	5,956
Funded status		(6,345	)		(6,886	)		(6,253	)
Unrecognized net transition obligation		-			2,458			2,594
Unrecognized net actuarial loss		(697	)		1,611			975
Unrecognized prior service cost		517			-			-
Accrued postretirement benefit obligation	$	(6,525	)	$	(2,817	)	$	(2,684	)

B-92

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The following table presents the components of PNM postretirement benefit cost recognized in the Consolidated Statements of Earnings:

PNM Plan	Other Postretirement Benefits
	Year Ended December 31,
	2005			2004			2003
	(In thousands)
Service cost	$	2,764		$	2,286		$	3,086
Interest cost		6,765			6,941			7,840
Expected long-term return on plan assets		(5,300	)		(4,928	)		(4,592	)
Prior service cost amortization		(6,290	)		(5,462	)		(2,593	)
Amortization of net loss		6,105			4,985			4,124
Adjustment to unrecognized transition obligation
and unrecognized prior service cost		-			(968	)		-
Amortization of transition obligation		-			-			1,817
Postretirement benefit cost	$	4,044		$	2,854		$	9,682

The following significant weighted-average assumptions were used to determine the PNM accumulated postretirement benefit obligation and postretirement benefit cost:

PNM Plan
	2005	2004	2003
Discount rate for determining accumulated postretirement
benefit obligation at December 31	5.75%	6.00%	6.50%
Discount rate for determining postretirement benefit cost	6.00%	6.50%	6.75%
Expected long-term rate of return on plan assets	9.00%	9.00%	9.00%
Rate of compensation increase	N/A	N/A	N/A

The assumed discount rate for determining the accumulated postretirement benefit obligation of 5.75% was determined based on a review of long-term high-grade bonds and management’s expectations. The discount rate was reduced at December 31, 2005 and 2004 by 0.25% and 0.50% respectively, resulting in an increase in the PNM accumulated postretirement benefit obligation of approximately $4.0 million and $6.9 million at December 31, 2005 and 2004. Should actual experience differ from actuarial assumptions, the accumulated postretirement benefit obligation and postretirement benefit cost would be affected.

The expected long-term rate of return on plan assets of 9.0% at December 31, 2005 reflects the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the PNM accumulated postretirement benefit obligations. Factors that are considered include, but are not limited to, historic returns on plan assets, current market information on long-term returns (e.g., long-term bond rates) and current and target asset allocations between asset categories. The target asset allocation is determined based on consultations with external investment advisors. The expected long-term rate of return assumption for the PNM postretirement benefit plan compares to the actual return of 4.6% for the year ended December 31, 2005. If all other factors were to remain unchanged, it is expected that a 1% decrease in the expected long-term rate of return would cause PNM’s 2006 postretirement benefit cost to increase approximately $0.6 million (analogous change would result from a 1% increase).

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 introduced a prescription drug benefit under Medicare, named “Medicare Part D” as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In 2005, PNM’s other postretirement benefits plan was amended in response to Medicare Part D, effective January 1, 2006, to reimburse retirees for their Medicare Part D premium up to $35.00 per month. The fair market value of the postretirement benefit obligation was actuarially determined using a measurement date of August 1, 2005 and a

B-93

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

discount rate of 5.50%. The weighted average expected rate of return on plan assets was 9.0%. There is no change to the on-going measurement date of the PNM other postretirement benefit plan; it will remain December 31. The effect of this change was to increase expenses by $1.0 million for year ended December 31, 2005. In 2004, the PNM other postretirement benefits plan was also amended to reflect changes to prescription drug benefit coverage based on Medicare Part D. The effect of this change was to reduce expenses by $1.6 million for 2004.

The following table presents the components of TNMP postretirement benefit cost recognized in the Consolidated Statements of Earnings:

TNMP Plan
	Post-			Pre-			Pre-			Pre-
	Acquisition			Acquisition			Acquisition			Acquisition
	June 6-			January 1-			Year Ended			Year Ended
	December 31,			June 6,			December 31,			December 31,
	2005			2005			2004			2003
	(In thousands)
Service cost	$	290		$	195		$	411		$	388
Interest cost		376			282			679			686
Expected long-term rate of return on plan assets		(241	)		(136	)		(315	)		(333	)
Amortization of transition obligation		-			136			324			324
Recognized actuarial (gain) or loss		-			-			-			(17	)
Postretirement benefit cost	$	425		$	477		$	1,099		$	1,048

B-94

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The following significant weighted-average assumptions were used to determine the TNMP accumulated postretirement benefit obligation and postretirement benefit cost:

TNMP Plan
	Post-	Pre-	Pre-	Pre-
	Acquisition	Acquisition	Acquisition	Acquisition
	June 6-	January 1-	Year Ended	Year Ended
	December 31,	June 6,	December 31,	December 31,
	2005	2005	2004	2003
	(In thousands)
Discount rate for determining accumulated
postretirement benefit obligation at the end
the period	5.75%	5.25%	5.75%	6.00%
Discount rate for determining postretirement
benefit cost	5.25%	5.75%	6.00%	6.50%
Expected long-term rate of return on plan assets	6.90%	5.50%	5.50%	6.00%
Rate of compensation increase	N/A	N/A	N/A	N/A

The assumed discount rate for determining the accumulated postretirement benefit obligation of 5.75% was determined based on a review of long-term high-grade bonds and management’s expectations. The discount rate was increased by 0.50% at December 31, 2005 over June 6, 2005, resulting in a decrease in the TNMP pension benefit obligation of approximately $0.6 million at December 31, 2005. The discount rate was reduced at December 31 2004 by 0.25%, resulting in an increase in the TNMP pension benefit obligation of approximately $0.3 million at December 31, 2004. Should actual experience differ from actuarial assumptions, the projected benefit obligation and net pension cost/(income) would be affected.

The expected long-term rate of return on plan assets of 6.9% at December 31, 2005 reflects the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the TNMP accumulated postretirement benefit obligations. Factors that are considered include, but are not limited to, historic returns on plan assets, current market information on long-term returns (e.g., long-term bond rates) and current and target asset allocations between asset categories. The target asset allocation is determined based on consultations with external investment advisors. The expected long-term rate of return assumption for the TNMP postretirement benefit plan compares to the actual return of 1.08% for the year ended December 31, 2005. If all other factors were to remain unchanged, it is expected that a 1% decrease in the expected long-term rate of return would cause TNMP’s 2006 postretirement benefit cost to increase approximately $0.1 million (analogous change would result from a 1% increase).

In conjunction with the acquisition of TNP, the benefit obligations for the TNMP pension and other postretirement benefit plans were recorded at fair market value as of the date of acquisition in accordance with SFAS 141 and as a result, an additional pension and postretirement liability of $5.5 million was recorded. The fair market value of the obligations was actuarially determined using a measurement date of June 6, 2005 and a discount rate of 5.25%, based on the average yield of high quality investments. The weighted average expected rate of return on plan assets was 9.0% for the pension and executive retirement plans and 6.9% for the other postretirement plans. There is no change to the on-going measurement date of the TNMP Plans; it will remain December 31.

B-95

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The following table shows the assumed health care cost trend rates:

	PNM Plan		TNMP Plan
	December 31,		December 31,
	2005	2004	2005	2004
Health care cost trend rate assumed for next year	10.0%	10.0%	N/A	N/A
Rate to which the cost trend rate is assumed
to decline (the ultimate trend rate)	5.0%	6.0%	N/A	N/A
Year that the rate reaches the ultimate trend rate	2012	2012	N/A	N/A

The following tables show the impact of a one-percentage-point change in assumed health care cost trend rates:

	PNM Plan
	1-Percentage-		1-Percentage-
	Point Increase		Point Decrease
	(In thousands)
Effect on total of service and interest cost	$	1,083	$	(916	)
Effect on postretirement benefit obligation	$	11,688	$	(10,049	)

TNMP’s exposure to cost increases in the postretirement benefit plan is minimized by a provision that limits TNMP’s share of costs under the plan. Costs of the plan in excess of the limit are wholly borne by the participants. TNMP reached the cost limit at the end of 2001. As a result, a one-percentage-point change in assumed health care cost trend rates would have no effect on either the 2005 net periodic expense or the year-end 2005 postretirement benefit obligation.

The following table outlines the asset allocation for the other postretirement benefits:

	PNM Plan		TNMP Plan
	December 31,		December 31,
	2005	2004	2005	2004
Equity securities	50%	49%	23%	23%
Debt securities	50%	51%	77%	-
Other	-	-	-	77%
	100%	100%	100%	100%

The Company is currently targeting an asset allocation of 70% equity securities and 30% debt securities in 2006 for both the PNM and the TNMP other postretirement benefits plan.

PNM expects to make contributions totaling $6.2 million to the PNM postretirement benefit plan in 2006. TNMP expects to make contributions totaling $0.3 million to the TNMP postretirement benefit plan in 2006.

B-96

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The following other postretirement benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

	PNM		TNMP
	Plan		Plan
	(In thousands)
2006	$	5,529	$	902
2007	$	5,898	$	866
2008	$	6,440	$	871
2009	$	7,037	$	878
2010	$	7,671	$	917
Years 2011 - 2015	$	49,716	$	5,053

Executive Retirement Programs

PNM

PNM has an executive retirement program. PNM’s projected benefit obligation for this program, as of the plan measurement date of December 31, 2005 and 2004, was $19.1 million and $20.5 million, respectively. As of December 31, 2005 and 2004, PNM has recognized an additional minimum liability of $4.0 million and $5.3 million, respectively, for the amount of unfunded accumulated benefits in excess of accrued pension costs. The change in the unfunded liability is recorded as an adjustment to accumulated other comprehensive loss on an annual basis in accordance with SFAS 87. The net periodic cost for 2005, 2004 and 2003 was $1.6 million, $1.6 million and $1.6 million, respectively. PNM has an irrevocable grantor trust established in connection with the executive retirement program. Under the terms of the trust, PNM may, but is not obligated to, provide funds to the trust, which was established with an independent trustee, to aid it in meeting its obligations under the program. Marketable securities with a fair market value of $6.2 million were in the trust at December 31, 2005. PNM did not make any contributions to the trust during the years ended December 31, 2005, 2004 or 2003.

TNMP

TNMP provides an excess benefit plan for certain key personnel and retired employees whose benefits in the qualified pension plan are restricted under federal laws. TNMP’s projected benefit obligation for this program, as of the plan measurement date of December 31, 2005 and December 31, 2004, was $1.4 million and $3.6 million, respectively. As of December 31, 2005, TNMP has recognized an additional minimum liability of $47,519 for the amount of unfunded accumulated benefits in excess of accrued pension costs. The net periodic cost for 2005, 2004 and 2003 was $0.2 million, $0.5 million and $1.2 million, respectively. Effective January 1, 2005, TNMP closed the excess benefit plan to new participants.

Other Retirement Plans

PNMR

PNMR sponsors a 401(k) defined contribution plan for eligible employees. PNMR contributions to the 401(k) plan consist of a discretionary contribution equal to 3% of eligible compensation, and a discretionary matching contribution equal to 75% of the first 6% of eligible compensation contributed by the employee on a before-tax basis. Beginning January 1, 2004, PNMR made a non-matching contribution ranging from 3% to 10% of eligible compensation based on the eligible employee’s age. PNMR contributed $15.5 million, $15.2 million and $9.0 million in the years ended December 31, 2005, 2004 and 2003, respectively.

PNMR also provides executive deferred compensation benefits through two unfunded, non-qualified plans. The purpose of these plans is to permit certain key employees of PNMR who participate in the 401(k) defined contribution plan to defer compensation and receive credits without reference to the certain limitations on contributions. PNMR contributed $941,475, $430,323 and $21,489 in the years ended December 31, 2005, 2004 and 2003, respectively.

B-97

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

TNMP

TNMP sponsors a 401(k) defined contribution plan for eligible employees. TNMP contributions to the 401(k) plan consist of a discretionary matching contribution equal to 50% of the first 6% of eligible compensation contributed by the employee on a before-tax basis. TNMP contributed $1.0 million, $0.4 million and $0.4 million in the years ended December 31, 2005, 2004 and 2003, respectively.

(13)    Stock-Based Compensation Plans

PNMR is the sponsor of the Company’s stock-based compensation plans. PNM and TNMP do not sponsor any stock-based compensation plans.

The PNMR ESPP became effective in March 2003. Eligible employees who have enrolled in the ESPP may contribute from 1% to 10% of their eligible pay each pay period towards stock purchases. The ESPP has been authorized to issue up to 375,000 new shares of PNMR’s common stock. Under the ESPP, 85,354, 76,099 and 29,555 shares were issued during the year ended December 31, 2005, 2004 and 2003, respectively.

PNMR’s PSP expired in December 2000. The PSP was a non-qualified stock option plan, covering a group of management employees. Options to purchase shares of PNMR’s common stock were granted at the fair market value of the shares at the close of business on the date of the grant. Options granted through December 31, 1995 vested on June 30, 1996 and have an exercise term of up to 10 years. All subsequent awards, granted between December 31, 1995 and February 2000, vest three years from the grant date of the awards. All options vest upon death, disability, retirement, impaction or involuntary termination other than for cause. Awards granted in December 2000 vest ratably over three years on the anniversary of the grant date. The maximum number of options authorized that could be granted through December 31, 2000 was 5.0 million shares of PNMR common stock. Although the authority to grant options under the PSP expired on December 31, 2000, the options that were granted continue to be effective according to their terms.

The PEP became effective in December 2001 and was amended in 2004 and in 2005. The PEP provides for the granting of non-qualified stock options, restricted stock rights, performance shares, performance units and stock appreciation rights to officers, key employees and non-employee board members. These options vest ratably over three years from the grant date of the award.  The total number of shares of PNMR common stock subject to all awards under the PEP may not exceed 8.25 million, subject to adjustment under certain circumstances defined in the PEP. The number of shares of PNMR common stock subject to the grant of restricted stock rights, performance shares and units and stock appreciation rights is limited to 0.45 million shares. Re-pricing of stock options is prohibited unless specific shareholder approval is obtained. The number of stock options granted in 2005 under the PEP was 689,000 with a weighted average exercise price of $27.52. Restricted stock rights granted in 2005 totaled 84,400, with a weighted average fair value (as of grant date) of $26.46. In addition, 33,568 performance shares were issued in 2005 under the PEP. During the year ended December 31, 2005, 2004 and 2003, 689,375, 859,256 and 70,734 options were exercised, respectively.

The annual retainer for non-employee directors is payable in cash, stock options and restricted stock rights granted under the PEP (see above). Previously, the annual retainer for non-employee directors was payable in cash and stock options under PNMR’s DRP. The number of options granted in 2005 under the DRP was 8,400 shares with an exercise price of $27.52. These options vest ratably over three years from the grant date of the award. Under the DRP, 21,000, 49,250 and 3,000 options were exercised in 2005, 2004 and 2003. The exercise price of stock options granted under the DRP is determined by the fair market value of the stock at the close of business on the grant date. Although the authority to grant options under the DRP expired on July 1, 2005 the options that were granted continue to be effective according to their terms.

B-98

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

All stock incentives (options, restricted stock and performance shares) issued to employees and non-employee directors are awarded according to the applicable plan terms. The source of shares for exercised stock options, delivery of vested restricted stock and performance shares are shares acquired on the open-market, rather than newly issued shares.

A summary of the status of PNMR’s stock option plans at December 31, and changes during the years then ended, is presented below.

	2005		2004			2003
		Weighted			Weighted		Weighted
		Average			Average		Average
		Exercise			Exercise		Exercise
Fixed Options	Shares	Price	Shares		Price	Shares	Price
Outstanding at beginning of year	3,562,581	$15.94	4,936,716	$14.47		5,274,560	$13.95
Granted	697,400	$27.52	905,700	$20.66		1,292,850	$13.22
Exercised	1,203,830	$14.81	2,248,632	$14.61		1,587,352	$11.72
Forfeited	39,602	$23.02	29,954	$17.05		40,003	$14.01
Expired	-	-	1,249	$13.03		3,339	$16.31
Outstanding at end of year	3,016,549		3,562,581			4,936,716
Options exercisable at year-end	1,522,176		1,695,279			2,931,217
Options available for future grant	4,161,505		451,255			1,385,327

B-99

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The following table summarizes information about PNMR stock options outstanding at December 31, 2005:

			Options Outstanding			Options Exercisable
				Weighted-
				Average	Weighted		Weighted
Range of			Number	Remaining	Average	Number	Average
Exercise			Outstanding	Contractual	Exercise	Exercisable	Exercise
Prices			at 12/31/05	Life	Prices	at 12/31/05	Prices
DRP	$3.667 - $8.500	(a)	13,500	2.60	$5.63	13,500	$5.63
DRP	$13.433 - $27.520	(b)	166,150	7.55	$18.07	157,750	$17.56
PSP	$7.667 - $16.208		542,019	4.29	$15.00	514,526	$14.99
PEP	$13.033 - $27.520		2,294,880	7.93	$20.06	836,400	$16.55
			3,016,549	7.26	$18.97	1,522,176	$16.03

(a)Represents options pertaining to the DRP issued between April 1966 and June 2000.

(b)Represents options pertaining to the DRP issued between July 2001 and May 2005.

The following table summarizes weighted-average fair value of options granted during the year:

	2005		2004		2003
PEP	$	5.11	$	3.68	$	3.27
DRP	$	5.11	$	3.64	$	3.43
Total fair market value of all options granted (in thousands)	$	3,564	$	3,329	$	1,414

The fair value of each option grant is determined on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	2005	2004	2003
Dividend yield	2.55%	3.26%	5.88%
Expected volatility	24.29%	22.90%	45.49%
Risk-free interest rates	3.79%	3.21%	4.00%
Expected life	4.2 years	5.7 years	10.0 years

(14)    Construction Program and Jointly-Owned Plants

PNMR

PNMR’s construction expenditures for 2005, which include TNP expenditures from June 6, 2005 through December 31, 2005, were approximately $221.8 million, including expenditures on jointly-owned projects. PNMR’s proportionate share of operating and maintenance expenses for PNM’s jointly-owned plants is included in operating expenses in its Consolidated Statements of Earnings. TNMP does not participate in the ownership or operation of any generating plants, nor does TNMP own or operate any generating plants.

B-100

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

PNM

PNM’s construction expenditures for 2005 were approximately $167.7 million, including expenditures on jointly-owned projects. PNM’s proportionate share of operating and maintenance expenses for its jointly-owned plants is included in operating expenses in its Consolidated Statements of Earnings.

At December 31, 2005, PNM’s interests and investments in jointly-owned generating facilities are:

Station (Fuel Type)	Plant in Service		Accumulated Depreciation		Construction Work in Progress		Composite Interest
	(In thousands)
SJGS (Coal)	$	697,637	$	405,230	$	7,248		46.30	%
PVNGS (Nuclear) *	$	275,881	$	76,438	$	19,496		10.20	%
Four Corners Units 4 and 5 (Coal)	$	128,602	$	97,282	$	279		13.00	%

* Includes interest in PVNGS Unit 3, interest in common facilities for all PVNGS units and owned interests in PVNGS Units 1 and 2.

San Juan Generating Station

PNM operates and jointly owns SJGS. At December 31, 2005, SJGS Units 1 and 2 are owned on a 50% shared basis with Tucson Electric Power. SJGS Unit 3 is owned 50% by PNM, 41.8% by SCPPA, and 8.2% by Tri-State. SJGS Unit 4 is owned 38.457% by PNM, 28.8% by M-S-R Public Power Agency, 10.04% by the City of Anaheim, California, 8.475% by Farmington, 7.2% by the County of Los Alamos, and 7.028% by UAMPS.

Palo Verde Nuclear Generating Station

PNM is a participant in the three units of PVNGS, also known as the Arizona Nuclear Power Project, with APS (the operating agent), Salt River Project, EPE, SCE, SCPPA and The Department of Water and Power of the City of Los Angeles. PNM has a 10.2% undivided interest in PVNGS, with portions of its interests in Units 1 and 2 held under leases.

Four Corners Power Plant

PNM is a participant in two units of Four Corners with APS (the operating agent), EPE, Salt River Project, SCE, and Tucson. PNM has a 13% undivided interest in Units 4 and 5 of Four Corners.

Luna Energy Facility

In November 2004, PNMR Development, a subsidiary of PNMR, purchased a one-third interest in Luna from Duke Energy North America, LLC. Luna is a 570 MW, partially constructed, natural gas-fired power plant near Deming in southern New Mexico. The purchase price for Luna was $40.0 million in cash, one-third from each purchaser, Tucson and Phelps Dodge. The purchasers are investing approximately $100.0 million, one-third from each purchaser, to complete construction. In November 2005, the Company transferred the one-third interest from PNMR Development to PNM. PNM will oversee construction and operation of the Luna plant, which is expected to be operational no later than the second quarter of 2006.

B-101

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

(15)     Asset Retirement Obligations

SFAS 143

The effects of adoption of SFAS 143 standard are based on the Company’s determination of underlying assumptions, such as the Company’s discount rate, estimates of the future costs for decommissioning and the timing of the removal activities to be performed. Any changes in these assumptions underlying the required calculations may require revisions to the estimated ARO when identified.

PNMR

A reconciliation of PNMR’s asset retirement obligations is as follows:

	December 31,		December 31,
	2005		2004
	(In thousands)
Liability at beginning of period	$	50,361	$	46,416
Liabilities incurred		1,251		-
Accretion expense		4,034		3,945
Liability at end of period	$	55,646	$	50,361

PNM

A reconciliation of PNM’s asset retirement obligations is as follows:

	December 31,		December 31,
	2005		2004
	(In thousands)
Liability at beginning of period	$	50,361	$	46,416
Liabilities incurred		545		-
Accretion expense		4,034		3,945
Liability at end of period	$	54,940	$	50,361

PNM identified the ARO liability on the decommissioning of its nuclear generation facilities and fossil fuel generation plants. PNM’s transmission and distribution facilities are also subject to SFAS 143. The majority of these assets, however, have an indeterminable useful life and settlement date. In 2005, PNM did not identify any material AROs associated with the transmission and distribution assets.

Previously, PNM had recognized decommissioning costs for its fossil fuel and nuclear generation facilities ratably over approved cost recovery periods. Upon implementation of SFAS 143 the net difference between the amounts determined to represent legal AROs under SFAS 143 and PNM’s previous method of accounting for decommissioning costs, has been recognized as a cumulative effect of a change in accounting principle, net of related income taxes. Additionally, certain amounts accrued for nuclear decommissioning costs over PNM’s legal AROs for its nuclear generation facilities have been reclassified as regulatory liabilities.

B-102

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

TNMP

A reconciliation of TNMP’s asset retirement obligations is as follows:

	December 31,		December 31,
	2005		2004
	(In thousands)
Liability at beginning of period	$	-	$	-
Liabilities incurred		639		-
Liability at end of period	$	639	$	-

FIN 47

In 2005, PNMR, PNM and TNMP adopted FIN 47 and recognized a cumulative effect of a change in accounting principle that decreased 2005 earnings. The amount is net of amounts expensed in prior years for the cost of removal included in depreciation.

The amounts in the table below reflect the pro forma ARO liability that would have been recorded at January 1 and December 31, 2004, assuming FIN 47 had been applied during all periods presented and the ARO liability recorded at December 31, 2005:

	PNMR	PNM	TNMP
	(In thousands)
January 1, 2004 pro forma ARO liability	$47,728	$47,671	$ 543
December 31, 2004 pro forma ARO liability	$51,785	$51,723	$ 589
December 31, 2005 recorded ARO liability	$55,646	$54,940	$ 639

The effects of adoption of FIN 47 are based on the Company’s interpretation of FIN 47 and determination of underlying assumptions, such as the Company’s discount rate, estimates of the future costs and the timing of the removal activities to be performed. Any changes in these assumptions underlying the required calculations may require revisions to the estimated ARO when identified.

PNMR and TNMP identified ARO liabilities on the removal of asbestos from certain buildings owned in New Mexico. PNM identified an ARO liability on the closure requirement of an evaporation pond at one of its generation facilities. In addition, PNM and TNMP identified ARO liabilities on the removal of transformers and equipment containing polychlorinated biphenyls.

Cumulative accretion and accumulated depreciation were recorded for the time period from the date the liability would have been recognized had the provisions of this Interpretation been in effect when the liability was incurred to the date of adoption of this Interpretation. The cumulative effect of initially applying FIN 47 was recognized as a change in accounting principle. FIN 47 is effective for 2005.

(16)    Commitments and Contingencies

There are various claims and lawsuits pending against the Company. The Company is also subject to federal, state and local environmental laws and regulations, and is currently participating in the investigation and remediation of numerous sites. In addition, the Company periodically enters into financial commitments in connection with its business operations. It is not possible at this time for the Company to determine fully the effect of all litigation and other legal proceedings on its results of operations or financial position. However, the Company has recorded a liability where the litigation effects can be reasonably estimated and where an outcome is considered probable. The Company does not expect that any known lawsuits, environmental costs and commitments will have a material adverse effect on its financial condition or results of operations, although the outcome of litigation, investigations and other legal proceedings is inherently uncertain.

B-103

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The Company is involved in various legal proceedings in the normal course of its business. The associated legal costs for these legal matters are accrued when incurred. It is also the Company’s policy to accrue for expected legal costs in connection with SFAS No. 5, “Accounting for Contingencies” (“SFAS 5”) when it is probable that a SFAS 5 liability has been incurred and the amount of expected legal costs to be incurred is reasonably estimable. These estimates include costs for external counsel and other professional fees.

PNMR

Tax Refund Litigation

In November 2004, the United States Department of Justice filed a complaint against PNMR in federal court, alleging that approximately $4.2 million of income tax refunds claimed and received for the 1998 and 1999 tax years were erroneously paid. The complaint sought return of that refund amount, plus interest, a 10% surcharge and costs. PNMR filed an answer in response to the complaint denying all the material allegations. The government’s complaint alleged that PNMR did not correctly elect to deduct research and experimental expenses, and that certain costs did not qualify as research and experimental. In July 2005, PNMR settled with the DOJ and a joint stipulation of dismissal with prejudice was filed with the court.

Net Operating Loss Carry Forwards

The IRS has challenged certain net operating loss carry-forwards on PNMR’s 2001 tax return. The IRS has issued a “Notice of Proposed Adjustments,” in which the IRS proposes to disallow the net operating loss carry-forward. PNMR disagrees with the proposed adjustment and intends to take all steps available in the IRS audit and appeals process to vigorously oppose the proposed adjustment. PNMR does not anticipate that the ultimate resolution of the issue will have a material adverse effect on its results of operations or financial position.

PNM

Coal Supply

The coal requirements for SJGS are being supplied by SJCC, a wholly owned subsidiary of BHP Billiton. SJCC holds certain federal, state and private coal leases under an underground coal sales agreement, for purposes of this discussion referred to as the “coal agreement,” pursuant to which it will supply processed coal for operation of the SJGS through 2017. The coal agreement is a cost plus contract. SJCC is reimbursed for all costs for mining and delivering the coal plus an allocated portion of administrative costs. In addition, SJCC receives a return on its investment. BHP Minerals International, Inc. has guaranteed the obligations of SJCC under the coal agreement. This guarantee is with respect to SJCC’s obligations as defined in the coal agreement and protects against contingencies such as SJCC non-performance, insolvency, bankruptcy, reorganization, dissolution, and other corporate or organizational adversities. The coal agreement contemplates the delivery of approximately 80 million tons of coal during its remaining term. That amount would supply substantially all the requirements of the SJGS through approximately 2017. In 2001, PNM and Tucson signed the coal agreement with SJCC to replace two surface mining operations with a single underground mine located adjacent to the plant.

Four Corners is supplied with coal under a fuel agreement between the owners and BNCC, under which BNCC agreed to supply all the coal requirements for the life of the plant. The current fuel agreement expires in July 2016. BNCC holds a long-term coal mining lease, with options for renewal, from the Navajo Nation and operates a surface mine adjacent to Four Corners with the coal supply expected to be sufficient to supply the units for their estimated useful lives.

B-104

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

In connection with both the SJGS coal agreement and the Four Corners fuel agreement, the owners are required to reimburse SJCC and BNCC for the cost of coal mine decommissioning or reclamation. Final mine reclamation occurs when mining production activities conclude. PNM considers these costs part of the cost of delivered coal costs over the life of the respective mine. This liability is recorded at estimated fair value based on the expected cash out-flows to be made to reimburse SJCC and BNCC for their reclamation activities. These cash flows are discounted at a credit adjusted risk-free rate. The liability is accreted and an appropriate incremental cost is recognized using the interest method.

In 2003, PNM completed a comprehensive review with the help of an outside consulting firm of the final reclamation costs for both the surface mines that previously provided coal to SJGS and the current underground mine providing coal. Based on this study, PNM revised its estimates of the final reclamation of the surface mine. In addition, the mining contract with BNCC supplying Four Corners was renewed until 2016. The final cost of reclamation is expected to be $137.4 million in accreted dollars. During the year ended December 31, 2005, 2004 and 2003, PNM made payments of $11.7 million, $12.9 million and $13.5 million, respectively, against this liability. As of December 31, 2005, and 2004, $48.3 million and $47.6 million, respectively, was recognized on PNM’s Consolidated Balance Sheet for the obligation for reclamation using the fair value method to determine the liability.

Per the Global Electric Agreement (see Note 17), PNM was allowed to collect up to $100.0 million of surface mine final reclamation costs from 2003 to 2020. PNM expects to recover the remaining amount in a future rate case. In addition, PNM expects to recover the portion of final underground mine reclamation costs related to New Mexico ratepayers in future rate cases.

The underground mine began commercial operation in January 2003. At December 31, 2005 and 2004, the balance on PNM’s Consolidated Balance Sheets for the reclamation liability related to mining activities was $0.7 million and $1.2 million, respectively.

Person Station

PNM, in compliance with a Corrective Action Directive issued by the NMED, determined that groundwater contamination existed in the deep and shallow groundwater at PNM’s Person Station site. PNM is required to delineate the extent of the contamination and remediate the contaminants in the groundwater at the Person Station site. The extent of shallow and deep groundwater contamination was assessed and the results were reported to the NMED. PNM has received the renewal of the RCRA post-closure care permit for the facility. Remedial actions for the shallow and deep groundwater were incorporated into the new permit. PNM has installed and is operating a pump and treatment system for the shallow groundwater. The renewed RCRA post-closure care permit allows remediation of the deep groundwater contamination through natural attenuation. PNM’s current estimate to decommission its retired fossil-fueled plants (discussed below) includes approximately $1.6 million in additional expenses to complete the groundwater remediation program at Person Station. The remediation program continues on schedule.

Retired Fossil-Fueled Plant Decommissioning Costs

PNM’s retired fossil-fueled generating stations, Person and Santa Fe Stations, have incurred dismantling and reclamation costs as they are decommissioned. As of December 31, 2005, and 2004, $2.5 million and $4.2 million, respectively, was recognized on PNM’s Consolidated Balance Sheet for the obligation for decommissioning costs for the Person and Santa Fe Stations.

Natural Gas Supply

PNM Gas contracts for the purchase of gas primarily to serve its retail customers. The majority of these contracts are short-term in nature, supplying the gas needs for the current heating season and the following off-season months. The price of gas is a pass-through, whereby PNM recovers 100% of its cost of gas. There is also occasion for PNM Gas to purchase gas to source off-system sales.

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

PNM Electric, PNM Wholesale and TNMP Electric procure gas supplies independent of the Company and contract with PNM Gas for transportation services.

PVNGS Decommissioning Funding

PNM has a program for funding its share of decommissioning costs for PVNGS. The nuclear decommissioning funding program is invested in equities and fixed income instruments in qualified and non-qualified trusts. The results of the 2004 decommissioning cost study indicated that PNM’s share of the PVNGS decommissioning costs, excluding spent fuel disposal, would be approximately $216.7 million (measured in 2004 dollars).

PNM provided an additional $3.6 million, $5.1 million and $3.1 million funding for the years ended December 31, 2005, 2004 and 2003, respectively, into the qualified and non-qualified trust funds. The estimated market value of the trusts at December 31, 2005 and 2004 was $105.7 million and $93.7 million, respectively.

Nuclear Spent Fuel and Waste Disposal

Pursuant to the Nuclear Waste Policy Act, the DOE is obligated to accept and dispose of all spent nuclear fuel and other high-level radioactive wastes generated by domestic power reactors. Under the Nuclear Waste Policy Act, the DOE was to develop facilities necessary for the storage and disposal of spent nuclear fuel and to have the first facility in operation by 1998. The DOE has various estimates of when such a repository could be opened, ranging from 2012 to past 2015.

APS, the operator of PVNGS, has fuel storage pools at PVNGS, which accommodates fuel from normal operation of PVNGS. To continue to allow full core offload capability, older fuel is being placed in dry storage casks and removed from the Units. Through December 31, 2005, the operator of PVNGS has loaded 34 dry storage casks and placed the casks in the completed dry storage facility. PNM currently estimates that it will incur approximately $51.4 million (in 2004 dollars) over the life of PVNGS for its share of the fuel costs related to the on-site interim storage of spent nuclear fuel during the operating life of the plant. PNM accrues these costs as a component of fuel expense, meaning that the charges are accrued as the fuel is burned. During the years ended December 31, 2005, 2004 and 2003, PNM incurred expense of $1.0 million, $1.0 million and $1.0 million, respectively. At December 31, 2005 and 2004, PNM had $14.1 million and $14.3 million, respectively, recorded as a liability on its Consolidated Balance Sheets for interim storage costs. The dry storage facility has the space to hold all fuel anticipated to be used during the licensed life of PVNGS.

PVNGS Liability and Insurance Matters

The PVNGS participants have financial protection for public liability resulting from nuclear energy hazards to the full limit of liability under federal law. This potential liability is covered by primary liability insurance provided by commercial insurance carriers in the amount of $300.0 million and the balance by an industry-wide retrospective assessment program. If losses at any nuclear power plant covered by the programs exceed the primary liability insurance limit, PNM could be assessed retrospective adjustments. The maximum assessment per reactor under the program for each nuclear incident is approximately $101.0 million. The retrospective assessment was subject to an annual limit of $10.0 million per reactor per incident that was increased to $15.0 million as described below under "Price-Anderson Act Renewal." Based upon PNM’s 10.2% interest in the three PVNGS units, PNM’s maximum potential assessment per incident for all three units is approximately $31.0 million, with an annual payment limitation of approximately $4.5 million based on the annual limit per reactor per incident of $15.0 million as discussed above. If the funds provided by this retrospective assessment program prove to be insufficient, Congress could impose revenue-raising measures on the nuclear industry to pay claims.

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

PVNGS Operations

During 2005, PVNGS had the lowest capacity factor (measured against maximum dependable capacity) that the plant has had since 1994. This reflects bottom quartile performance relative to the 103 operating reactors in the United States. There were nine unscheduled outages during 2005 that had a variety of causes. In 2004, the NRC determined that there had been a safety concern at PVNGS related to the safety injection systems for the three PVNGS units. This led to a "yellow" finding and a $50,000 civil penalty under the NRC’s reactor oversight process. A "yellow" finding places a unit in the "degraded safety cornerstone" column of the NRC’s performance matrix, which results in an enhanced NRC inspection regimen. During 2005, the NRC completed its enhanced inspection. The "yellow" finding remains unresolved.

PVNGS has encountered tube cracking in the steam generators. The PVNGS Units 2 steam generators were replaced in 2003 and the replacement of PVNGS Unit 1 steam generators was completed in December 2005. Completion of installation of the PVNGS Unit 3 steam generators is expected by December 2007.

APS has been operating PVNGS Unit 1 at reduced power levels since December 25, 2005 due to a vibration in the PVNGS Unit 1 shutdown cooling lines. As a result, PNM is receiving approximately 24 MW of power from PVNGS Unit 1 based on its 10.2% undivided interest in PVNGS.

Implementation of a potential solution preliminarily scheduled by APS for February 2006 was canceled after comprehensive analysis concluded that the desired improvement likely would not have been achieved. APS had informed PNM that it was in the process of formulating other potential remedies to address the issue and that it was scheduling another attempt to remedy this issue sometime in April 2006. APS has more recently informed PNM that the preferred solution will require Unit 1 to undergo an outage of approximately five weeks in order to effect the necessary modifications to Unit 1 and that it plans to begin this outage in the June 2006 timeframe. In addition, an outage of approximately one week for preparatory work will begin in mid-March 2006. This preferred solution was initially planned for installation in the spring of 2007.

The operation of PVNGS not only affects PNM’s ability to make off-system sales, but can also cause PNM to purchase power to serve its retail electric customers. Based on current forward market energy prices, PNM estimates that operation of PVNGS Unit 1 at the reduced power level could result in a reduction in consolidated gross margin, or operating revenues minus cost of energy sold, of $3.0 million to $4.0 million per month before income taxes. However, PNM is taking steps to mitigate the impact on consolidated gross margin while PVNGS Unit 1 operates at the reduced power level.

Price-Anderson Act Renewal

The Energy Policy Act of 2005 (see Note 17) extends the Price-Anderson Act for 20 years.  The Price-Anderson Act provides for immediate, no-fault insurance coverage for the public in case of a nuclear reactor accident. It requires nuclear plant operators to purchase all the private insurance available to them (currently $300.0 million) to serve as a primary level of coverage. If this amount is insufficient to cover claims arising from an accident, companies are required to contribute to a fund that provides a secondary level of coverage. The Energy Policy Act of 2005 raises the maximum required assessment at the secondary level from $63.0 million to $95.8 million per reactor, which is already reflected in the $101.0 million maximum assessment discussed under “PVNGS Liability and Insurance Matters” above, which includes a provision for legal costs, and raises the annual secondary level payout from $10.0 million to $15.0 million per reactor, adjusting the payout for inflation in the future.

Water Supply

Because of New Mexico’s arid climate and current drought conditions, there is a growing concern in New Mexico about the use of water for power plants. The availability of sufficient water supplies to meet all the needs of the state, including growth, is a major issue. PNM has secured water rights in connection with the existing plant at Afton, Luna and Lordsburg plants. PNM is in the process of securing a water supply for the expansion of the Afton plant. Water availability does not appear to be an issue for these plants at this time.

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TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The Four Corners region of New Mexico, in which SJGS and Four Corners are located, experienced drought conditions during 2002 through 2004 that could have affected the water supply for PNM’s generation plants. In future years, if adequate precipitation is not received in the watershed that supplies the Four Corners region, the plants could be impacted. Consequently, PNM, APS and BHP Billiton have undertaken activities to secure additional water supplies for SJGS, Four Corners and related mines. The USBR approved two supplemental contracts, one with the Jicarilla Apache Nation, PNM, and BHP Billiton for the SJGS and a second contract with the Jicarilla Apache Nation, APS and BHP Billiton for Four Corners, for a one-year term ending December 31, 2005. PNM has reached an agreement for a voluntary shortage sharing agreement with tribes and other water users in the San Juan Basin for a one-year term ending December 31, 2006. Similar agreements were entered into in 2003, 2004 and 2005. PNM is also in negotiations for a longer-term supplemental contract with the Jicarilla Apache Nation. Although the Company does not believe that its operations will be materially affected by the drought conditions at this time, it cannot forecast the weather situation or its ramifications, or how regulations and legislation may impact the Company’s situation in the future, should the shortages occur in the future.

PVNGS Water Supply Litigation

PNM understands that a summons served on APS in 1986 required all water claimants in the Lower Gila River Watershed of Arizona to assert any claims to water on or before January 20, 1987, in an action pending in the Maricopa County Superior Court. PVNGS is located within the geographic area subject to the summons and the rights of the PVNGS participants, including PNM, to the use of groundwater and effluent at PVNGS are potentially at issue in this action. APS, as the PVNGS project manager, filed claims that dispute the court’s jurisdiction over the PVNGS participants’ groundwater rights and their contractual rights to effluent relating to PVNGS and, alternatively, seek confirmation of those rights. In November 1999, the Arizona Supreme Court issued a decision confirming that certain groundwater rights may be available to the federal government and Indian tribes. In addition, the Arizona Supreme Court issued a decision in September 2000 affirming the lower court’s criteria for resolving groundwater claims. Litigation on both these issues has continue in the trial court. In December 2005, APS and other parties filed with the Arizona Supreme Court a petition requesting interlocutory review of a September 2005 trial court order regarding procedures for determining whether groundwater pumping is affecting surface water rights. The Court has not yet ruled on the petition. No trial date concerning the PVNGS participants’ water rights claims has been set in this matter. Although this matter remains subject to further evaluation, PNMdoes not expect that the described litigation will not have a material adverse impact on its results of operation or financial position.

San Juan River Adjudication

In 1975, the State of New Mexico filed an action entitled “State of New Mexico v. United States, et al.”, in the District Court of San Juan County, New Mexico, to adjudicate all water rights in the San Juan River Stream System. The Company was made a defendant in the litigation in 1976. The action is expected to adjudicate water rights used at Four Corners and at SJGS (see "Water Supply" above). Recently, the Navajo Nation and various parties announced a settlement of the Nation’s reserved surface water rights. Congressional legislation as well as other approvals will be required to implement the settlement. The Company cannot at this time anticipate the effect, if any, of any water rights adjudication on the present arrangements for water at SJGS and Four Corners. It is PNM’s understanding that final resolution of the case cannot be expected for several years. PNM is unable to predict the ultimate outcome of this matter.

Conflicts at San Juan Mine Involving Oil and Gas Leaseholders

The SJCC, through leases with the federal government and the State of New Mexico, owns coal interests with respect to the San Juan underground mine. Certain gas producers have leases in the area of the underground coal mine and have asserted claims against SJCC that its coal mining activities are interfering with gas production. The Company understands that SJCC has reached a settlement in principle with Western Gas for certain wells in the

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December 31, 2005, 2004 and 2003

mine area. The Western Gas settlement however, does not resolve all of Western Gas’ potential claims in the larger San Juan underground mine area. SJCC has also reached a settlement with another gas leaseholder, Burlington Resources for certain wells in the mine area. PNM cannot predict the outcome of any future disputes between SJCC and Western Gas or other gas leaseholders.

Navajo Nation Environmental Issues

Four Corners is located on the Navajo Reservation and is held under an easement granted by the federal government as well as a lease from the Navajo Nation. APS is the Four Corners operating agent and PNM owns a 13% ownership interest in Units 4 and 5 of Four Corners.

The Navajo Acts, enacted in 1995, purport to give the Navajo Nation EPA authority to promulgate regulations covering air quality, drinking water, and pesticide activities, including those activities that occur at Four Corners. In 1995, the Four Corners participants filed a lawsuit in the District Court of the Navajo Nation, Window Rock District, challenging the applicability of the Navajo Acts as to Four Corners. The District Court has stayed these proceedings pursuant to a request by the parties. In May 2005, APS and the Navajo Nation signed a Voluntary Compliance Agreement which would resolve the dispute regarding the air pollution, and control acts portion of the lawsuit for the term of the Voluntary Compliance Agreement. Provided that the EPA acts consistent with the Voluntary Compliance Agreement, including delegating Clean Air Act authority to the Navajo Nation, APS will dismiss the pending claims related to the Clean Air Act.

In 1998, the EPA issued regulations identifying those Clean Air Act provisions for which it is appropriate to treat Native American tribes in the same manner as states. The EPA has announced that it has not yet determined whether the Clean Air Act would supersede pre-existing binding agreements between the Navajo Nation and the Four Corners participants that could limit the Navajo Nation’s environmental regulatory authority over Four Corners. The Company believes that the Clean Air Act does not supersede these pre-existing agreements. The Company cannot currently predict the outcome of this matter.

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

New Source Review Rules

In 1999, the DOJ, at the request of the EPA, filed complaints against seven companies, alleging that the companies over the past 25 years had made modifications to their plants in violation of the NSR requirements and in some cases the NSPS regulations, which could result in the requirement to make costly environmental additions to older power plants. Whether or not the EPA will ultimately prevail is uncertain at this time. There have been a number of decisions regarding the pending enforcement cases against the seven companies, and some cases have been settled. The two most recent decisions, the Alabama Power Company decision and the Fourth Circuit Court of Appeals decision in the Duke Energy case, accepted the legal theories advanced by the companies. In October 2005, the EPA proposed changes to its NSR permitting program for electric generating units. This proposal would establish a new emissions test for NSR based on the current NSPS hourly emission increase test. At the same time the EPA announced the proposed changes, it also issued a memorandum to the EPA regions reporting that the agency’s strategy to reduce emissions from coal-fired power sector is working primarily through the Clean Air Interstate Rule and the regional haze rule, and that it is time to refocus the EPA’s enforcement efforts on other areas. The EPA has filed no complaint against PNM, and PNM believes that all of the RMRR work undertaken at its power plants was and continues to be in accordance with the requirements of NSR and NSPS.

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

In 2003, the EPA issued its rule regarding RMRR, clarifying what constitutes RMRR of damaged or worn equipment, subject to safeguards to assure consistency with the Clean Air Act. It provides that replacements of equipment are routine only if the new equipment is (i) identical or functionally equivalent to the equipment being replaced; (ii) does not cost more than 20% of the replacement value of the unit of which the equipment is a part; (iii) does not change the basic design parameters of the unit; and (iv) does not cause the unit to exceed any of its permitted emissions limits. Legal challenges to the RMRR rule have been filed by several states; other states have intervened in support of the rule. How such challenges will ultimately be resolved cannot be predicted but an appellate court order has stayed the effect of the RMRR rule pending the outcome of the litigation. The Company is unable to determine the impact of this matter on its results of operations and financial position.

The Clean Air Act

In 2004, the EPA proposed revisions to its 1999 regional haze regulations and proposed guidelines for best available retrofit technology. The purpose of the regional haze regulations is to address regional haze visibility impairment in the United States’ national parks, wilderness areas and other similar areas. The rule calls for all states to establish goals and emission reduction strategies for improving visibility in all these areas. In early 2005, the United States Court of Appeals for the District of Columbia Circuit found that the EPA’s Western Regional Air Partnership Annex regulation, an optional alternative approach for western states, was illegal. In June 2005, the EPA issued the Clean Air Visibility Rule. The EPA also issued a proposed rule in the summer of 2005 to address the Western Regional Air Partnership Annex rule that had been successfully challenged in the United States Court of Appeals for the District of Columbia Circuit. The proposed rule addresses alternative strategies to accomplish the requirements of the regional haze rule.

The Company cannot predict at this time what the impact of the implementation of the regional haze rule will be on the Company’s coal-fired power plant operations. Potentially, additional sulfur dioxide emission reductions and nitrogen oxide emission reductions could be required. The nature and cost of compliance with these potential requirements cannot be determined at this time. However, the Company does not anticipate any material adverse impact on its results of operations or financial position.

Citizen Suit Under the Clean Air Act

The GCT filed a citizen suit in federal district court in New Mexico against PNM (but not against the other SJGS co-owners) in 2002. The suit alleged two violations of the Clean Air Act and related regulations and permits. First, GCT argued that the plant had violated the federal PSD rules, as well as the corresponding provisions of the New Mexico Administrative Code, at SJGS Units 3 and 4. Second, GCT alleged that the plant had regularly violated the 20% opacity limit contained in SJGS’s operating permit and set forth in federal and state regulations at Units 1, 3 and 4. The lawsuit sought penalties as well as injunctive and declaratory relief. PNM denied the material allegations in the complaint.

In 2004, the GCT provided a notice of intent to sue as a jurisdictional prerequisite to filing another citizens’ suit under the Clean Air Act. The notice of intent contained allegations that PNM continued to violate the applicable opacity standard for SJGS Units 1, 3 and 4 following the filing of the suit above, that PNM violated its duty to operate SJGS in a manner consistent with good air pollution control practices for minimizing pollution and that PNM failed to properly report emissions deviations and certify compliance with applicable air emissions standards.

By order of the court, PNM and GCT entered into settlement discussions. The discussions were expanded to include the NMED to address the “Excess Emission Reports” disclosed below. In March 2005, PNM entered into a consent decree with the NMED and GCT, which was approved by the court in May 2005. Under the terms of the consent decree, PNM will spend more than $169.0 million in new pollution control technology. The capital costs of the technology are currently estimated to be approximately $132.0 million, with an additional $33.0 to $37.0 million estimated for operating and maintenance costs over the next 10 years. PNM is continuing to work with its consultants and project engineers to refine the costs so that the consent decree is complied with in the most economical, efficient and effective manner. In addition, the consent decree provides that stipulated penalties are

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

payable to the NMED if SJGS emissions exceed specified quarterly averages over the course of a calendar year. Approximately $0.6 million in stipulated penalties were assessed for the year ended December 31, 2005 and PNM’s portion of the penalties is approximately 46%. The consent decree resolves the foregoing lawsuit, the notice of intent, and certain threatened air quality claims by the NMED (see “Excess Emissions Reports” below). PNM plans to file for an air permit with the NMED prior to starting construction on certain new equipment required by the consent decree. The issue of the plaintiffs’ attorney fees and costs has been resolved.

Four Corners Air Emissions

The GCT, Sierra Club and National Parks Conservation Association petitioned the EPA to issue a FIP and a final Title V operating permit to regulate air emissions from Four Corners. The FIP has been pending at the EPA since 1999, and the petition seeks to speed up the process of issuance. The Company is unable to predict the outcome of this proceeding, but does not anticipate any material adverse impact on PNMR's or PNM's financial condition or results of operations. APS is the operator of Four Corners, and PNM will continue to monitor developments in this proceeding.

Excess Emissions Reports

As required by law, whenever there are excess emissions from SJGS, due to such causes as start-up, shutdown, upset, breakdown or certain other conditions, PNM makes filings with the NMED. For several years, PNM had been in discussions with NMED concerning excess emissions reports for the period after January 1997. This matter was resolved during 2005 in conjunction with the GCT settlement described above under “Citizen Suit Under the Clean Air Act.”

Archaeological Site Disturbance

In 2002, the USFS notified PNM that apparent disturbances to archeological sites had been discovered in and around the rights-of-way for PNM’s transmission lines in the Carson National Forest in New Mexico. PNM had hired Great Southwestern to perform certain climb and tighten activities on those transmission lines.

PNM has been verbally advised that the BLM and USFS have decided to not pursue criminal actions, but no written confirmation has been received. Although this matter has been dormant for a very long time, there is a possibility that additional action could be required to address disturbances on BLM and USFS land, and that BLM and USFS could pursue potential civil claims.

In 2004, PNM and Great Southwestern entered into an agreement with the NNHPD for a survey of potential impacts on Navajo Nation land to determine if disturbed cultural resources exist. Under the terms of the 2004 agreement, the NNHPD agreed to release all claims against PNM and Great Southwestern for any impacts on Navajo Nation land arising from the climb and tighten project. PNM provided survey reports to the NNHPD that were accepted by the Navajo Nation in October 2005 and the Company was notified that the NNHPD has determined that damage resulting from the climb and tighten project was minimal and a treatment plan will not be necessary. The NNHPD and the Navajo Nation Division of Natural Resources are of the opinion that PNM has complied fully with the stipulations set forth in the 2004 agreement, and as such, NNHPD requires no further work from PNM or Great Southwestern.

Santa Fe Generating Station

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

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December 31, 2005, 2004 and 2003

PNM believes that the data compiled indicates observed groundwater contamination originated from off-site sources. However, in 2003, PNM elected to enter into a fifth amendment to the 1992 Settlement Agreement with the NMED to avoid a prolonged legal dispute, whereby PNM agreed to supplement remediation facilities by installing an additional extraction well and two new monitoring wells to address remaining gasoline contamination in the groundwater at and in the vicinity of the site. These wells were completed in 2004. PNM will continue to operate the remediation facilities until the groundwater is cleaned up to applicable federal standards or until such time as the NMED determines that additional remediation is not required, whichever is earlier. The City of Santa Fe, the NMED and PNM entered into an amended Memorandum of Understanding relating to the continued operation of the well and the remediation facilities called for under the latest amended Settlement Agreement. The well continues to operate and meets federal drinking water standards. PNM is not able to assess the duration of this project.

PNM has been verbally informed that the Superfund Oversight Section of the NMED is conducting an investigation into the chlorinated solvent contamination in the vicinity of the former Santa Fe Generating Station site. The investigation will study possible sources for the chlorinated solvents in the groundwater. The NMED investigation is ongoing.

Natural Gas Royalties Qui Tam Litigation

In 1999, a private relator served a complaint alleging violations of the False Claims Act by PNM and its wholly owned subsidiaries, Sunterra Gas Gathering Company and Sunterra Gas Processing Company (collectively, the “Company” for purposes of this discussion), by purportedly failing to properly measure natural gas from federal and tribal properties in New Mexico, and consequently, underpaying royalties owed to the federal government. The complaint seeks actual damages, treble damages, costs and attorneys fees, among other relief.

The Company is currently participating with other defendants in a motion to dismiss on the ground that the relator does not meet certain jurisdictional requirements for bringing suit under the False Claims Act. In May 2005, a Special Master issued a report that recommended to the court that several defendants, including the Company, be dismissed from the case on this ground. The relator objected to the Special Master’s recommendation regarding the Company. A hearing on all motions regarding the Special Master's report was conducted in December 2005 in the Federal District Court for the District of Wyoming but no ruling has been issued yet. The Company is vigorously defending this lawsuit. If the Special Master’s recommendation regarding dismissal of the Company on jurisdictional grounds is not sustained, the Company is unable to estimate the potential liability, if any, or to predict the ultimate outcome of this lawsuit.

Asbestos Cases

PNM was named in 2003 as one of a number of defendants in 21 personal injury lawsuits relating to alleged exposure to asbestos. All of these cases involve claims of individuals, or their descendents, who worked for contractors building, or working at, PNM power plants. Some of the claims relate to construction activities during the 1950s and 1960s, while other claims generally allege exposure during the last 30 years. PNM has never manufactured, sold or distributed products containing asbestos. PNM has been dismissed with prejudice from all but two of the remaining cases. PNM was insured by a number of different insurance policies during the time period at issue in these cases. Although the Company is unable to fully predict the outcome of this litigation, the Company believes that these legal proceedings will not have a material impact on its results of operations or financial position.

SESCO Matter

In 2003, the TCEQ requested information from PNM concerning any involvement that PNM had with SESCO, a former electrical equipment repair and sales company located in San Angelo, Texas. PNM was informed that the TCEQ and the EPA claim to have identified contamination of the soil and groundwater at the site.

TCEQ is conducting a site investigation of a SESCO facility pursuant to the Texas Solid Waste Act and the SESCO site has been referred to the Superfund Site Discovery and Assessment Program. The primary concern appears to be polychlorinated biphenyls in soil and groundwater on and adjacent to the site. The TCEQ is

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December 31, 2005, 2004 and 2003

conducting the site investigation to determine what remediation activities are required at the SESCO site and to identify potentially responsible parties. In 2004, PNM submitted its preliminary response to the TCEQ request for information. The response states that PNM previously had a requirements contract with SESCO for the repair of electric transformers. It appears that a number of transformers were sent to SESCO for repair. In addition, it appears that PNM sold a number of retired transformers to SESCO. In February 2005, PNM agreed to participate in the potentially responsible parties’ committees known as the “Working Group.” PNM is voluntarily participating with the other potentially responsible parties in the investigation and may participate in any required remediation at the SESCO facility. PNM is classified as a de minimis potentially responsible party. The Working Group has compiled a list and percentage involvement of persons and entities that sent transformers and other equipment to SESCO and has signed a contract with an environmental contractor to perform a remedial investigation and feasibility study for the SESCO site. In addition, the Working Group has hired common counsel to represent the interest of the Working Group. PNM has conducted an assessment of the Working Group settlement offer for de minimis parties and has agreed to settle for a premium payment of $0.3 million, including past contribution credits, to release PNM from further project economic and risk liability with certain exceptions. TCEQ has until May 3, 2006 to negotiate an administrative order with the Working Group and thus the settlement offer is contingent upon final approval of the administrative order by the TCEQ. PNM is unable to predict the outcome at this time. As discussed below, TNMP is also involved in the SESCO matter.

Coal Combustion Waste Disposal

SJCC currently disposes of coal combustion products consisting of fly ash, bottom ash, and gypsum from SJGS in the surface mine pits adjacent to the plant. PNM and SJCC have been participating in various sessions sponsored by EPA to consider rulemaking for the disposal of coal combustion products. The rulemaking would be pursuant to the Bevill Amendment of the Resource Conservation and Recovery Act. PNM cannot predict the outcome of this matter but does not believe currently that it will have a material adverse impact on its results of operations or financial position.

Western United States Wholesale Power Market

Various circumstances, including electric power supply shortages, weather conditions, gas supply costs, transmission constraints and alleged market manipulation by certain sellers, resulted in the well-publicized California energy crisis and in the bankruptcy filings of the Cal PX and of PG&E. As a result of the conditions in the western market, the FERC and other federal and state governmental authorities initiated investigations, litigation and other proceedings relevant to the Company and other sellers. The more significant of these in relation to the Company are summarized below.

California Refund Proceeding

SDG&E and other California buyers filed a complaint with the FERC in 2000 against sellers into the California wholesale electric market. In 2002, the ALJ issued the Proposed Findings on California Refund Liability, in which it determined that the Cal ISO had, for the most part, correctly calculated the amounts of the potential refunds owed by sellers and identified ballpark figures for the amount of refunds due. In 2003, the FERC issued an order substantially adopting the findings from the ALJ’s 2002 decision, but requiring a change to the formula used to calculate refunds. This change increases the amounts PNM will be required to refund; however, the precise amounts will not be certain until the Cal ISO and Cal PX recalculate them.

In November 2005, the Cal ISO reported that the Cal PX had concluded the publication of settlement statements reflecting the refund amounts for sellers and that the Cal ISO is waiting to proceed with the adjustment phase in which it will complete a recalculation of the refund to account for audited fuel cost allowance offsets, emissions offsets, cost-based recovery offsets and interest on amounts unpaid and refunds before finalizing its recalculated refund amounts. In August 2005, the FERC issued an order setting out the process by which sellers into the Cal ISO and Cal PX markets could make their cost recovery filings pursuant to the FERC’s prior orders that indicated sellers would get the opportunity to submit evidence demonstrating that the refund methodology creates a

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

revenue shortfall for their transactions during the refund period. Included in PNM's submittal were objections to the limited amount of time the FERC allowed for sellers to complete their respective submittals, and the FERC’s arbitrary decision to allow only marketers, and not load serving entities such as PNM, to include a return component in their cost filings. PNM participated with other competitive sellers to request rehearing of these issues before the FERC. In September 2005, PNM made its cost recovery filing identifying its costs associated with sales into the Cal ISO and Cal PX markets during the refund period. In January 2006, the FERC issued its order on the cost recovery filings, acting on 23 filings that were made by multiple sellers. The FERC accepted that portion of PNM’s filing submitted as prescribed by the FERC’s August 2005 order, but rejected the alternative filings that included a return component for PNM as a load serving entity. The effect of the FERC’s order is that PNM’s allowed cost offset against its refund liability is zero. PNM will vigorously pursue its administrative and judicial remedies regarding this order. While PNM believes it has meritorious legal arguments that it intends to pursue, the Company cannot predict the outcome of this cost recovery proceeding at this time. In addition, the Company has engaged in settlement discussions with California parties based upon a template provided by the FERC, but is unable to predict whether settlement will be reached. (See also, discussion below under “California Attorney General Complaint.”)

Pacific Northwest Refund Proceeding

Puget Sound Energy, Inc. filed a complaint at the FERC alleging that spot market prices in the Pacific Northwest wholesale electric market were unjust and unreasonable. In 2003, the FERC issued an order recommending that no refunds should be ordered. Several parties in the proceeding filed requests for rehearing and the FERC denied rehearing and reaffirmed its prior ruling that refunds were not appropriate for spot market sales in the Pacific Northwest during the first half of 2001. The Port of Seattle then filed an appeal of the FERC’s order denying rehearing in the Ninth Circuit, which is still pending. As a participant in the proceedings before the FERC, PNM is also participating in the appeal proceedings. The Company is unable to predict the ultimate outcome of this appeal, or whether PNM will ultimately be directed to make any refunds for these transactions.

FERC Gaming Partnerships Order

In 2003, in the Gaming Partnerships Order, the FERC asserted that certain entities, including PNM, acted in concert with Enron Corporation and other market participants to engage in activities that constitute gaming and/or anomalous market behavior in violation of the Cal ISO and Cal PX tariffs during 2000 and 2001. In 2003, PNM filed its responses to the Gaming Partnerships Order indicating that it did not engage in the alleged partnerships, alliances or other arrangements.

In 2004, the FERC issued an order granting the FERC staff’s motion to dismiss seven of the thirteen PNM customers on grounds that there was no evidence to conclude that these companies used their commercial relationship with PNM to game the Cal ISO and Cal PX markets. The FERC approved the settlements entered into by two of the thirteen PNM customers and dismissed another of PNM’s customers from the proceeding. Of the three remaining PNM customers in the docket, the FERC staff entered into settlement agreements with two of them. In 2004, the FERC staff filed a motion to dismiss PNM from the docket and to enter into a settlement of certain parking and lending transactions. The staff’s motion stated that after investigation and review there was no evidence that PNM either engaged in a gaming practice that violated the Cal ISO or Cal PX tariffs. Additionally, PNM entered into a settlement of certain matters outside the scope of the docket related to historic parking and lending transactions, under which PNM agreed not to provide parking and lending services prospectively without first meeting certain requirements agreed to with the FERC staff. Additionally, PNM agreed to pay $1.0 million in settlement to the FERC to obtain satisfaction of all issues related to any potential liability stemming from the provision of parking and lending services historically. In July 2005, the FERC issued its order granting the staff’s motion to dismiss PNM from the Gaming Partnerships docket. In its order, the FERC found that PNM did not engage in prohibited gaming practices as defined in the FERC's Gaming Partnership Order and also approved the settlement on the parking and lending services. The FERC also denied the California parties' request to keep the docket open as to PNM and terminated the PNM docket. Subsequently, the California parties filed their petition for rehearing at the FERC objecting to the FERC’s dismissal of PNM from the Gaming Partnership investigation and objecting to the settlement reached with the FERC staff. The petition for rehearing is pending before FERC and

B-114

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

PNM cannot predict the ultimate outcome of the rehearing petition. In August 2005, Enron, the final of the original 13 PNM customers, entered into a settlement agreement with the FERC staff, the California parties and others that was contested by several parties. In November 2005, the FERC issued an order approving the joint offer of settlement. Various parties have either objected to the settlement or otherwise sought efforts to stay or overturn FERC’s order. PNM cannot predict the final outcome of this proceeding.

California Power Exchange and Pacific Gas and Electric Bankruptcies

In 2001, SCE and the major purchasers of power from the Cal ISO and Cal PX defaulted on payments due to the Cal ISO for power purchased from the Cal PX in 2000. These defaults caused the Cal PX to seek bankruptcy protection. PG&E subsequently also sought bankruptcy protection. PNM has filed its proofs of claims in the Cal PX and PG&E bankruptcy proceedings. Amounts due to PNM from the Cal ISO or Cal PX for power sold to them in 2000 and 2001 total approximately $7.9 million. Both the PG&E and Cal PX bankruptcy cases have confirmed plans of reorganization in which the claims of various creditors have been specially classified and are waiting a final determination by the FERC before the claims are actually paid. The PG&E bankruptcy case has an escrow account and the Cal PX bankruptcy has established a settlement account, both of which are awaiting final determination by the FERC setting the level of claims and allocating the funds.

California Attorney General Complaint

In 2002, the California Attorney General filed a complaint with the FERC against numerous sellers, including PNM, regarding prices for wholesale electric sales into the Cal ISO and Cal PX markets and to the California Department of Water Resources. In 2002, the FERC entered an order denying the California Attorney General’s request to initiate a refund proceeding, but directed sellers, including PNM, to comply with additional reporting requirements with regard to certain wholesale power transactions. The California Attorney General filed a petition for review in the Ninth Circuit. The Ninth Circuit issued a decision upholding the FERC’s authority to establish the market-based rate framework under the Federal Power Act, but held that the FERC violated its administrative discretion by declining to investigate whether it should order refunds from sellers who failed to provide transaction-specific reports to the FERC as required by its rules. The Ninth Circuit determined that the FERC has the authority to order refunds for these transactions if it elects to do so and remanded the case back to the FERC for further proceedings, including a determination as to whether additional refunds are appropriate. PNM participated with other competitive sellers requesting rehearing before the full court by the Ninth Circuit, which is still pending. The Company cannot predict the ultimate outcome of the FERC proceeding on remand, or whether PNM will be ultimately directed to make any additional refunds as the result of the decision.

California Antitrust Litigation

Several class action lawsuits have been filed in California state courts against electric generators and marketers, alleging that the defendants violated the law by manipulating the market to grossly inflate electricity prices. Named defendants in these lawsuits include Duke and related entities along with other named sellers into the California market and numerous other unidentified defendants. Certain of these lawsuits were consolidated for hearing in California state court. In 2002, the named defendants served a cross-claim on PNM. Duke also cross-claimed against many of the other sellers into the California market. In October 2005, PNM received an indication that Duke intended to dismiss all cross-complaints against other sellers once its maximum liability was confirmed by final approval of its settlement in the original class action lawsuits. Based upon this indication, various cross-defendants, including PNM, entered into a contingent settlement with Duke under which Duke would conditionally dismiss the cross-complaints against PNM and others in anticipation of the California state court approving the settlement between Duke and the original California plaintiffs. In January 2006, the Duke settlement in the original class action lawsuits was approved, thereby removing the contingency in the settlement with the cross-defendants, including PNM. The settlement with Duke is now final.

B-115

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

In May 2005, the California Attorney General filed a lawsuit in California state court against PNM, PowerEx, a Canadian energy trading company, and the Colorado River Commission alleging that PNM and PowerEx conspired to engage in unfair trade practices involving overcharges for electricity in violation of California state antitrust laws. The lawsuit claims that California customers were overcharged over a billion dollars and requests the court to award actual and treble damages. In June 2005, PowerEx filed a Notice of Removal that served to remove the lawsuit to the Federal District Court for the Eastern District of California. Both PNM and PowerEx filed motions to dismiss the lawsuit, based in part on legal precedent in the Ninth Circuit holding that state antitrust claims asserting unlawful wholesale power prices under the Federal Power Act are preempted and a complainant’s only remedy lies in FERC proceedings. Such proceedings are already currently pending at the FERC and the California Attorney General is involved in these proceedings. The Company’s motion to dismiss is still pending as well as the California Attorney General’s motion to remand the case back to state court, which both PNM and PowerEx have opposed. The Company cannot predict the outcome of this litigation, or whether PNM will be required to make any refunds or pay damages as a result of this litigation.

Block Forward Agreement Litigation

In 2002, PNM was served with a declaratory relief complaint filed by the State of California in California state court. The state’s declaratory relief complaint seeks a determination that the state is not liable for the commandeering of certain energy contracts known as Block Forward Agreements. The Block Forward Agreements were a form of futures contracts for the purchase of electricity at below-market prices and served as security for payment by PG&E and SCE for their electricity purchases through the Cal PX. When PG&E and SCE defaulted on payment obligations incurred through the Cal PX, the Cal PX moved to liquidate the Block Forward Agreements to satisfy in part the obligations owed by PG&E and SCE. Before the Cal PX could liquidate the Block Forward Agreements, the State of California commandeered them for its own purposes.

PNM filed a complaint against the State of California in California state court in 2002, seeking damages for the state’s commandeering of the Block Forward Agreements and requesting judicial coordination with the state’s declaratory relief complaint. In 2004 the various parties in the case were presented with a proposed stipulation under which the sellers would agree that the Cal PX would represent their interest in the proceedings, the sellers would agree to be bound by any judgment in the case, the sellers would dismiss their complaints against the State of California, and in turn, the State of California would dismiss its cross-complaints against the sellers, and the Cal PX would amend its complaint to indicate that it is bringing the lawsuit on behalf of the sellers. PNM agreed with the stipulation and executed the stipulation agreement. The Company cannot predict the outcome of the litigation involving the Cal PX and the State of California, or whether PNM will be awarded any damages as a result of the litigation.

In separate proceedings before the FERC involving the collection of costs associated with the Cal PX wind-up activities, the subject of the Block Forward Agreement litigation became an element of the ongoing settlement discussions. In September 2005, the parties to the Cal PX wind-up costs proceedings included, as part of the settlement terms, that the California market participants, including PNM, will have the option to voluntarily agree to continue funding on a going-forward basis the expenses associated with the Block Forward Agreement litigation. Alternatively, market participants could agree to take an assignment of the Cal PX’s claim and they could then continue to prosecute the claim with the condition that any recovery that may ultimately be achieved would be deposited into a FERC account for distribution as the FERC deems appropriate. In October 2005, the FERC issued its order accepting the Cal PX wind-up settlement. Two parties have elected to opt-in to fund the litigation. PNM has not made the choice to opt-in and fund the litigation. Given the two settlements PNM has entered into in these proceedings, there is no further participation by PNM in the Block Forward Agreement litigation.

Wholesale Power Marketing Antitrust Suit

In 2004, PNM received notice that it was included in a list of 56 defendants that were sued by the City of Tacoma Department of Public Utilities in federal district court in the State of Washington. PNM was listed in a class of defendants referred to as the Trading Defendants, who allegedly engaged in buying, selling and marketing power in California and other locations in the western United States. The complaint alleged the Trading Defendants acted in concert among themselves and with Non-Defendant Trading Co-Conspirators and engaged in conduct that

B-116

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

amounted to market manipulation. The complaint identified specific conduct that allegedly amounted to market manipulation, including the submission of false information and misrepresentation regarding load schedules, bids, power supply, transmission congestion, source and destination of energy, the supply and provision of energy and ancillary services. The complaint alleged the activities of the Trading Defendants, along with Generator Defendants and the Co-Conspirators, resulted in substantially increased prices for energy in the Pacific Northwest spot market in excess of what otherwise would have been the price and asserted damages in excess of $175.0 million from the multiple defendants. There have been three Ninth Circuit decisions that, collectively, appear to make the plaintiff’s case more difficult to prevail. As a result, PNM joined a motion to dismiss the City of Tacoma Department of Public Utilities complaint given Ninth Circuit precedent. In February 2005, the district court judge in the case granted defendants’ motion to dismiss. As a result, the antitrust lawsuit against PNM filed by the City of Tacoma Department of Public Utilities was dismissed. In March 2005, the City of Tacoma Department of Public Utilities filed an appeal in the Ninth Circuit contesting the district court’s decision to dismiss the complaint. PNM participated in the appeal in support of the dismissal and joined in defendants’ brief filed in the Ninth Circuit, as well as a motion for summary affirmance. The appeal and defendants’ motion for summary affirmance of the district court is pending before the Ninth Circuit and the Company cannot predict the outcome of this appeal, or whether PNM will be required to make any refunds or pay damages as a result of this litigation.

TNMP

SESCO Matter

As discussed above in the PNM “SESCO Matter,” in 2003, the TCEQ notified approximately 50 companies, including TNMP, that releases of hazardous substances had been documented from a site owned and operated by SESCO. TNMP purchased transformers from the vendor and also sent some transformers to the vendor for repair and/or disposal. The owner and operator of the site have filed for bankruptcy and the site is under the control of the bankruptcy trustee. In 2004, 15 of the companies identified by TCEQ as potentially responsible parties, including TNMP, formed the initial Working Group to manage the remediation efforts and determine the allocation of responsibility among the potentially responsible parties. TNMP is classified as a de minimis potentially responsible party. The Working Group has compiled a list and percentage involvement of persons and entities that sent transformers and other equipment to SESCO and has signed a contract with an environmental contractor to perform a remedial investigation and feasibility study for the SESCO site. In addition, the Working Group has hired common counsel to represent the interest of the Working Group. TNMP has conducted an assessment of the Working Group settlement offer for de minimis parties and has agreed to settle for a premium payment of $0.3 million, including past contribution credits, to release TNMP from further project economic and risk liability with certain exceptions. TCEQ has until May 3, 2006 to negotiate an administrative order with the Working Group and thus the settlement offer is contingent upon final approval of the administrative order by the TCEQ. TNMP is unable to predict the outcome at this time.

TNMP True-Up Proceeding

In 2004, the PUCT issued its first order in TNMP’s stranded cost true-up proceeding. The purpose of the true-up proceeding was to quantify and reconcile the amount of stranded costs that TNMP may recover from its transmission and distribution customers. The PUCT decision established $87.3 million as TNMP’s stranded costs.

In April 2005, the PUCT ruled that TNMP be allowed recovery of $39.2 million of carrying charges on stranded costs for the period January 1, 2002 through July 21, 2004. In accordance with provisions within SFAS No. 92, “Regulated Enterprises - Accounting for Phase-In Plans” (“SFAS 92”), TNMP recorded $27.2 million of carrying charges to its Consolidated Statement of Earnings for the period January 1, 2002 through July 21, 2004, in 2004. TNMP was limited in its recognition for income statement purposes to only the debt related portion of the carrying charges, and TNMP was prohibited from income statement recognition of the equity portion of the carrying charges until the actual receipt of those amounts from customers. As of December 31, 2005, the accrual for the debt related portion was $33.9 million and the equity related portion totaled $25.6 million.

B-117

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

In July 2005, the PUCT confirmed TNMP's calculation of the carrying costs on stranded costs in a written order. TNMP and other parties have filed petitions for judicial review of the July PUCT order and the appeals are pending in district court in Austin, Texas. Additionally, the PUCT is considering a change in its rules that would reduce the amount of carrying charges recognized in earnings by TNMP on a prospective basis. The PUCT has not yet issued a final order and thus the Company cannot currently quantify the effect this may have on its results of operations or financial position.

Power Resource Group Litigation

Since 1998, TNMP has been engaged in litigation in the state and federal courts with PRG involving the effectiveness of certain PUCT rules that implement PURPA regulations. PRG claims that if the FERC regulations had been properly implemented in Texas, TNMP would have been required to make a long-term purchase of electricity from PRG. PRG appealed to the United States District Court of Appeals for the Fifth Circuit, the ruling in favor of TNMP and the PUCT by the United States District Court for the Western District of Texas. The court ruled in favor of TNMP and the PUCT in June 2005. PRG has filed a petition with the United States Supreme Court.

(17)     Regulatory and Rate Matters

PNMR

Energy Policy Act

In August 2005, the Energy Policy Act of 2005 was enacted, effective February 2006. Implementation of various portions of the law requires the issuance of rules by the FERC. The FERC has adopted final rules implementing various provisions of the Energy Policy Act including rules pertaining to repeal of PUHCA 1935 and implementation of PUHCA 2005, the FERC’s expanded mergers and acquisitions approval authority and prohibition of energy market manipulation. FERC has also issued a number of other proposed rules that are pending, including rules pertaining to preventing undue discrimination in transmission services and electric reliability standards. The Company will continue to monitor, and participate in as appropriate, the FERC and other proceedings involving implementation of the Energy Policy Act, in order to assess the implications of the new law and rules on its operations.

Retail Competition

The Texas electricity market has been open to retail competition since 2002. In accordance with Senate Bill 7, TNMP provides transmission and distribution services at regulated rates to various retail electric providers that, in turn, provide retail electric service within TNMP’s Texas service area. First Choice, TNMP’s affiliated retail electric provider, performs activities related to the sale of electricity to retail customers in Texas.

In 2004, several changes to customer protection rules in Texas became effective. Of the changes, the rules related to disconnection for non-payment and the required amount of a customer deposit is having the greatest impact on First Choice. The new rule for disconnection for non-payment states that if a customer does not make a payment or payment arrangement until after the final due date specified in the disconnect notice, the retail electric provider is allowed to disconnect the customer. The previous rule only allowed the retail electric provider to terminate service and transfer the customer to the retail electric provider that was affiliated with the customer’s transmission and distribution service provider, or to the provider of last resort for non-payment. The new rule also increases the amount of deposit required from customers.

First Choice is responsible for energy supply related to the sale of electricity to retail customers in Texas. Senate Bill 7 contains no provisions for the specific recovery of fuel and purchased power costs, although First Choice can request that the PUCT change the price-to-beat fuel factor twice a year to recognize changes in natural gas prices. The rates charged to new customers acquired by First Choice outside of TNMP’s service territory are not regulated by the PUCT, but are negotiated with each customer. As a result, changes in fuel and purchased power costs will affect First Choice’s operating results.

B-118

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

Price-to-Beat Fuel Factor

In October 2005, the PUCT approved First Choice’s request to increase its price-to-beat fuel factor. First Choice estimates that the increase in the price-to-beat fuel factor increased 2005 revenues by approximately $9.4 million, based on an increase in the fuel factor to $0.0771485 per kilowatt hour from October 29 through December 31, 2005. The price-to-beat fuel factor automatically increased again to $0.0791777 per kilowatt hour on January 1, 2006. If natural gas markets decline from the levels embedded in its current price-to-beat fuel factors, First Choice will file a request to reset its price-to-beat fuel factor shortly before the PUCT issues an order in TNMP's 60-day rate review case. Resulting rates will be effective within 30 days of a final order in TNMP's 60-day rate review.

Under the PUCT’s final order approving the acquisition of TNP by PNMR, First Choice is required to file its post-true-up price-to-beat adjustment filing to adjust its price-to-beat fuel factor within ten days of the earlier of: (1) the issuance of a proposed decision in TNMP’s 60-day rate review, or (2) the filing of a unanimous settlement of TNMP’s 60-day rate review. If the average of the 20-day rolling price of natural gas is less than the average 20-day rolling price in First Choice’s current price-to-beat fuel factor, then First Choice will be required to decrease the fuel factor by the percentage change. As this adjustment is based on future natural gas prices, the Company cannot predict the impact this requirement will have on its results of operations or financial position.

Price-to-Beat Base Rate Reset

Based on the terms of the Texas stipulation related to the acquisition of TNP, First Choice made a filing to reset its price-to-beat base rates in December 2005. First Choice’s resulting rates will take effect no later than 30 days following a final order on TNMP’s 60-day rate review. First Choice requested that the PUCT recognize in its new price-to-beat base rates the TNMP rate reduction and the synergy savings credit provided for in the acquisition stipulation. First Choice’s price-to-beat base rate case hearing was consolidated with TNMP’s 60-day rate review hearing and is set for April 2006 (see “60-Day Rate Review” below).

Energy Agreement

In 2003, First Choice and Constellation executed a power supply agreement that resulted in Constellation being the primary supplier of power for First Choice’s customers through the end of 2007. Additionally, Constellation has agreed to supply power in certain transactions under the agreement beyond the date when that commitment expires.

In 2004, FCPSP, a bankruptcy remote entity, was created pursuant to the agreement with Constellation to hold all customer contracts, wholesale power contracts, and certain natural gas contracts previously held by First Choice. Constellation received a lien against the assets of FCPSP to cover the settlement exposure and the mark-to-market exposure rather than requiring FCPSP to post alternate collateral for the purchase of power supply. In addition, FCPSP is restricted by covenants that limit the size of FCPSP's unhedged market positions and require that sales by FCPSP retain a positive retail margin. The agreement does not, however, permit Constellation to demand additional collateral irrespective of its credit exposure under the agreement. If, however, a change in electricity or gas forward prices increases Constellation's credit exposure to FCPSP beyond a limit based on Constellation's liens in cash and accounts receivable, Constellation will have no obligation to supply additional power to customers of FCPSP unless FCPSP provides letters of credit or other collateral acceptable to Constellation, and FCPSP will be constrained in its ability to sign up additional customers until that credit shortfall is corrected.

FCPSP may terminate the agreement upon 30 days' prior written notice to Constellation for any reason, but the agreement and all liens securing the agreement remain in effect with respect to transactions entered into prior to the termination until both parties have fulfilled all of their obligations with respect to such transactions or such transactions have been terminated for default or reasons related to regulatory changes.

B-119

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

PNM

Global Electric Agreement

The Global Electric Agreement was signed in 2003. The Global Electric Agreement provided for the repeal of a majority of the Restructuring Act, a fixed rate path, procedures for PNM’s participation in unregulated generating plant activities and other regulatory issues. In accordance with this rate path, PNM reduced its retail rates by 2.5% in September 2005. The rate path is effective through December 31, 2007, at which time rates are subject to review by the NMPRC. As a result of the repeal of the Restructuring Act, PNM re-applied the accounting requirements of SFAS 71, as amended, to its regulated generation activities.

Transmission Rate Case

In March 2005, PNM filed a notice with the FERC to increase its wholesale electric transmission revenues by approximately $7.8 million annually. If approved, the rate increase would apply to all of PNM's wholesale electric transmission service customers, which includes other utilities, electric co-operatives and entities that purchase wholesale transmission service from PNM. The proposed rate increase will not impact PNM's retail customers. In May 2005, the FERC issued an order in the case suspending the new rates for the standard five-month period and made the new rates effective November 1, 2005, subject to refund. Settlement discussions are continuing with FERC staff and the parties to the proceeding. The Company is unable to predict the outcome of the rate proceeding or if the parties will be able to reach a settlement in the case.

Complaint Against Southwestern Public Service Company

In September 2005, PNM filed a complaint under the Federal Power Act against SPS. PNM believes that through its fuel charge adjustment clause, SPS has been overcharging PNM for deliveries of energy under three contracts, and continues to do so. PNM requested that the FERC investigate SPS’ charges under its fuel clause for the period 2001 through 2004. Charges for 2005 and 2006 are being addressed in a separate case currently pending before the FERC, in which PNM is an intervenor. PNM’s complaint also alleges that SPS’ rates for interruptible power sales are excessive and requested that the FERC set a refund effective date of September 13, 2005 for these rates. A settlement conference was held before a FERC settlement judge in January 2006. Additionally, in November 2005, SPS filed an electric transmission rate case proposing to raise rates charged to customers effective July 2006. PNM has intervened in the case and objected to the proposed rate increase. PNM is currently awaiting a procedural order in the SPS rate case. While PNM and SPS continue to engage in settlement discussions, PNM cannot predict the outcome of these SPS proceedings at the FERC.

TNMP

Acquisition Agreements

In 2005, the PUCT approved a settlement agreement outlining terms and conditions necessary for the PUCT to find the acquisition of TNP and its subsidiaries, TNMP and First Choice Power, to be in the public interest. Among other issues, the settlement agreement calls for:

·   a two-year electric rate freeze that includes a $13.0 million annual rate reduction in TNMP's retail delivery rates effective May 1, 2005;

·   an authorized return on equity of 10.25% on an implied capital structure of 60% debt and 40% equity for certain reporting purposes;

·   the use of a 60/40% debt/equity capital structure in TNMP's next base rate case if filed before January 1, 2009; and

·   a $6.0 million synergy savings credit amortized over 24 months effective after the close of the transaction.

B-120

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

Also in 2005, the NMPRC approved a stipulation in connection with the acquisition of TNP. Among other issues, the stipulation calls for:

·   a three-phase rate reduction totaling 15%, to TNMP’s electric customers in southern New Mexico, beginning January 2006 and ending December 2010; the rate reduction will lower TNMP electric rates by approximately $9.6 million in the first year;

·   an imputed 55/45% debt/equity structure with an assumed rate of return on equity of 10.5% for TNMP;

·   PNM to remain the power supplier for TNMP’s New Mexico needs through 2010; and

·   integration of TNMP’s New Mexico assets into PNM effective January 1, 2007, the companies, however, will maintain separate rates through 2010.

60-Day Rate Review

In November 2005, TNMP made its required 60-day rate review filing. TNMP’s case establishes a competition transition charge for recovery of the true-up balance. TNMP’s competition transition charge will take effect no later than 30 days following a final order on TNMP’s 60-day rate review. TNMP’s 60-day rate review is set for hearing in April 2006.

Final Fuel Reconciliation

In 2004, the PUCT issued an order that disallowed $15.7 million of fuel and energy related purchased power costs that TNMP incurred in 2000 and 2001, prior to retail competition. TNMP recorded a $10.1 million charge to earnings, net of tax effect, for the disallowance in 2003, and subsequently appealed the PUCT decision to the district court. In June 2005, the District Court affirmed the PUCT order, effectively denying TNMP’s appeal.

(18)    Environmental Issues

The normal course of operations of the Company necessarily involves activities and substances that expose the Company to potential liabilities under laws and regulations protecting the environment. Liabilities under these laws and regulations can be material and in some instances may be imposed without regard to fault, or may be imposed for past acts, even though the past acts may have been lawful at the time they occurred. Sources of potential environmental liabilities include the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980 and other similar statutes.

The Company records its environmental liabilities when site assessments or remedial actions are probable and a range of reasonably likely cleanup costs can be estimated. The Company reviews its sites and measures the liability quarterly, by assessing a range of reasonably likely costs for each identified site using currently available information, including existing technology, presently enacted laws and regulations, experience gained at similar sites, and the probable level of involvement and financial condition of other potentially responsible parties. These estimates include costs for site investigations, remediation, operations and maintenance, monitoring and site closure. Unless there is a probable amount, the Company records the lower end of such reasonably likely range of costs (classified as other long-term liabilities at undiscounted amounts).

B-121

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

The Company’s recorded liability estimated to remediate its identified sites was as follows:

PNMR		PNM		TNMP
December 31,		December 31,		December 31,
2005	2004	2005	2004	2005	2004
(In thousands)
$5,285	$5,835	$4,700	$5,835	$585	$615

The Company expended the following for remediation:

	Year Ended December 31,
	2005	2004	2003
	(In thousands)
PNMR	$465	$267	$3,156
PNM	$443	$267	$3,156

	Post-	Pre-	Pre-	Pre-
	Acquisition	Acquisition	Acquisition	Acquisition
	June 6-	January 1-	Year Ended	Year Ended
	December 31,	June 6,	December 31,	December 31,
	2005	2005	2004	2003
	(In thousands)
TNMP	$22	$20	$-	$-

The ultimate cost to clean up the Company’s identified sites may vary from its recorded liability due to numerous uncertainties inherent in the estimation process, such as the extent and nature of contamination, the scarcity of reliable data for identified sites, and the time periods over which site remediation is expected to occur. The Company expects that the majority of the December 31, 2005 environmental liability will be paid over the next five years, funded by cash generated from operations. Future environmental obligations are not expected to have a material impact on the results of operations or financial condition of the Company.

B-122

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

(19)    Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) reports a measure for accumulated changes in equity of the Company that results from transactions and other economic events other than transactions with shareholders. The following tables set forth the changes in each component of accumulated other comprehensive income (loss) net of tax:

PNMR

				Additional			Mark-to-
	Unrealized			minimum			market for			Accumulated
	gain (loss)			pension			certain			other
	on			liability			derivative			comprehensive
	securities			adjustment			transactions			income (loss)
	(In thousands)
Balance at December 31, 2002	$	1,446		$	(85,464	)	$	(10,703	)	$	(94,721	)
Period change in:
Additional minimum pension liability adjustment		-			9,589			-			9,589
Unrealized holding gains arising from the period		1,916			-			-			1,916
Reclassification adjustment for gains included in
net income		(672	)		-			-			(672	)
Change in fair market value of designated cash
flow hedges		-			-			10,401			10,401
Balance at December 31, 2003		2,690			(75,875	)		(302	)		(73,487	)
Period change in:
Additional minimum pension liability adjustment		-			(21,996	)		-			(21,996	)
Unrealized holding gains arising from the period		1,849			-			-			1,849
Reclassification adjustment for gains included in
net income		(1,137	)		-			(485	)		(1,622	)
Change in fair market value of designated cash flow hedges		-			-			5,443			5,443
Balance at December 31, 2004		3,402			(97,871	)		4,656			(89,813	)
Period change in:
Additional minimum pension liability adjustment		-			(12,701	)		-			(12,701	)
Unrealized holding gains arising from the period		4,498			-			-			4,498
Reclassification adjustment for gains included in
net income		(4,464	)		-			(953	)		(5,417	)
Change in fair market value of designated cash flow hedges		-			-			11,844			11,844
Balance at December 31, 2005	$	3,436		$	(110,572	)	$	15,547		$	(91,589	)

B-123

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

PNM

				Additional			Mark-to-
	Unrealized			minimum			market for			Accumulated
	gain (loss)			pension			certain			other
	on			liability			derivative			comprehensive
	securities			adjustment			transactions			income (loss)
	(In thousands)
Balance at December 31, 2002	$	1,005		$	(85,464	)	$	(9,671	)	$	(94,130	)
Period change in:
Additional minimum pension liability adjustment		-			9,589			-			9,589
Unrealized holding gains arising from the period		2,357			-			-			2,357
Reclassification adjustment for gains included in
net income		(672	)		-			-			(672	)
Change in fair market value of designated cash flow hedges		-			-			9,369			9,369
Balance at December 31, 2003		2,690			(75,875	)		(302	)		(73,487	)
Period change in:
Additional minimum pension liability adjustment		-			(21,996	)		-			(21,996	)
Unrealized holding gains arising from the period		1,849			-			-			1,849
Reclassification adjustment for gains included in
net income		(1,137	)		-			(485	)		(1,622	)
Change in fair market value of designated cash flow hedges		-			-			5,443			5,443
Balance at December 31, 2004		3,402			(97,871	)		4,656			(89,813	)
Period change in:
Additional minimum pension liability adjustment		-			(12,672	)		-			(12,672	)
Unrealized holding gains arising from the period		4,498			-			-			4,498
Reclassification adjustment for gains included in
net income		(4,464	)		-			(953	)		(5,417	)
Change in fair market value of designated cash flow hedges		-			-			12,889			12,889
Balance at December 31, 2005	$	3,436		$	(110,543	)	$	16,592		$	(90,515	)

B-124

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

TNMP

			Additional			Mark-to-
	Unrealized		minimum			market for			Accumulated
	gain (loss)		pension			certain			other
	on		liability			derivative			comprehensive
	securities		adjustment			transactions			income (loss)
	(In thousands)
Pre-Acquisition:
Balance at December 31, 2002	$	-	$	(214	)	$	(1,166	)	$	(1,380	)
Period change in:
Additional minimum pension liability adjustment		-		214			-			214
Change in fair market value of designated cash flow hedges		-		-			(1,111	)		(1,111	)
Balance at December 31, 2003	$	-	$	-		$	(2,277	)	$	(2,277	)
Period change in:
Change in fair market value of designated cash flow hedges		-		-			516			516
Balance at December 31, 2004	$	-	$	-		$	(1,761	)	$	(1,761	)
Period change in:
Change in fair market value of designated cash flow hedges		-		-			1,761			1,761
Balance at June 6, 2005	$	-	$	-		$	-		$	-
Post Acquisition:
Period change in:
Additional minimum pension liability adjustment	$	-	$	(29	)	$	-		$	(29	)
Balance at December 31, 2005	$	-	$	(29	)	$	-		$	(29	)

B-125

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

(20)    Related Party Transactions

PNMR, PNM and TNMP are considered related parties as defined in SFAS No. 57, “Related Party Disclosures.” Since TNMP became a related party effective on the date of PNMR’s acquisition of TNP, the reported amounts for TNMP reflect the period from June 6, 2005 through December 31, 2005.

PNMR Services Company provides corporate services to PNMR and its subsidiaries including PNM, Avistar, TNP, TNMP and First Choice per shared services agreements. These services are billed at cost on a monthly basis and allocated to the subsidiaries.

PNMR files a consolidated federal income tax return with its affiliated companies. A tax allocation agreement exists between PNMR and each of its affiliated companies. The general operation of these agreements is that the subsidiary company will compute its taxable income on a stand-alone basis. If the result is a net tax liability, such amount shall be paid to PNMR. If there are net operating losses and/or tax credits, the subsidiary shall receive payment for the tax savings from PNMR to the extent that PNMR is able to utilize those benefits. For the year ended December 31, 2005, PNM and TNMP made tax-sharing payments of $2.9 million and $20.9 million, respectively, to PNMR. TNMP payments are for the period from June 6 through December 31, 2005. For the year ended December 31, 2004, PNM made tax-sharing payments of $20.7 million to PNMR. For the year ended December 31, 2003, PNMR made tax-sharing payments of $11.0 million to PNM.

In February 2006, the Board approved intercompany borrowing arrangements between PNMR and its subsidiaries that would authorize each subsidiary to borrow up to $50.0 million from PNMR.

PNM and TNMP have engaged in, and may in the future engage in, affiliate transactions in the normal course of business. These transactions primarily consist of power and transmission purchases by TNMP from PNM. Transactions between affiliates are reported separately on their financial statements, but are eliminated in the consolidation of PNMR’s financial statements.

B-126

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

PNMR and PNM

Pursuant to agreement, PNM has issued a promissory note for $20.0 million to PNMR payable on or before September 30, 2006. Under the agreement, PNM agrees to pay all applicable interest on the outstanding balance at the interest rates provided in the agreement. As of December 31, 2005 there is no outstanding balance on the promissory note.

PNM sells electricity and energy-scheduling services to TNMP under a long-term wholesale power contract. PNM also sells transmission services to TNMP and TNMP provides transmission services to PNM under an agreement.

The tables below describe the nature and amount of transactions PNM has with PNMR and TNMP. Since TNMP became a related party effective on the date of PNMR’s acquisition of TNP, the reported amounts for TNMP reflect the period from June 6, 2005 through December 31, 2005.

	At or For the Year Ended December 31,
	2005		2004		2003
	(In thousands)
PNMR Transactions With PNM
Shared services billings from PNMR to PNM	$	118,158	$	113,895	$	108,863
Shared services receivable/payable	$	36,099	$	31,875	$	32,998
PNM Transactions with TNMP
Electricity and energy scheduling service
billings from PNM to TNMP	$	24,253	$	-	$	-
Electricity and energy scheduling services
receivable	$	4,063	$	-	$	-
Transmission billings from PNM to TNMP	$	1,172	$	-	$	-
Transmission charges receivable	$	174	$	-	$	-
Transmission billings to PNM from TNMP	$	169	$	-	$	-
Transmission charges payable	$	26	$	-	$	-

TNMP

TNMP purchases all the electricity for its New Mexico customers' needs (except for one major customer) and energy-scheduling services under the long-term wholesale power contract with PNM described above. TNMP also purchases transmission services from PNM in New Mexico. Additionally, TNMP provides transmission services to PNM in New Mexico.

B-127

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

Effective with the close of the acquisition of TNP on June 6, 2005, all TNMP employees who were providing corporate support to TNP and First Choice became employees of PNMR Services Company. PNMR Services Company provides corporate services to TNMP per a shared services agreement.

	At or For the Year Ended
	December 31,
	2005
	(In thousands)
TNMP Transactions With PNM
Electricity and energy scheduling service
billings to TNMP from PNM	$24,253
Electricity and energy scheduling services payable	$  4,063
Transmission billings to TNMP from PNM	$  1,172
Transmission charges payable	$     174
Transmission billings from TNMP to PNM	$    169
Transmission charges receivable	$      26
TNMP Transactions with PNMR
Shared services billings to TNMP from PNMR	$  9,048
Shared services payable	$  2,975

(21)    New Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets-An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions" (“SFAS 153”). SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for fiscal periods beginning after June 15, 2005, and is required to be adopted beginning on January 1, 2006. The Company is currently evaluating the effect that the adoption of SFAS 153 will have on its results of operations and financial condition but does not expect it to have a material impact.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”). SFAS 154 applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and reporting of a change in accounting principle. SFAS 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. Prior accounting rules required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. SFAS 154 will improve financial reporting because its requirements enhance the consistency of financial information between periods. SFAS 154 requires that a change in the method of depreciation, amortization, or depletion for long-lived, non-financial assets be accounted for as a change in accounting estimate that is affected by a change in accounting principle. Previously, such a change was reported as a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect that the adoption will have a significant effect on its results of operations or financial condition when adopted.

In November 2005, the FASB issued Staff Position Nos. FAS 115-1 and 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“FSP 115-1 and 124-1”). FSP 115-1 and 124-1 provides guidance in determining when an investment is impaired, whether that impairment is other-than-

B-128

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

temporary and the measurement of an impairment loss. FSP 115-1 and 124-1 is applicable to reporting periods beginning January 1, 2006. The adoption of FSP 115-1 and 124-1 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

(22)    Subsequent Event

In January 2006, Altura, an indirect wholly owned subsidiary of PNMR, entered into an agreement with subsidiaries of Sempra to purchase the Twin Oaks power facility in an acquisition of assets for $480.0 million in cash. PNMR and Sempra are also parties to the agreement and have agreed to provide parental guarantees for certain obligations of their respective subsidiaries relating to the acquisition.

The Twin Oaks power facility is a 305 MW coal-fired power plant located 150 miles south of Dallas, Texas. Under the agreement, substantially all of the assets and contractual commitments relating to Twin Oaks are to be transferred to Altura upon closing, including fuel supply and power purchase and sale agreements. The agreement also includes the development rights for a possible 600 MW expansion of the plant. The necessary permits are expected to be granted in 2007. An additional $2.5 million payment will be made to Sempra upon the issuance of an air permit for the expansion and an additional $2.5 million will be paid upon Altura beginning construction of the expansion.

The transaction is expected to close no earlier than April 17, 2006, subject to third-party consents and anti-trust clearance under the Hart-Scott-Rodino Act. PNMR has arranged for bridge financing to close the transaction. It is expected that the permanent financing will come from the issuance of debt and equity.

B-129

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

(23)    Quarterly Operating Results (Unaudited)

PNMR

The unaudited operating results for PNMR by quarters for 2005 and 2004 are as follows:

	Quarter Ended
	March 31	June 30	September 30	December 31
	(In thousands, except per share amounts)
2005:
Operating Revenues	$427,913	$405,254	$597,117	$646,526
Operating Income	37,557	14,458	49,685	35,669
Net Earnings Before Cumulative Effect
of Change in Accounting Principle	30,509	1,541	28,483	7,620
Net Earnings	30,509	1,541	28,483	6,694	(a)
Net Earnings Per Share (Basic):
Net Earnings Before Cumulative Effect
of Change in Accounting Principle	0.50	0.02	0.41	0.11
Net Earnings	0.50	0.02	0.41	0.10
Net Earnings Per Share (Diluted):
Net Earnings Before Cumulative Effect
of Change in Accounting Principle	0.50	0.02	0.41	0.11
Net Earnings	0.50	0.02	0.41	0.10
2004:
Operating Revenues	$437,372	$370,403	$386,855	$410,162
Operating Income	33,534	22,264	32,215	24,885
Net Earnings	24,778	16,849	27,417	18,642
Net Earnings Per Share (Basic)	0.41	0.28	0.45	0.31
Net Earnings Per Share (Diluted)	0.41	0.28	0.45	0.30

(a) In 2005, PNMR adopted FIN 47 and recognized a cumulative effect of a change in accounting principle that decreased 2005 earnings $0.9 million, net of the income tax benefit, or $0.01 per diluted common share.

In the opinion of management of PNM, all adjustments (consisting of normal recurring accruals) necessary for a fair statement of the results of operations for such periods have been included.

B-130

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

PNM

The unaudited operating results for PNM by quarters for 2005 and 2004 are as follows:

		Quarter Ended
	March 31	June 30	September 30	December 31
	(In thousands, except per share amounts)
2005:
Operating Revenues	$427,676	$352,266	$403,532	$491,983
Operating Income	38,655	9,166	18,098	10,413
Net Earnings Before Cumulative Effect
of Change in Accounting Principle	32,354	3,998	11,134	5,106
Net Earnings	32,354	3,998	11,134	4,600	(a)
2004:
Operating Revenues	$437,121	$370,275	$386,677	$409,894
Operating Income	35,131	21,679	33,566	27,996
Net Earnings	27,357	15,791	27,548	21,170

(a) In 2005, PNM adopted FIN 47 and recognized a cumulative effect of a change in accounting principle that decreased 2005 earnings $0.5 million, net of the income tax benefit.

In the opinion of management of PNM, all adjustments (consisting of normal recurring accruals) necessary for a fair statement of the results of operations for such periods have been included.

B-131

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2005, 2004 and 2003

TNMP

The unaudited operating results for TNMP by quarters for 2005 and 2004 are as follows:

	Quarter/Period Ended
	Pre-Acquisition *		Post-Acquisition*
	March 31	April 1- June 6	June 6-30	September 30	December 31
	(In thousands)
2005:
Operating Revenues	$ 65,882	$ 46 938	$ 19,235	$ 71,441	$ 63,674
Operating Income	12,370	9,169	4,105	15,214	10,627
Net Earnings Before
Cumulative Effect
of Change in
Accounting Principle	2,876	6,384	2,547	9,643	5,641
Net Earnings	2,876	6,384	2,547	9,643	5,260	(a)

	Quarter Ended
	March 31	June 30		September 30	December 31
	(In thousands)
Pre-Acquisition *
2004:
Operating Revenues	$ 61,653	$ 65,069		$ 74,732	$ 68,211
Operating Income	11,563	12,384		17,080	13,745
Net Earnings Before Extraordinary Item	4,744	5,600		10,809	25,490
Extraordinary Item	-	(97,836)	(b)	-	-
Net Earnings	4,744	(92,236)		10,809	25,490

(a) In 2005, TNMP adopted FIN 47 and recognized a cumulative effect of a change in accounting principle that decreased 2005 earnings $0.4 million, net of the income tax benefit.

(b) During 2004, TNMP recorded an extraordinary loss of $97.8 million, net of tax of $57.3 million, related to the PUCT true-up proceeding regarding TNMP’s stranded costs. See Note 1.

* On June 6, 2005, PNMR completed the acquisition of TNP, parent company of TNMP, effective at 8:00 AM Central Daylight Time.

B-132

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

PNM Resources, Inc. and Public Service Company of New Mexico

Albuquerque, New Mexico

We have audited the consolidated financial statements of PNM Resources, Inc. and subsidiaries and Public Service Company of New Mexico and subsidiary (collectively, the “Companies”) as of December 31, 2005 and 2004, and for each of the three years in the period ended December 31, 2005, management's assessment of the effectiveness of the Companies’ internal control over financial reporting as of December 31, 2005, and the effectiveness of the Companies’ internal control over financial reporting as of December 31, 2005, and have issued our reports thereon dated March 8, 2006 (which reports express unqualified opinions and include explanatory paragraphs regarding the adoption of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, effective January 1, 2003, and Financial Accounting Standards Board Financial Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations in 2005, the change in actuarial valuation measurement date for the pension plan and other post-retirement benefits from September 30 to December 31, during 2003, and PNM Resources, Inc.’s acquisition of TNP Enterprises, Inc. in 2005); such consolidated financial statements and reports are included elsewhere in this Form 10-K. Our audits also included the financial statement schedules of the Companies listed in Item 15. These financial statement schedules are the responsibility of the Companies’ management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

March 8, 2006

B-133

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Texas-New Mexico Power Company

Fort Worth, Texas

We have audited the consolidated financial statements of Texas-New Mexico Power Company and subsidiaries (collectively, the “Company”) as of December 31, 2005 and 2004 and the periods June 6, 2005 to December 31, 2005, January 1, 2005 to June 6, 2005 and each of the years ended December 31, 2004 and 2003, and have issued our report thereon dated March 8, 2006 (which report expresses an unqualified opinion and includes explanatory paragraphs regarding PNM Resources, Inc.’s acquisition of Texas-New Mexico Power Company and its parent TNP Enterprises, Inc. in 2005 and the adoption of Financial Accounting Standards Board Financial Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations in 2005); such consolidated financial statements and report are included elsewhere in this Form 10-K. Our audit also included the financial statement schedule of the Company listed in Item 15. The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statement taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

March 8, 2006

B-134

SCHEDULE I

PNM RESOURCES, INC.
CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
BALANCE SHEETS
	As of December 31,
	2005		2004
	(In thousands)
Assets
Cash and cash equivalents	$	12,219	$	388
Intercompany receivables		144,510		81,886
Other current assets		14,390		14,560
Total current assets		171,119		96,834
Property, plant and equipment, net of accumulated
depreciation of $7,063 and $10,066		20,289		47,343
Long-term investments		8,220		22,001
Investment in subsidiaries		1,811,285		1,091,997
Other long-term assets		15,999		7,261
Total long-term assets		1,855,793		1,168,602
Total Assets	$	2,026,912	$	1,265,436
Liabilities and Stockholders' Equity
Short-term debt	$	194,000	$	34,000
Current liabilities		94,348		34,476
Long-term debt		343,463		147
Other long-term liabilities		16,809		7,421
Total liabilities		648,620		76,044
Common stock outstanding (no par value, 120,000,000 shares authorized:
issued 68,786,286 and 60,464,595 at December 31, 2005 and 2004, respectively)		813,425		638,826
Accumulated comprehensive income, net of tax		244		-
Retained earnings		564,623		550,566
Total common stockholders' equity		1,378,292		1,189,392
Total Liabilities and Stockholders' Equity	$	2,026,912	$	1,265,436

See notes to the consolidated financial statements.

B-135

PNM RESOURCES, INC.
CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
STATEMENTS OF EARNINGS
	Year ended December 31,
	2005			2004			2003
				(In thousands)
Operating revenues	$	-		$	-		$	24,999
Operating expenses		14,303			5,157			21,974
Operating income (loss)		(14,303	)		(5,157	)		3,025
Other income and deductions:
Equity in earnings of subsidiaries		93,344			90,176			94,105
Other income		3,775			1,258			2,600
Other deductions		(32,426	)		(932	)		(5,207	)
Net other income and deductions		64,693			90,502			91,498
Income before income taxes		50,390			85,345			94,523
Income tax benefit		(16,877	)		(2,341	)		(1,451	)
Net Earnings Before Cumulative Effect of Changes in
Accounting Principles		67,267			87,686			95,974
Cumulative effect of changes in accounting principles, net of
tax expense of $26, $0 and $525		(40	)		-			(801	)
Net Earnings	$	67,227		$	87,686		$	95,173

See notes to the consolidated financial statements.

B-136

SCHEDULE I
PNM RESOURCES, INC.
CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
STATEMENTS OF CASH FLOWS
	Year Ended December 31,
	2005			2004			2003
	(In thousands)
Cash Flows From Operating Activities:
Net earnings	$	67,227		$	87,686		$	95,173
Adjustments to reconcile net earnings to net cash flows
from operating activities:
Depreciation and amortization		677			2,604			1,735
Allowance for equity funds used during construction		-			(66	)		(38	)
Accumulated deferred income tax		(6,281	)		2,131			6,213
Equity in earnings of subsidiaries		(93,344	)		(90,176	)		(94,105	)
Equity-linked units charge		11,348			-			-
Other		(2,123	)		-			-
Changes in certain assets and liabilities:
Other assets		(9,039	)		(9,030	)		(1,591	)
Accounts payable		(2,992	)		1,053			4,328
Accrued income tax		77,554			(28,013	)		6,473
Other liabilities		(28,360	)		14,999			20,711
Net cash flows provided (used) from operating activities		14,667			(18,812	)		38,899
Cash Flows From Investing Activities:
Property plant and equipment		(615	)		(7,256	)		(9,363	)
Redemption of short-term investments		-			-			80,291
Luna investment					(13,379	)
Investment in subsidiaries		(557,229	)		-			-
Sale of bond investment		-			12,247			-
Cash dividends from subsidiaries		140,500			23,000			49,581
EIP sale		-			-			36,925
Equity contribution to subsidiaries		-			-			(139,257	)
Other		478			174			(8,207	)
Net cash flows provided (used) in investing activities		(416,866	)		14,786			9,970
Cash Flows From Financing Activities:
Short-term borrowings		160,000			33,282			-
Long-term debt repayments		-			-			(26,152	)
Long-term debt borrowings		347,250			-			-
Issuance of common stock		101,231			-			-
Exercise of employee stock options		(9,735	)		(16,430	)		(9,639	)
Dividends paid		(51,128	)		(38,263	)		(36,115	)
Change in intercompany accounts		(135,620	)		24,980			23,592
Other		2,032			-			290
Net cash flows generated (used) by financing activities		414,030			3,569			(48,024	)
Increase (Decrease) in Cash and Cash Equivalents		11,831			(457	)		845
Beginning of Year		388			845			-
End of Year	$	12,219		$	388		$	845
Supplemental cash flow disclosures:
Interest paid, net	$	16,780		$	(3,145	)	$	576
Income taxes refunded, net	$	(4,179	)	$	(3,098	)	$	(18,070	)
Non-cash dividends from subsidiaries	$	13,150		$	-		$	-

See notes to the consolidated financial statements.

B-137

SCHEDULE II
PNM RESOURCES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
		Additions			Deductions
	Balance at	Charged to	Charged to
	beginning of	costs and	other		Write-off	Balance at
Description	year	expenses	accounts		adjustments	end of year
		(In thousands)
Allowance for doubtful accounts,
year ended December 31:
2003	$ 15,575	$ (3,540)	$         -		$ 2,751	$ 9,284
2004	$   9,284	$   1,731	$         -		$ 9,686	$ 1,329
2005	$   1,329	$   2,780	$ 1,611	(a)	$ 2,067	$ 3,653
(b)Allowance for market and credit
volatility year ended December 31:
2003	$   2,433	$ (2,433)	$        -		$        -	$        -
2004	$           -	$      110	$   164		$   210	$      64
2005	$        64	$      115	$        -		$       6	$    173

(a)Represents the TNP allowance for doubtful accounts at June 6, 2005.

(b)Recorded in other deferred credits on the Consolidated Balance Sheets.

B-138

SCHEDULE II
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
VALUATION AND QUALIFYING ACCOUNTS
		Additions		Deductions
	Balance at	Charged to	Charged to
	beginning of	costs and	other	Write-off	Balance at
Description	year	expenses	accounts	adjustments	end of year
		(In thousands)
Allowance for doubtful accounts,
year ended December 31:
2003	$ 15,575	$ (3,540)	$     -	$ 2,751	$ 9,284
2004	$   9,284	$  1,731	$     -	$ 9,686	$ 1,329
2005	$   1,329	$     140	$     -	$      34	$ 1,435
(a)Allowance for market and credit
volatility year ended December 31:
2003	$   2,433	$ (2,433)	$      -	$         -	$         -
2004	$           -	$     110	$ 164	$    210	$      64
2005	$        64	$     115	$      -	$        6	$    173

(a)Recorded in other deferred credits on the Consolidated Balance Sheets.

B-139

SCHEDULE II
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
VALUATION AND QUALIFYING ACCOUNTS
		Additions		Deductions
	Balance at	Charged to	Charged to
	beginning of	costs and	other	Write-off	Balance at
Description	year	expenses	accounts	adjustments	end of year
		(In thousands)
Allowance for doubtful accounts,
year ended December 31:
Pre-Acquisition *
2003	$ 172	$ 358	$    -	$ 174	$ 356
2004	$ 356	$ (39)	$    -	$ 126	$ 191
January 1 - June 6, 2005	$ 191	$ (68)	$    -	$   52	$   71
Post-Acquisition *
June 6 - December 31, 2005	$   71	$ 100	$    -	$   71	$ 100

* On June 6, 2005, PNMR completed the acquisition of TNP, parent company of TNMP, effective at 8:00 AM Central Daylight Time.

B-140

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

None.

ITEM 9A.CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

PNMR, PNM and TNMP each maintain disclosure controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it files with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Based on an evaluation of each of the registrants’ disclosure controls and procedures as of the end of the period covered by this report conducted by the registrants’ management, with the participation of the Chief Executive and Chief Financial Officers, the Chief Executive and Chief Financial Officers believe that these controls and procedures are effective to ensure that each of the registrants is able to collect, process, and disclose the information it is required to disclose in the reports it files with the SEC within the required time periods.

(b) Management’s report on internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting appears on pages B-5 and B-6. These reports are incorporated by reference herein. Management has excluded the acquired company, TNP, from their report on internal control over financial reporting. TNP’s results of operations are significant to the Company’s consolidated financial statements. The financial statements of TNP Enterprises, Inc. and its subsidiaries reflect total assets and revenues constituting 29 and 20 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2005. A material change in the Company’s internal control over financial reporting due to the acquisition has been disclosed below.

(c) Changes in internal controls.

There have been no changes in the Company’s internal controls over financial reporting for the quarter ended December 31, 2005, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

TNP Acquisition

With the acquisition, the Company developed an interface process in the second quarter to transfer the financial reporting information from TNP to the system that the Company uses to produce its consolidated financial statements for internal and external reporting. This was the only material change in internal control that resulted from the acquisition. The Company is currently undergoing a diligent effort to ensure TNP’s compliance with Section 404 of the Sarbanes-Oxley Act of 2002. As integration activities occur, the Company continues to integrate the Company’s internal controls. This effort will continue until June of 2006, at which time TNP is required to be in compliance with the Act.

ITEM 9B.OTHER INFORMATION

None.

C-1

PART III

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

Reference is hereby made to “Proposal 1: Election of Directors” in the Company’s Proxy Statement relating to the annual meeting of stockholders to be held on May 16, 2006 (the “2006 Proxy Statement”), to PART I, SUPPLEMENTAL ITEM -“EXECUTIVE OFFICERS OF THE COMPANY” in this Form 10-K, “Other Matters” - “Section 16(a) Beneficial Ownership Reporting Compliance” and “Code of Ethics” in the 2006 Proxy Statement. The Company intends to satisfy the disclosure requirements of Form 8-K relating to amendments to the Company’s code of ethics applicable to its senior executive and financial officers by posting such information on its Internet website. Information about the Company’s website is included under Part I, Item 1 - “Company Website.”

The Company’s common stock and the publicly issued equity-linked units are listed on the New York Stock Exchange. As a result, the Company’s Chief Executive Officer is required to make an annual certification to the New York Stock Exchange stating that he was not aware of any violations by the Company of the New York Stock Exchange corporate governance listing standards. The Company’s Chief Executive Officer made the most recent certification to the New York Stock Exchange on June 10, 2005.

ITEM 11.EXECUTIVE COMPENSATION

Reference is hereby made to “Executive Compensation”, “Retirement Plan and Related Matters”, “Employment Contracts, Termination of Employment and Change in Control Agreements” and “Director Compensation” in the 2006 Proxy Statement.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Reference is hereby made to “PNM Resources Common Stock Owned by Executive Officers and Directors,” “Ownership of More Than Five Percent of PNM Resources Common Stock” and “Equity Compensation Plan Information” in the 2006 Proxy Statement.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Reference is hereby made to the 2006 Proxy Statement for such disclosure as may be required by this item.

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

Reference is hereby made to “Audit and Ethics Committee Report” and “Independent Auditor Fees” in the 2006 Proxy Statement. Independent auditor fees for PNM and TNMP are reported in the 2006 Proxy Statement for PNMR. All such fees are fees of PNMR. TNMP auditor fees are included from the date of PNMR’s acquisition of TNP, June 6, 2005.

The following table represents aggregate fees billed to TNMP for the period of January 1 through June 6, 2005 and the year ended December 31, 2004 by Deloitte & Touche LLP, TNMP’s principal accounting firm.

	January 1 -		Year Ended
	June 6, 2005		December 31, 2004
	(In thousands)
Audit Fees (a)	$	124	$	467
Audit-related Fees (b)		45		28
Tax Fees (c)		4		5
All Other Fees		-		-
Total Fees	$	173	$	500

D-1

The relevant Audit Committee pre-approved all audit fees in 2005 and 2004.

(a)   Audit fees represent fees for professional services provided in connection with the audit of financial statements and review of quarterly financial statements and audit services provided in connection with other statutory or regulatory filings.

(b)   Audit-related fees consisted primarily of accounting consultations, employee benefit plan audits, and other attestation services.

(c)   Includes fees for tax compliance, tax planning and tax advice.

D-2

PART IV

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) - 1.See Index to Financial Statements under Item 8.

(a) - 2.Financial Statement Schedules for the years 2005, 2004, and 2003 are omitted for the reason that they are not required or the information is otherwise supplied under Item 8.

(a) - 3-A.Exhibits Filed:

Exhibit No.		Description
2.1	PNMR	Purchase and Sale Agreement, dated as of January 14, 2006 among Twin Oaks Power LP, Twin Oaks Power III, LP, Sempra Energy, Altura Power L.P. and PNM Resources (Confidential treatment was requested for portions of the exhibit, and such portions were omitted from this exhibit filed and were filed separately with the Securities and Exchange Commission)
4.6	PNMR	Pledge Agreement, dated as of October 7, 2005, between PNMR and U.S. Bank National Association
4.9	PNMR	Remarketing Agreement, dated as of October 7, 2005, among PNMR, Banc of America Securities LLC, as remarketing agent and U.S. Bank National Association as purchase contract agent.
4.10	PNMR	Registration Rights Agreement, dated as of October 7, 2005, between PNMR, as issuer and Cascade Investment, LLC, as initial holder.
10.13	PNM	Dividend, Assignment and Assumption Agreement, dated November 18, 2005 between PNMR Development and Management Corporation and PNM
10.24**	PNMR	Form of the award agreement for restricted stock rights granted after 2005 under the Omnibus Performance Equity Plan
10.31**	PNMR	2006 Officer Incentive Plan
10.43**	PNMR	Third Amendment to the PNM Resources, Inc. Non-Union Severance Pay Plan effective October 1, 2005
10.132	PNM	Stipulation in the matter of PNM’s application for approval of a certificate of public convenience and necessity for the Afton Generating Station, Case No. 05-00275-UT, dated November 30, 2005
12.1	PNMR	Ratio of Earnings to Fixed Charges
12.2	PNMR	Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
21	PNMR	Certain subsidiaries of PNM Resources, Inc.
23.1	PNMR	Consent of Deloitte & Touche LLP for PNM Resources, Inc.
23.2	PNM	Consent of Deloitte & Touche LLP for Public Service Company of New Mexico
23.3	TNMP	Consent of Deloitte & Touche LLP for Texas-New Mexico Power Company
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

E-1

Exhibit No.		Description
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

(a) - 3-B. Exhibits Incorporated By Reference:

The documents listed below are being filed (as shown above) or have been previously filed on behalf of PNM Resources, PNM or TNMP and are incorporated by reference to the filings set forth below pursuant to Exchange Act Rule 12b-32 and Regulation S-K section 10, paragraph (d).

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s)File No:
Plan of Acquisition
2.0	Stock Purchase Agreement, dated as of July 24, 2004 by and between PNM Resources and SW Acquisition, L.P	2.0 to PNM Resources’ Current Report on Form 8-K filed July 28, 2004	333-32170 PNMR
2.1	Purchase and Sale Agreement, dated as of January 14, 2006 among Twin Oaks Power LP, Twin Oaks Power III, LP, Sempra Energy, Altura Power L.P. and PNM Resources (Confidential treatment was requested for portions of the exhibit, and such portions were omitted from this exhibit filed and were filed separately with the Securities and Exchange Commission)	2.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005	1-32462 PNMR
Articles of Incorporation and By-laws
3.1	Articles of Incorporation of PNM Resources, as amended through June 27, 2005	3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005	1-32462 PNMR

E-2

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
3.2	Restated Articles of Incorporation of PNM, as amended through May 31, 2002	3.1.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002	1-6986 PNM
3.3	Articles of Incorporation of TNMP, as amended through July 7, 2005	3.1.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005	2-97230 TNMP
3.4	Bylaws of PNM Resources, Inc. with all amendments to and including February 14, 2006	3.1 to the Company’s Current Report on Form 8-K filed February 17, 2006.	1-32462 PNMR
3.5	Bylaws of PNM with all amendments to and including May 31, 2002	3.1.2 to the Company’s Report on Form 10-Q for the fiscal quarter ended June 30, 2002	1-6986 PNM
3.6	Bylaws of TNMP as adopted on August 4, 2005	3.2.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005	2-97230 TNMP
Indentures‡
PNMR
4.1	Purchase Contract and Pledge Agreement, dated as of March 30, 2005, among PNMR, JPMorgan Chase Bank, N.A., as Purchase Contract Agent, and U.S. Bank Trust National Association, as Collateral Agent, Custodial Agent and Securities Intermediary, with Form of Corporate Unit included as Exhibit A and Form of Treasury Unit included as Exhibit B thereto	10.1 to PNMR’s Current Report on Form 8-K filed March 31, 2005	1-32462 PNMR
4.2	Indenture, dated as of March 15, 2005, between PNMR and JPMorgan Chase Bank, N.A., as Trustee	10.2 to PNMR’s Current Report on Form 8-K filed March 31, 2005	1-32462 PNMR
4.3	Supplemental Indenture No. 1, dated as of March 30, 2005, between the Company and JPMorgan Chase Bank, N.A. as Trustee, with Form of Senior Note included as Exhibit A thereto	10.3 to PNMR’s Current Report on Form 8-K filed March 31, 2005	333-32170 PNMR
4.4	Remarketing Agreement, dated as of March 30, 2005, among PNMR, Banc of America Securities LLC, as Remarketing Agent, and JPMorgan Chase Bank, N.A., as Purchase Contract Agent	10.4 to PNMR’s Current Report on Form 8-K filed March 31, 2005	1-32462 PNMR
4.5	Purchase Contract Agreement, dated as of October 7, 2005, between PNMR and U.S. Bank National Association, as purchase contract agent, with Form of Corporate Unit included as Exhibit A and Form of Treasury Unit included as Exhibit B thereto	4.10 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005	1-32462 PNMR

E-3

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
4.6	Pledge Agreement, dated as of October 7, 2005, between PNMR and U.S. Bank National Association	4.6 to the Company's Annual Report on Form 10-K for the year ended December 31, 2005	1-32462 PNMR
4.7	Indenture, dated as of October 7, 2005, between PNMR and U.S. Bank National Association, as trustee	4.11 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005	1-32462 PNMR
4.8	Supplemental Indenture, dated as of October 7, 2005, between PNMR and U.S. Bank National Association, as trustee, with Form of Senior Note included as Exhibit A thereto	4.12 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005	1-32462 PNMR
4.9	Remarketing Agreement, dated as of October 7, 2005, among PNMR, Banc of America Securities LLC, as remarketing agent and U.S. Bank National Association as purchase contract agent.	4.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 2005	1-32462 PNMR
4.10	Registration Rights Agreement, dated as of October 7, 2005, between PNMR, as issuer and Cascade Investment, LLC, as initial holder.	4.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 2005	1-32462 PNMR
PNM
4.11	Indenture of Mortgage and Deed of Trust dated as of June 1, 1947, between PNM and The Bank of New York (formerly Irving Trust Company), as Trustee, together with the Ninth Supplemental Indenture dated as of January 1, 1967, the Twelfth Supplemental Indenture dated as of September 15, 1971, the Fourteenth Supplemental Indenture dated as of December 1, 1974 and the Twenty-Second Supplemental Indenture dated as of October 1, 1979 thereto relating to First Mortgage Bonds of PNM	4-(d) to PNM’s Registration Statement No. 2-99990	2-99990 PNM
4.12	Fifty-third Supplemental Indenture, dated as of March 11, 1998, supplemental to Indenture of Mortgage and Deed of Trust, dated as of June 1, 1947, between PNM and The Bank of New York(formerly Irving Trust Company), as trustee	4.3 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998	1-6986 PNM
4.13	Indenture (for Senior Notes), dated as of March 11, 1998, between PNM and The Chase Manhattan Bank, as Trustee	4.4 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998	1-6986 PNM

E-4

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
4.14	First Supplemental Indenture, dated as of March 11, 1998, supplemental to Indenture, dated as of March 11, 1998, Between PNM and The Chase Manhattan Bank, as Trustee	4.5 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998	1-6986 PNM
4.15	Second Supplemental Indenture, dated as of March 11, 1998, supplemental to Indenture, dated as of March 11, 1998, Between PNM and The Chase Manhattan Bank, as Trustee	4.6 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998	1-6986 PNM
4.16	Third Supplemental Indenture, dated as of October 1, 1999 to Indenture dated as of March 11, 1998, between PNM and The Chase Manhattan Bank, as Trustee	4.6.1 to PNM’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999	1-6986 PNM
4.17	Fourth Supplemental Indenture, dated as of May 1, 2003 to Indenture dated as of March 11, 1998, between PNM and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee	4.6.2 to PNM’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003	1-6986 PNM
4.18	Fifth Supplemental Indenture, dated as of May 1, 2003 to Indenture dated as of March 11, 1998, between PNM and JPMorgan Chase Bank, as Trustee	4.6.3 to PNM’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003	1-6986 PNM
4.19	Sixth Supplemental Indenture, dated as of May 1, 2003 to Indenture dated as of March 11, 1998, between PNM and JPMorgan Chase Bank, as Trustee	4.6.4 to PNM’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003	1-6986 PNM
4.20	Indenture (for Senior Notes), dated as of August 1, 1998, between PNM and The Chase Manhattan Bank, as Trustee	4.1 to PNM’s Registration Statement No. 33-53367	333-53367 PNM
4.21	First Supplemental Indenture, dated August 1, 1998, supplemental to Indenture, dated as of August 1, 1998, between PNM and The Chase Manhattan Bank, as Trustee	4.3 to PNM’s Current Report on Form 8-K Dated August 7, 1998	1-6986 PNM
4.22	Second Supplemental Indenture, dated September 1, 2003, supplemental to Indenture, dated as of August 1, 1998, between PNM and JPMorgan Chase Bank (formerly, The ChaseManhattan Bank), as Trustee	4.7.1 to PNM’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003	1-6986 PNM
TNMP
4.23	Indenture, dated January 1, 1999 between TNMP and JPMorgan Chase Bank (successor to The Chase Bank of Texas, N. A.), as Trustee	4(w) to TNMP’s Annual Report on Form 10-K for the year ended December 31, 1998	2-97230 TNMP
4.24	First Supplemental Indenture, dated January 1, 1999, to Indenture, dated January 1, 1999, between TNMP and JPMorgan Chase Bank (successor to The Chase Bank of Texas, N. A.), as Trustee	4(x) to TNMP’s Annual Report on Form 10-K for the year ended December 31, 1998	2-97230 TNMP

E-5

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
4.25	Second Supplemental Indenture, dated June 1, 2003, to Indenture, dated January 1, 1999, between TNMP and JPMorgan Chase Bank (successor to The Chase Bank of Texas, N. A.), as Trustee	4 to TNMP’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003	2-97230 TNMP
Material Contracts
10.1	Amended and Restated Credit Agreement, dated as of August 15, 2005, among PNM Resources, Inc., the lenders party thereto, Bank of America, N.A., as administrative agent and Wachovia Bank, National Association, as syndication agent.	10.1 to the Company’s Current Report on Form 8-K filed August 19, 2005	1-32462 PNMR
10.2	Amended and Restated Guaranty Agreement, dated as of August 15, 2005, executed by PNM Resources, Inc., as Guarantor.	10.1 to the Company’s Current Report on Form 8-K filed August 19, 2005	1-32462 PNMR
10.3	Joinder Agreement, dated as of September 30, 2005, between TNMP, as borrower and Bank of America, as administrative agent	10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005	2-97230 TNMP
10.4	Old Credit Agreement, dated as of November 15, 2004, among PNM Resources, the lenders party thereto, Bank of America, N.A., as administrative agent and Wachovia Bank National Association, as syndication agent	10.1 to PNM Resources’ Current Report on Form 8-K filed November 18, 2004	333-32170 PNMR
10.5	Unit Purchase Agreement dated as of August 13, 2004 between PNM Resources and Cascade Investment, L.L.C.	99 to PNM Resources’ Current Report on Form 8-K filed August 19, 2004	333-32170 PNMR
10.6	First Supplement to Unit Purchase Agreement, dated as of June 4, 2005, between PNMR and Cascade	99.2 to the Company’s Current Report on Form 8-K filed June 10, 2005	1-32462 PNMR
10.7	Second Supplement to Unit Purchase Agreement, dated as of July 1, 2005, between PNMR and Cascade	99.1 to the Company’s Current Report on Form 8-K filed July 8, 2005	1-32462 PNMR
10.8	Third Supplement to Unit Purchase Agreement, dated as of August 12, 2005, between PNMR and Cascade and Fourth Supplement to Unit Purchase Agreement, dated as of September 30, 2005, between PNMR and Cascade	10.4 and 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005	1-32462 PNMR

E-6

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
10.9	Investment Agreement dated as of June 6, 2005, between PNMR and TNP	10.1 to PNMR’s Current Report on Form 8-K filed June 10, 2005	1-32462 PNMR
10.10	PNM Resources, Inc.  3,400,000 Shares of Common Stock Underwriting Agreement dated March 23, 2005	10.1 to PNMR’s Current Report on Form 8-K filed March 29, 2005	1-32462 PNMR
10.11	PNM Resources, Inc. 4,300,000, 6.75% Equity Units Underwriting Agreement dated March 23, 2005	10.2 to PNMR’s Current Report on Form 8-K filed March 29, 2005	1-32462 PNMR
10.12	Credit Agreement dated as of August 17, 2005, among PNM, the lenders party thereto, Wachovia Bank, National Association, as administrative agent and Union Bank of California, N.A., as syndication agent	10.3 to the Company’s Current Report on Form 8-K filed August 19, 2005	1-6986 PNM
10.13	Dividend, Assignment and Assumption Agreement, dated November 18, 2005 between PNMR Development and Management Corporation and PNM (Luna Energy Facility)	10.13 to the Company’s Annual Report on form 10-K for the year ended December 31, 2005	1-6986 PNM
10.14	Purchase and Sale Agreement by and between Duke Energy North America, LLC, as seller, and PNM Resources, Phelps Dodge Energy Services, LLC and Tucson Electric Power Company, as purchasers dated as of November 12, 2004	10.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004	333-32170 PNMR
10.15	Distribution, Assignment and Assumption Agreement dated February 24, 2005 among PNMR Development and Management Corporation, Luna Power, LLC, Tucson Electric Power Company ("TEP") and Phelps Dodge Energy Services, LLC ("Phelps")	10.136 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005	1-32462 PNMR
10.16	Engineering, Procurement and Construction Agreement, dated as of February 24, 2005, among Fluor Enterprises, Inc., as contractor and PNMR Development and Management Corporation, Tucson Electric Power Company  and Phelps Dodge Energy Services, LLC (collectively referred to as  owner). (Confidential treatment was requested for portions of this exhibit, and such portions were omitted from this exhibit filed and were filed separately with the Securities and Exchange Commission)	10.137 to the Company’s Current Report on Form 8-K filed October 12, 2005	1-32462 PNMR
10.17	Receivables Sale Agreement, dated as of April 8, 2003, between PNM Receivables Corp., as buyer and PNM as originator	10.89 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003	1-6986 PNM

E-7

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
10.18	Receivables Purchase Agreement, dated as of April 8, 2003, among PNM Receivables Corp., as seller, PNM, as servicer, EagleFunding Capital Corporation, as conduit investor, Fleet National Bank, as an alternate investor and Fleet Securities, Inc., as managing agent and deal agent.	10.90 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003	1-6986 PNM
10.19	Amendment No.1 to Receivables Purchase Agreement dated June 19, 2003; Amendment No. 2 to Receivables Purchase Agreement dated April 6, 2004 and Amendment No. 3 to Receivables Purchase Agreement dated October 15, 2004, among PNM Receivables Corp., as seller, PNM, as servicer, the Investors, Bank of America, N.A., as successor in interest to Fleet Securities, Inc., as managing agent and deal agent	10.90.1 to PNM’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004	1-6986 PNM
10.20	Consent and Waiver Dated as of April 5, 2005 to Receivables Purchase Agreement Dated as of April 8, 2003 among PNM Receivables Corp., as seller, PNM, as servicer, the Investors, Bank of America, N.A., as successor-in-interest to Fleet Securities, Inc., as managing agent and deal agent	10.9 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005	1-6986 PNM
10.21**	PNM Resources, Inc. Amended and Restated Omnibus Performance Equity Plan dated May 17, 2005 (“PEP”)	4.1 to PNM Resources’ Form S-8 Registration Statement filed May 17, 2005	333-125010 PNMR
10.22**	Form of the award agreement for non-qualified stock options granted under the PEP	10.1 to the Company’s Current Report on Form 8-K filed February 17, 2006	1-32462 PNMR
10.23**	Form of the award agreement for restricted stock rights granted in 2004 and 2005 under the PEP	10.2 to the Company’s Current Report on Form 8-K filed February 17, 2006	1-32462 PNMR
10.24**	Form of award agreement for restricted stock rights granted after 2005 under the PEP	10.24 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005	1-32462 PNMR
10.25**	Changes in Director Compensation	10.138 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005	1-32462 PNMR
10.26**	PNM Resources, Inc. Executive Savings Plan dated December 29, 2003	10.75 to PNM Resources and PNM’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003	333-32170 PNMR
10.27**	PNM Resources, Inc. Executive Savings Plan II dated December 15, 2004	4 to PNM Resources’ Registration Statement on Form S-8, File No. 333-12391, filed December 17, 2004	333-12391 PNMR

E-8

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
10.28**	First Amendment to the PNM Resources, Inc. Executive Savings Plan II effective June 3, 2005	10.56.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005	1-32462 PNMR
10.29**	Texas-New Mexico Company Excess Benefit Plan, As Amended and Restated Effective October 1, 1996.	10.63 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005	2-97230 TNMP
10.30**	Amendment to TNMP Excess Benefit Plan, effective January 1, 2005	10.1 to the Company’s Current Report on Form 8-K filed December 14, 2005	2-97230 TNMP
10.31**	2006 Officer Incentive Plan	10.31 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005	1-32462 PNMR
10.32**	2005 Officer Incentive Plan Amended (August 2, 2005)	10.30 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005	1-32462 PNMR
10.33**	Summary of Executive Time Off Policy Effective January 1, 2006	10.31 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005	1-32462 PNMR
10.34**	Restated and Amended Public Service Company of New Mexico Accelerated Management Performance Plan (1988) (August 16, 1988) (refiled)	10.23 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1998	1-6986 PNM
10.35**	First Amendment to Restated and Amended Public Service Company of New Mexico Accelerated Management Performance Plan (1988) (August 30, 1988) (refiled)	10.23.1 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1998	1-6986 PNM
10.36**	Second Amendment to Restated and Amended Public Service Company of New Mexico Accelerated Management Performance Plan (1988) (December 29, 1989) (refiled)	10.23.2 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1998	1-6986 PNM
10.37**	Second [Third] Amendment to the Restated and Amended Public Service Company of New Mexico Accelerated Management Performance Plan (1988) dated December 8, 1992	10.22.1 to PNM's Annual Report on Form 10-K for fiscal year ended December 31, 2004.	1-6986 PNM
10.38**	Fourth Amendment to the Restated and Amended Public Service Company of New Mexico Accelerated Management Performance Plan, as amended effective December 7, 1998	10.23.4 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999	1-6986 PNM
10.39**	Fifth Amendment dated November 27, 2002 to the Restated and Amended PNM Resources, Inc. Accelerated Performance Management Plan	10.23.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002	333-32170 PNMR

E-9

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
10.40**	Sixth Amendment dated December 9, 2003 to the PNM Resources, Inc. Restated and Amended Accelerated Performance Management Plan	10.23.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003	333-32170 PNMR
10.41**	Non-Union Severance Pay Plan of PNM Resources, Inc. dated November 19, 2004	10.31 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004	333-32170 PNMR
10.42**	First Amendment to the PNM Resources, Inc. Non-Union Severance Pay Plan effective April 1, 2005 and Second Amendment to the PNM Resources, Inc. Non-Union Severance Pay Plan effective June 6, 2005.	10.31.1 and 10.31.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005	1-32462 PNMR
10.43**	Third Amendment to the PNM Resources, Inc. Non-Union Severance Pay Plan effective October 1, 2005	10.43 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005	1-32462 PNM
10.44**	PNM Service Bonus Plan dated October 23, 1984	19.4 to PNM’s Quarterly Report on Form 10-Q or the quarter ended September 30, 1988	1-6986 PNM
10.45**	First Amendment dated November 20, 1985 to PNM Service Bonus Plan	10.11.1 to PNM’s Annual Report on Form 10-K for the fiscal year ending December 31, 1985	1-6986 PNM
10.46**	Second Amendment dated December 29, 1989 to PNM Service Bonus Plan	10.27.2 to PNM’s Annual Report on Form 10-K for the fiscal year ending December 31, 1989	1-6986 PNM
10.47**	Second [Third] Amendment dated December 7, 1998 to PNM Service Bonus Plan	10.45 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999	1-6986 PNM
10.48**	Fourth Amendment dated November 27, 2002 to PNM Resources, Inc. Service Bonus Plan	10.45.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002	333-32170 PNMR
10.49**	Fifth Amendment dated December 9, 2003 to PNM Resources, Inc. Service Bonus Plan	10.45.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003	333-32170 PNMR
10.50**	Public Service Company of New Mexico OBRA ‘93 Retirement Plan effective November 15, 1993	10.4 to PNM’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1993	1-6986 PNM
10.51**	First Amendment to the Public Service Company of New Mexico OBRA ’93 Retirement Plan, as amended effective December 7, 1998	10.48.1 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999	1-6986 PNM
10.52**	Second Amendment dated November 27, 2002 to the PNM Resources, Inc. OBRA ’93 Retirement Plan	10.48.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002	333-32170 PNMR
10.53**	Third Amendment dated December 9, 2003 to the PNM Resources, Inc. OBRA ’93 Retirement Plan	10.48.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003	333-32170 PNMR

E-10

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
10.54**	Public Service Company of New Mexico Section 415 Plan dated January 1, 1994	10.50 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1993	1-6986 PNM
10.55**	First Amendment dated December 7, 1998 and Second Amendment dated August 7, 1999 to PNM Section 415 Plan and Third Amendment dated November 27, 2002 to the PNM Resources, Inc. Section 415 Plan	10.50.1 to the Company’s Annual Report in Form 10-K for the fiscal year ended December 31, 2002	333-32170 PNMR
10.56**	Fourth Amendment dated December 9, 2003 to the PNM Resources, Inc. Section 415 Plan	10.50.2 to the Company’s Annual Report in Form 10-K for the fiscal year ended December 31, 2003	333-32170 PNMR
10.57**	PNM Resources, Inc. Officer Retention Plan dated October 21, 2003	10.51 to the Company’s Annual Report in Form 10-K for the fiscal year ended December 31, 2003	333-32170 PNMR
10.58**	First Amendment to PNM Resources, Inc. Officer Retention Plan dated December 16, 2004	10.46 to the Company’s Annual Report in Form 10-K for the fiscal year ended December 31, 2004	333-32170 PNMR
10.59*	PNM Resources Executive Spending Account Plan dated December 9, 2003	10.52 to the Company’s Annual Report on Form 10-K for fiscal year ended December 31, 2003	333-32170 PNMR
10.60**	First Amendment to PNM Resources Executive Spending Account Plan effective January 1, 2004	10.52.1 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004	333-32170 PNMR
10.61**	Third Restated and Amended Public Service Company of New Mexico Performance Stock Plan effective March 10, 1998	10.74 to PNM's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998	1-6986 PNM
10.62**	First Amendment to the Third Restated and Amended Public Service Company of New Mexico Performance Stock Plan Dated February 7, 2000	10.74.1 to PNM's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000	1-6986 PNM
10.63**	Second Amendment to the Third Restated and Amended Public Service Company of New Mexico Performance Stock Plan, effective December 7, 1998	10.74.2 to PNM's Annual Report on Form 10-K for the fiscal year ended December 31, 2000	1-6986 PNM
10.64**	Third Amendment to the Third Restated and Amended Public Service Company of New Mexico Performance Stock Plan, effective December 10, 2000	10.74.3 to PNM’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000	1-6986 PNM
10.65**	Fourth Amendment to Third Restated and Amended Public Service Company of New Mexico Performance Stock Plan dated December 31, 2001	4.3.5 to PNM Resources’ Post-Effective Amendment No. 1 to Form S-8 Registration Statement filed December 31, 2001	333-03303 PNMR
10.66**	Fifth Amendment to the Third Restated and Amended PNM Resources, Inc. Performance Stock Plan dated September 6, 2002	10.74.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002	333-32170 PNMR

E-11

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
10.67**	PNM Resources, Inc. Director Retainer Plan, dated December 31, 2001	4.3 to PNM Resources, Inc. Post-Effective Amendment No. 1 to Form S-8 Registration Statement filed December 31, 2001	333-03289 PNMR
10.68**	First Amendment dated February 17, 2003 to PNM Resources, Inc. Director Retainer Plan	10.40.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003	333-32170 PNMR
10.69**	Supplemental Employee Retirement Agreement, dated March 14, 2000 for Patrick T. Ortiz	10.80 to PNM's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000	1-6986 PNM
10.70**	Supplemental Employee Retirement Agreement, dated March 22, 2000 for Jeffry E. Sterba	10.81 to PNM's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000	1-6986 PNM
10.71**	Retention Bonus Agreement executed October 31, 2003 for Jeffry Sterba	10.83 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003	333-32170 PNMR
10.72**	PNM Resources Officer Life Insurance Plan dated April 28, 2004	10.24.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004	333-32170 PNMR
10.73**	First Amendment to PNM Resources Officer Life Insurance Plan dated December 16, 2004	10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004.	333-32170 PNMR
10.74**	Long Term Care Insurance Plan effective January 1, 2003	10.87 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002	333-32170 PNMR
10.75**	Executive Long Term Disability effective January 1, 2003	10.88 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002	333-32170 PNMR
10.76	Supplemental Indenture of Lease dated as of July 19, 1966 between PNM and other participants in the Four Corners Project and the Navajo Indian Tribal Council	4-D to PNM’s Registration Statement No. 2-26116	2-26116 PNM
10.77	Amendment and Supplement No. 1 to Supplemental and Additional Indenture of Lease dated April 25, 1985 between the Navajo Tribe of Indians and Arizona Public Service Company, El Paso Electric Company, Public Service Company of New Mexico, Salt River Project Agricultural Improvement and Power District, Southern California Edison Company, and Tucson Electric Power Company (refiled)	10.1.1 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1995	1-6986 PNM

E-12

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
10.78	Water Supply Agreement between the Jicarilla Apache Tribe and Public Service Company of New Mexico, dated July 20, 2000	10.5 to PNM’s Quarterly Report of Form 10-Q for the quarter ended September 30, 2001	1-6986 PNM
10.79	Arizona Nuclear Power Project Participation Agreement among PNM and Arizona Public Service Company, Salt River Project Agricultural Improvement and Power District, Tucson Gas & Electric Company and El Paso Electric Company, dated August 23, 1973	5-T to PNM’s Registration Statement No. 2-50338	2-50338 PNM
10.80	Amendments No. 1 through No. 6 to Arizona Nuclear Power Project Participation Agreement	10.8.1 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1991	1-6986 PNM
10.81	Amendment No. 7 effective April 1, 1982, to the Arizona Nuclear Power Project Participation Agreement (refiled)	10.8.2 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1991	1-6986 PNM
10.82	Amendment No. 8 effective September 12, 1983, to the Arizona Nuclear Power Project Participation Agreement (refiled)	10.58 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1993	1-6986 PNM
10.83	Amendment No. 9 to Arizona Nuclear Power Project Participation Agreement dated as of June 12, 1984 (refiled)	10.8.4 to PNM’s Annual Report of the Registrant on Form 10-K for fiscal year ended December 31, 1994	1-6986 PNM
10.84	Amendment No. 10 dated as of November 21, 1985 and Amendment No. 11 dated as of June 13, 1986 and effective January 10, 1987 to Arizona Nuclear Power Project Participation Agreement (refiled)	10.8.5 to PNM’s Annual Report of the Registrant on Form 10-K for fiscal year ended December 31, 1994	1-6986 PNM
10.85	Amendment No. 12 to Arizona Nuclear Power Project Participation Agreement dated June 14, 1988, and effective August 5, 1988	19.1 to PNM's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990	1-6986 PNM
10.86	Amendment No. 13 to the Arizona Nuclear Power Project Participation Agreement dated April 4, 1990, and effective June 15, 1991	10.8.10 to PNM’s Annual Report on Form 10-K for the fiscal year ended December 31, 1990	1-6986 PNM
10.87	Amendment No. 14 to the Arizona Nuclear Power Project Participation Agreement effective June 20, 2000	10.8.9 to PNM’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000	1-6986 PNM
10.88	Underground Coal Sales Agreement, dated August 31, 2001 among San Juan Coal Company, PNM and Tucson Electric Power Company	10.85 to PNM’s Quarterly Report on Form 10-Q for the quarter ending September 31, 2001 (Confidential treatment was requested for portions of this exhibit, and such portions were omitted from this exhibit filed and were filed separately with the Securities and Exchange Commission)	1-6986 PNM

E-13

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
10.89	Amendment One to Underground Coal Sales Agreement dated December 15, 2003 among San Juan Coal Company, PNM and Tucson Electric Coal Company	10.9.1 to PNM’s Amended Report on Form 10-K for fiscal year ended December 31, 2003 (Confidential treatment was requested for portions of this exhibit, and such portions were omitted from this exhibit filed and were filed separately with the Securities and Exchange Commission)	1-6986 PNM
10.90	Amendment Two to Underground Coal Sales Agreement effective September 15, 2004 among San Juan Coal Company, PNM and Tucson Electric Coal Company	10.9.2 to PNM’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004	1-6986 PNM
10.91	Amendment Three to Underground Coal Sales Agreement executed April 29, 2005 among San Juan Coal Company, PNM and Tucson Electric Coal Company (Confidential treatment was requested for portions of this exhibit, and such portions were omitted from this exhibit filed and were filed separately with the Securities and Exchange Commission)	10.86.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005	1-6986 PNM
10.92	San Juan Unit 4 Early Purchase and Participation Agreement dated as of September 26, 1983 between PNM and M-S-R Public Power Agency, and Modification No. 2 to the San Juan Project Agreements dated December 31, 1983 (refilled)	10.11 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1994	1-6986 PNM
10.93	Amendment No. 1 to the Early Purchase and Participation Agreement between Public Service Company of New Mexico and M-S-R Public Power Agency, executed as of December 16, 1987, for San Juan Unit 4 (refiled)	10.11.1 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1997	1-6986 PNM

10.94	Amendment No. 3 to the San Juan Unit 4 Early Purchase and Participation Agreement between Public Service Company of New Mexico and M-S-R Public Power Agency, dated as of October 27, 1999	10.11.3 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1999	1-6986 PNM
10.95	Amended and Restated San Juan Unit 4 Purchase and Participation Agreement dated as of December 28, 1984 between PNM and the Incorporated County of Los Alamos (refiled)	10.12 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1994	1-6986 PNM

E-14

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
10.96	Amendment No. 1 to the Amended and Restated San Juan Unit 4 Purchase and Participation Agreement between Public Service Company of New Mexico and M-S-R Public Power Agency, dated as of October 27, 1999	10.12.1 to PNM’s Annual Report Form 10-K for fiscal year ended December 31, 1999	1-6986 PNM
10.97	Amendment No. 2 to the San Juan Unit 4 Purchase Agreement and Participation Agreement between Public Service Company of New Mexico and The Incorporated County of Los Alamos, New Mexico, dated October 27, 1999	10.13 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1999	1-6986 PNM
10.98	Participation Agreement among PNM, Tucson Electric Power Company and certain financial institutions relating to the San Juan Coal Trust dated as of December 31, 1981 (refiled)	10.14 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1992	1-6986 PNM
10.99	Interconnection Agreement dated November 23, 1982, between PNM and Southwestern Public Service Company (refiled)	10.16 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1992	1-6986 PNM
10.100*	Facility Lease dated as of December 16, 1985 between The First National Bank of Boston, as Owner Trustee, and Public Service Company of New Mexico together with Amendments No. 1, 2 and 3 thereto (refiled)	10.18 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1995	1-6986 PNM
10.101*	Amendment No. 4 dated as of March 8, 1995, to Facility Lease between Public Service Company of New Mexico and the First National Bank of Boston, dated as of December 16, 1985	10.18.5 to the PNM's Quarter Report on Form10-Q for the quarter ended March 31, 1995	1-6986 PNM
10.102	Facility Lease dated as of July 31, 1986, between the First National Bank of Boston, as Owner Trustee, and Public Service Company of New Mexico together with Amendments No. 1, 2 and 3 thereto (refiled)	10.19 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1996	1-6986 PNM
10.103	Facility Lease dated as of August 12, 1986, between The First National Bank of Boston, as Owner Trustee, and Public Service Company of New Mexico together with Amendments No. 1 and 2 thereto (refiled)	10.20 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1996	1-6986 PNM
10.104	Amendment No. 2 dated as of April 10, 1987 to Facility Lease dated as of August 12, 1986, as amended, between The First National Bank of Boston, not in its individual capacity, but solely as Owner Trustee under a Trust Agreement, dated as of August 12, 1986, with MFS Leasing Corp., Lessor and Public Service Company of New Mexico, Lessee (refiled)	10.20.2 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1998	1-6986 PNM

E-15

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
10.105	Amendment No. 3 dated as of March 8, 1995, to Facility Lease between Public Service Company of New Mexico and the First National Bank of Boston, dated as of August 12, 1986	10.20.4 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1995	1-6986 PNM
10.106	Facility Lease dated as of December 15, 1986, between The First National Bank of Boston, as Owner Trustee, and Public Service Company of New Mexico (Unit 1 Transaction) together with Amendment No. 1 thereto (refiled)	10.21 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1996	1-6986 PNM
10.107	Facility Lease dated as of December 15, 1986, between The First National Bank of Boston, as Owner Trustee, and Public Service Company of New Mexico Unit 2 Transaction) together with Amendment No. 1 thereto (refiled)	10.22 to PNM’s Annual Report of the Registrant on Form 10-K for fiscal year ended December 31, 1996	1-6986 PNM
10.108	Amendment No. 2 dated as of April 10, 1987 to the Facility Lease dated as of August 12, 1986 between The First National bank of Boston, as Owner Trustee, and PNM. (Unit 2 transaction.) (This is an amendment to a Facility Lease which is substantially similar to the Facility Lease filed as Exhibit 28.1 to the Company’s Current Report on Form 8-K dated August 18, 1986)	10.53 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1987	1-6986 PNM
10.109	San Juan Unit 4 Purchase and Participation Agreement Public Service Company of New Mexico and the City of Anaheim, California dated April 26, 1991	19.2 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1991	1-6986 PNM
10.110	Amendment No. 1 to the San Juan Unit 4 Purchase and Participation Agreement between Public Service Company of New Mexico and The City of Anaheim, California, dated October 27, 1999	10.36.1 to Annual Report PNM’s on Form 10-K for fiscal year ended December 31, 1999	1-6986 PNM
10.111	Restated and Amended San Juan Unit 4 Purchase and Participation Agreement between Public Service Company of New Mexico and Utah Associated Municipal Power Systems	10.2.1 to PNM’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1993	1-6986 PNM
10.112	Amendment No. 1 to the Restated and Amended San Juan Unit 4 Purchase And Participation Agreement between Public Service Company of New Mexico And Utah Associated Municipal Power Systems, dated October 27, 1999	10.38.1 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1999	1-6986 PNM

E-16

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
10.113	Participation Agreement dated as of June 30, 1983 among Security Trust Company, as Trustee, PNM, Tucson Electric Power Company and certain financial institutions relating to the San Juan Coal Trust (refiled)	10.61 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1993	1-6986 PNM
10.114	Master Decommissioning Trust Agreement for Palo Verde Nuclear Generating Station dated March 15, 1996, between Public Service Company of New Mexico and Mellon Bank, N.A.	10.68 to PNM's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996	1-6986 PNM
10.115	Amendment Number One to the Master Decommissioning Trust Agreement for Palo Verde Nuclear Generating Station dated January 27, 1997, between Public Service Company of New Mexico and Mellon Bank, N.A.	10.68.1 to PNM's Annual Report on Form 10-K for fiscal year ended December 31, 1997	1-6986 PNM

10.116	Amendment Number Two to the Master Decommissioning Trust Agreement for Palo Verde Nuclear Generating Station between Public Service Company of New Mexico and Mellon Bank, N.A.	10.68.2 to PNM's Annual Report on Form 10-K for fiscal year ended December 31, 2003	1-6986 PNM
10.117	Refunding Agreement No. 8A, dated as of December 23, 1997, among PNM, the Owner Participant Named Therein, State Street Bank and Trust Company, as Owner Trustee, The Chase Manhattan Bank, as Indenture Trustee, and First PV Funding Corporation	10.73 to PNM's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998	1-6986 PNM
10.118	PVNGS Capital Trust—Variable Rate Trust Notes—PVNGS Note Agreement dated as of July 31, 1998	10.76 to PNM's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998	1-6986 PNM
10.119	San Juan Project Participation Agreement dated as of October 27, 1999, among Public Service Company of New Mexico, Tucson Electric Power Company, The City of Farmington, New Mexico, M-S-R Public Power Agency, The Incorporated County of Los Alamos, New Mexico, Southern California Public Power Authority, City of Anaheim, Utah Associated Municipal Power System and Tri-State Generation and Transmission Association, Inc.	10.77 to PNM's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999	1-6986 PNM
10.120	January 12, 1994 Stipulation	10.53 to PNM’s Annual Report on form 10-K for fiscal year ended December 31, 1993	1-6986 PNM
10.121	New Mexico Public Service Commission Order dated July 30, 1987, and Exhibit I thereto, in NMPUC Case No. 2004, regarding the PVNGS decommissioning trust fund (refiled)	10.67 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1997	1-6986 PNM

E-17

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
10.122	Stipulation in the matter of the Commission’s investigation of the rates for electric service of Public Service Company of New Mexico, Rate Case No. 2761, dated May 21, 1999	10.78 to PNM's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999	1-6986 PNM
10.123	Stipulation in the matter of the Commission’s investigation of the rates for electric service of Public Service Company of New Mexico, Rate Case No. 2761, dated May 27, 1999	10.78.1 to PNM's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999	1-6986 PNM
10.124	Stipulation in the matter of PNM’s transition plan Utility Case No. 3137, dated October 10, 2002 as amended by Amendment to Stipulated Agreement dated October 18, 2002	10.86 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002	1-6986 PNM
10.125	Settlement Agreement between Public Service Company of New Mexico and Creditors of Meadows Resources, Inc. dated November 2, 1989 (refiled)	10.34 to PNM’s Quarterly Report on Form 10-Q for quarter ended June 30, 2000	1-6986 PNM
10.126	First Amendment dated April 24, 1992 to the Settlement Agreement dated November 2, 1989 among Public Service Company of New Mexico, the lender parties thereto and collateral agent (refiled)	10.34.1 to PNM’s Quarterly Report on Form 10-Q for quarter ended June 30, 2000	1-6986 PNM
10.127	Amendment dated April 11, 1991 among Public Service Company of New Mexico, certain banks and Chemical Bank and Citibank, N.A., as agents for the banks	19.1 to PNM’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1991	1-6986 PNM
10.128	Agreement of PNM pursuant to Item 601(b)(4)(iii) of Regulation S-K (refiled)	10.62 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1993	1-6986 PNM
10.129	Stipulation dated February 28, 2005 in NMPRC Case No. 04-00315-UT regarding the application of PNM Resources and TNMP for approval of the TNP acquisition	10.134 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005	1-32462 PNMR/ TNMP
10.130	Settlement Agreement dated February 3, 2005, between PNM Resources, Inc. and Texas-New Mexico Power Company, the cities of Dickenson, Lewisville, La Marque, Ft. Stockton and Friendswood, Texas, the Legal and Enforcement Division of the Public Utility Commission of Texas, the Office of Public Utility Counsel, the Texas Industrial Energy Consumers and the Alliance for Retail Markets	10.1-10.1.7 to the Company’s Current Report on Form 8-K filed February 7, 2005	1-32462 PNMR/ TNMP

E-18

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
10.131	Consent Decree entered into by PNM on March 9, 2005 relating to the citizen suit under the Clean Air Act and the excess emissions report matter for SJGS	10.135 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005	1-6986 PNM
10.132	Stipulation in the matter of PNM’s application for approval of a certificate of public convenience and necessity for the Afton Generating Station, Case No. 05-00275-UT, dated November 30, 2005	10.132 to the Company’s Annual report on Form 10-K for the year ended December 31, 2005	1-6986 PNM
10.133	Contract dated April 29, 1987 between TNMP and El Paso Electric Company	10(f), Form 8 applicable to TNMP’s Annual Report on Form 10-K for the year ended December 31, 1986	2-97230 TNMP
10.134	Interconnection Agreement between TNMP and Plains Electric Generation and Transmission Cooperative, Inc. dated July 19, 1984	10(j), Form 8 applicable to TNMP’s Annual Report on Form 10-K for the year ended December 31, 1986	2-97230 TNMP
10.135	Interchange Agreement between TNMP and El Paso Electric Company dated April 29, 1987	10(l), Form 8 applicable to TNMP’s Annual Report on Form 10-K for the year ended December 31, 1986	2-97230 TNMP
10.136	Amendment No.1, dated November 21, 1994, to Interchange Agreement between TNMP and El Paso Electric Company	10(nn)1 to TNMP’s Annual Report on Form 10-K for the year ended December 31, 1994	2-97230 TNMP
10.137	DC Terminal Participation Agreement between TNMP and El Paso Electric Company dated December 8, 1981 as amended	10(m), Form 8 applicable to TNMP’s Annual Report on Form 10-K for the year ended December 31, 1986	2-97230 TNMP
10.138	Wholesale Requirements Power Sale and Services Agreement between PNM and TNMP dated June 29, 2001	10(i) to TNMP’s Form S-4/A filed November 4, 2003	333-108522 TNMP
10.139	Power Supply Service Agreement dated December 22, 2003 between First Choice Power Special Purpose, L.P. (as assignee of First Choice Power, L.P., f/k/a First Choice Power, Inc.) and Constellation Power Source, Inc. (Confidential treatment was requested for portions of this exhibit, and such portions were omitted from this exhibit filed and were filed separately with the Securities and Exchange Commission)	10.1 to TNP’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004	2-89800
10.140	Amendment No. 1 to Power and Services Agreement dated June 1, 2004 between First Choice Power Special Purpose, L.P. and Constellation Power Services, Inc. (Confidential treatment was requested for portions of this exhibit, and such portions were omitted from this exhibit filed and were filed separately with the Securities and Exchange Commission)	10.2 to TNP’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004	2-89800

E-19

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
10.141	Amendment No.2 to Power and Services Agreement dated August 25th, 2004, between First Choice Power Special Purpose and Constellation Energy Commodities Group (Confidential treatment was requested for portions of this exhibit, and such portions were omitted from this exhibit filed and were filed separately with the Securities and Exchange Commission)	10.1 to TNP’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005	2-89800
10.142	Amendment No.3 to Power and Services Agreement dated March 7th, 2005, between First Choice Power Special Purpose and Constellation Energy Commodities Group (Confidential treatment was requested for portions of this exhibit, and such portions were omitted from this exhibit filed and were filed separately with the Securities and Exchange Commission)	10.2 to TNP’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005	2-89800
18.1	Letter from Deloitte & Touche LLP regarding change in accounting principle for PNM Resources, Inc.	18.1 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2003	333-32170 PNMR
18.2	Letter from Deloitte & Touche LLP regarding change in accounting principle for Public Service Company of New Mexico	18.2 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2003	1-6986 PNM
21	Certain subsidiaries of PNM Resources	21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005	1-32462 PNMR
99.2*	Participation Agreement dated as of December 16, 1985, among the Owner Participant named therein, First PV Funding Corporation. The First National Bank of Boston, in its individual capacity and as Owner Trustee (under a Trust Agreement dated as of December 16, 1985 with the Owner Participant), Chemical Bank, in its individual capacity and as Indenture Trustee (under a Trust Indenture, Mortgage, Security Agreement and Assignment of Rents dated as of December 16, 1985 with the Owner Trustee), and Public Service Company of New Mexico, including Appendix A definitions together with Amendment No. 1 dated July 15, 1986 and Amendment No. 2 dated November 18, 1986 (refiled)	99.2 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1995	1-6986 PNM

E-20

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
99.3	Trust Indenture, Mortgage, Security Agreement and Assignment of Rents dated as of December 16, 1985, between the First National Bank of Boston, as Owner Trustee, and Chemical Bank, as Indenture Trustee together with Supplemental Indentures Nos. 1 and 2 (refiled)	99.3 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1996	1-6986 PNM
99.3.3	Supplemental Indenture No. 3 dated as of March 8, 1995, to Trust Indenture Mortgage, Security Agreement and Assignment of Rents between The First National Bank of Boston and Chemical Bank dated as of December 16, 1985	99.3.3 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1995	1-6986 PNM
99.4*	Assignment, Assumption and Further Agreement dated as of December 16, 1985, between Public Service Company of New Mexico and The First National Bank of Boston, as Owner Trustee (refiled)	99.4 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1995	1-6986 PNM
99.5	Participation Agreement dated as of July 31, 1986, among the Owner Participant named herein, First PV Funding Corporation, The First National Bank of Boston, in its individual capacity and as Owner Trustee (under a Trust Agreement dated as of July 31, 1986, with the Owner Participant), Chemical Bank, in its individual capacity and as Indenture Trustee (under a Trust Indenture, Mortgage, Security Agreement and Assignment of Rents dated as of July 31, 1986, with the Owner Trustee), and Public Service Company of New Mexico, including Appendix A definitions together with Amendment No. 1 thereto (refiled)	99.5 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1996	1-6986 PNM

99.6	Trust Indenture, Mortgage, Security Agreement and Assignment of Rents dated as of July 31, 1986, between The First National Bank of Boston, as Owner Trustee, and Chemical Bank, as Indenture Trustee together with Supplemental Indenture No. 1 thereto (refiled)	99.6 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1996	1-6986 PNM
99.7	Assignment, Assumption, and Further Agreement dated as of July 31, 1986, between Public Service Company of New Mexico and The First National Bank of Boston, as Owner Trustee (refiled)	99.7 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1996	1-6986 PNM

E-21

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
99.8	Participation Agreement dated as of August 12, 1986, among the Owner Participant named therein, First PV Funding Corporation. The First National Bank of Boston, in its individual capacity and as Owner Trustee (under a Trust Agreement dated as of August 12, 1986, with the Owner Participant), Chemical Bank, in its individual capacity and as Indenture Trustee (under a Trust Indenture, Mortgage, Security Agreement and Assignment of Rents dated as of August 12, 1986, with the Owner Trustee), and Public Service Company of New Mexico, including Appendix A definitions (refiled)	99.8 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997	1-6986 PNM
99.8.1*	Amendment No. 1 dated as of November 18, 1986, to Participation Agreement dated as of August 12, 1986 (refiled)	99.8.1 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997	1-6986 PNM
99.9*	Trust Indenture, Mortgage, Security Agreement and Assignment of Rents dated as of August 12, 1986, between the First National Bank of Boston, as Owner Trustee, and Chemical Bank, as Indenture Trustee together with Supplemental Indenture No. 1 thereto (refiled)	99.9 to PNM’s Annual Report of the Registrant on Form 10-K for fiscal year ended December 31, 1996	1-6986 PNM
99.9.2	Supplemental Indenture No. 2 dated as of March 8, 1995, to Trust Indenture, Mortgage, Security Agreement and Assignment of Rents between The First National Bank of Boston and Chemical Bank dated as of August 12, 1986	99.9.1 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1995	1-6986 PNM
99.10*	Assignment, Assumption, and Further Agreement dated as of August 12, 1986, between Public Service Company of New Mexico and The First National Bank of Boston, as Owner Trustee (refiled)	99.10 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997	1-6986 PNM
99.11*	Participation Agreement dated as of December 15, 1986, among the Owner Participant named therein, First PV Funding Corporation, The First National Bank of Boston, in its individual capacity and as Owner Trustee (under a Trust Agreement dated as of December 15, 1986, with the Owner Participant), Chemical Bank, in its individual capacity and as Indenture Trustee (under a Trust Indenture, Mortgage, Security Agreement and Assignment of Rents dated as of December 15, 1986, with the Owner Trustee), and Public Service Company of New Mexico, including Appendix A definitions (Unit 1 Transaction) (refiled)	99.1 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997	1-6986 PNM

E-22

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
99.12	Trust Indenture, Mortgage, Security Agreement and Assignment of Rents dated as of December 15, 1986, between The First National Bank of Boston, as Owner Trustee, and Chemical Bank, as Indenture Trustee (Unit 1 Transaction) (refiled)	99.12 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997	1-6986 PNM
99.13	Assignment, Assumption and Further Agreement dated as of December 15, 1986, between Public Service Company of New Mexico and The First National Bank of Boston, as Owner Trustee (Unit 1 Transaction) (refiled)	99.13 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997	1-6986 PNM
99.14	Participation Agreement dated as of December 15, 1986, among the Owner Participant named therein, First PV Funding Corporation, The First National Bank of Boston, in its individual capacity and as Owner Trustee (under a Trust Agreement dated as of December 15, 1986, with the Owner Participant), Chemical Bank, in its individual capacity and as Indenture Trustee (under a Trust Indenture, Mortgage, Security Agreement and Assignment of Rents dated as of December 15, 1986, with the Owner Trustee), and Public Service Company of New Mexico, including Appendix A definitions (Unit 2 Transaction) (refiled)	99.14 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997	1-6986 PNM
99.15	Trust Indenture, Mortgage, Security Agreement and Assignment of Rents dated as of December 31, 1986, between the First National Bank of Boston, as Owner Trustee, and Chemical Bank, as Indenture Trustee (Unit 2 Transaction) (refiled)	99.15 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1996	1-6986 PNM
99.16	Assignment, Assumption, and Further Agreement dated as of December 15, 1986, between Public Service Company of New Mexico and The First National Bank of Boston, as Owner Trustee (Unit 2 Transaction) (refiled)	99.16 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997	1-6986 PNM
99.17*	Waiver letter with respect to “Deemed Loss Event” dated as of August 18, 1986, between the Owner Participant named therein, and Public Service Company of New Mexico (refiled)	99.17 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1996	1-6986 PNM
99.18*	Waiver letter with respect to Deemed Loss Event” dated as of August 18, 1986, between the Owner Participant named therein, and Public Service Company of New Mexico (refiled)	99.18 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1996	1-6986 PNM

E-23

Exhibit No.	Description of Exhibit	Filed as Exhibit:	Registrant(s) File No:
99.19	Agreement No. 13904 (Option and Purchase of Effluent), dated April 23, 1973, among Arizona Public Service Company, Salt River Project Agricultural Improvement and Power District, the Cities of Phoenix, Glendale, Mesa, Scottsdale, and Tempe, and the Town of Youngtown (refiled)	99.19 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1996	1-6986 PNM
99.20	Agreement for the Sale and Purchase of Wastewater Effluent, dated June 12, 1981, Among Arizona Public Service Company, Salt River Project Agricultural Improvement and Power District and the City of Tolleson, as amended (refiled)	99.20 to PNM’s Annual Report on Form 10-K for fiscal year ended December 31, 1996	1-6986 PNM
99.21*	1996 Supplemental Indenture dated as of September 27, 1996 to Trust Indenture, Mortgage, Security Agreement and Assignment of Rents dated as of December 16, 1985 between State Street Bank and Trust Company, as Owner Trustee, and The Chase Manhattan Bank, as Indenture Trustee	99.21 to PNM’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1996	1-6986 PNM
99.22	1997 Supplemental Indenture, dated as of December 23, 1997, to Trust Indenture, Mortgage, Security Agreement and Assignment of Rents, dated as of August 12, 1986, between State Street Bank and Trust, as Owner Trustee, and The Chase Manhattan Bank, as Indenture Trustee	99.22 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 30, 1998	1-6986 PNM

___________

 * One or more additional documents, substantially identical in all material respects to this exhibit, have been entered into, relating to one or more additional sale and leaseback transactions. Although such additional documents may differ in other respects (such as dollar amounts and percentages), there are no material details in which such additional documents differ from this exhibit.

**Designates each management contract or compensatory plan or arrangement required to be identified pursuant to paragraph 3 of Item 15(a) of Form 10 -K.

‡ Certain instruments defining the rights of holders of long-term debt of the registrants included in the financial statements of registrants filed herewith have been omitted because the total amount of securities authorized thereunder does not exceed 10% of the total assets of registrants. The registrants hereby agree to furnish a copy of any such omitted instrument to the SEC upon request.

E-24

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		PNM RESOURCES, INC.
		(Registrant)
Date: March 14, 2006	By	/s/ J. E. STERBA
		J. E. Sterba
		Chairman, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ J. E. STERBA	Principal Executive Officer and	March 14, 2006
J. E. Sterba	Chairman of the Board
Chairman, President and
Chief Executive Officer
/s/ C. N. ELDRED	Principal Financial Officer	March 14, 2006
C. N. Eldred
Senior Vice President and
Chief Financial Officer
/s/ T. G. SATEGNA	Principal Accounting Officer	March 14, 2006
T. G. Sategna
Vice President and
Corporate Controller
/s/ A. E. ARCHULETA	Director	March 14, 2006
A. E. Archuleta
/s/ R. G. ARMSTRONG	Director	March 14, 2006
R. G. Armstrong
/s/ J. A. DOBSON	Director	March 14, 2006
J. A. Dobson
/s/ W. L. HUNT	Director	March 14, 2006
W. L. Hunt
/s/ C. E. MCMAHEN	Director	March 14, 2006
C. E. McMahen
/s/ M. T. PACHECO	Director	March 14, 2006
M. T. Pacheco
/s/ R. M. PRICE	Director	March 14, 2006
R. M. Price
/s/ B. S. REITZ	Director	March 14, 2006
B. S. Reitz
/s/ J. B. WOODARD	Director	March 14, 2006
J. B. Woodard

E-25

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		PUBLIC SERVICE COMPANY OF NEW MEXICO
		(Registrant)
Date: March 14, 2006	By	/s/ J. E. STERBA
		J. E. Sterba
		Chairman, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ J. E. STERBA	Principal Executive Officer and	March 14, 2006
J. E. Sterba	Chairman of the Board
Chairman, President and
Chief Executive Officer
/s/ C. N. ELDRED	Principal Financial Officer	March 14, 2006
C. N. Eldred
Senior Vice President and
Chief Financial Officer
/s/ T. G. SATEGNA	Principal Accounting Officer	March 14, 2006
T. G. Sategna
Vice President and
Corporate Controller
/s/ A. A. COBB	Director	March 14, 2006
A. A. Cobb
/s/ W. D. HOBBS	Director	March 14, 2006
W. D. Hobbs
/s/ C. N. ELDRED	Director	March 14, 2006
C. N. Eldred
/s/ W. J. REAL	Director	March 14, 2006
W. J. Real
/s/ H. W. SMITH	Director	March 14, 2006
H. W. Smith

E-26

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		TEXAS-NEW MEXICO POWER COMPANY
		(Registrant)
Date: March 14, 2006	By	/s/ W. D. HOBBS
		W. D. Hobbs
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ W. D. HOBBS	Principal Executive Officer and	March 14, 2006
W. D. Hobbs	Chairman of the Board
President and
Chief Executive Officer
/s/ C. N. ELDRED	Principal Financial Officer	March 14, 2006
C. N. Eldred
Senior Vice President and
Chief Financial Officer
/s/ T. G. SATEGNA	Principal Accounting Officer	March 14, 2006
T. G. Sategna
Vice President and
Corporate Controller
/s/ A. A. COBB	Director	March 14, 2006
A. A. Cobb
/s/ W. D. HOBBS	Director	March 14, 2006
W. D. Hobbs

E-27

EX-2.1

EXHIBIT 2.1

Execution Copy

CONFIDENTIAL TREATMENT REQUESTED

[*] Indicates that the confidential portion has been omitted from this filed exhibit and filed separately with the Securities and Exchange Commission

PURCHASE AND SALE AGREEMENT

BY AND AMONG

TWIN OAKS POWER, LP

TWIN OAKS POWER III, LP

SEMPRA ENERGY

AND

ALTURA POWER L.P.

PNM RESOURCES, INC.

DATED AS OF JANUARY 14, 2006

TABLE OF CONTENTS

ARTICLE I

DEFINITIONS

		Page
1.1	Defined Terms	1
1.2	Interpretation	12

ARTICLE II

PURCHASE AND SALE OF ASSETS

2.1	Transfer of Assets	12
2.2	Retained Assets and Excluded Assets	14
2.3	Assumed Liabilities	15
2.4	Excluded Liabilities	16
2.5	Closing	18
2.6	Purchase Price and Allocation	18
2.7	Post-Closing Audit of Assets and Post-Closing Adjustment to Purchase Price	18
2.8	Resolution of Dispute Regarding Closing Date Non-Transferred Assets List	20
2.9	[Reserved]	21
2.10	[Reserved]	21
2.11	Earn-out	21

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER, TOPIII AND SELLER’S PARENT

3.1	Transaction Representations	21
3.2	Reserved	23
3.3	Compliance with Laws	23
3.4	Permits	23
3.5	Environmental Matters	24
3.6	Litigation	25
3.7	Zoning and Condemnation	25
3.8	Brokers	26
3.9	Contracts	26
3.10	Assets Used in the Operation of the Facility	26

-i-

TABLE OF CONTENTS

(continued)

		Page
3.11	Bankruptcy	26
3.12	Reserved	26
3.13	Non-Infringement	27
3.14	Mechanics’ Liens	27
3.15	Title to the Assets	27
3.16	Reserved	27
3.17	Real Property Interests	27
3.18	Insurance	29
3.19	Labor Matters	29
3.20	[Reserved]	30
3.21	Taxes	30
3.22	Intellectual Property	30
3.23	Capital Expenditures	31
3.24	Facility Performance	31
3.25	Disclosure	31

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PURCHASER’S PARENT

4.1	Transaction Representations	31
4.2	Litigation	32
4.3	Brokers	33
4.4	Sufficient Funds	33
4.5	Bankruptcy	33

ARTICLE V

CERTAIN AGREEMENTS

5.1	Purchaser’s Acknowledgement and Agreement	33
5.2	“AS IS” SALE	33
5.3	Consents and Approvals	34
5.4	Confidentiality	37
5.5	Cooperation	37
5.6	Taxes, Prorations and Closing Costs	38

-ii-

TABLE OF CONTENTS

(continued)

		Page
5.7	No Recourse	40
5.8	Risk of Loss	41
5.9	Conduct of Business Relating to the Assets	41
5.10	Access to Information	43
5.11	Public Statements	43
5.12	Expenses	43
5.13	[Reserved]	44
5.14	Spare Parts	44
5.15	Further Assurances	44
5.16	Post-Closing - Information and Records	44
5.17	Employees	46
5.18	Review of Accounts Payable	48
5.19	Advice of Changes	48
5.20	Purchaser’s Parent Undertakings with Respect to Assignments	48
5.21	Purchaser’s Parent Guaranty	48
5.22	Seller’s Parent Guaranty	49
5.23	Transition Services Agreement	50
5.24	Notice of Potential Excluded Liabilities	50

ARTICLE VI

CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER

6.1	No Injunctions	50
6.2	True Representations and Warranties	51
6.3	Compliance with Provisions	51
6.4	Seller’s and TOPIII’s Receipt of Approvals of Governmental Authorities	51
6.5	Purchaser’s Receipt of Approvals of Governmental Authorities	51
6.6	Officer’s Certificates	51
6.7	Legal Opinion	51
6.8	Deliveries	51
6.9	[Reserved]	51
6.10	Title Insurance	51

-iii-

TABLE OF CONTENTS

(continued)

		Page
6.11	No Material Adverse Effect	52
6.12	Hart-Scott-Rodino	52
6.13	No Termination	52
6.14	Environmental Assessment	52
6.15	J.Aron PPA and Fuel Agreement	52

ARTICLE VII

CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND TOPIII

7.1	No Injunctions	52
7.2	Compliance with Provisions	53
7.3	True Representations and Warranties	53
7.4	Seller’s and TOPIII’s Receipt of Approvals of Governmental Authorities	53
7.5	Purchaser’s Receipt of Approvals of Governmental Authorities	53
7.6	Officer’s Certificates	53
7.7	No Adverse Proceedings	53
7.8	Deliveries	53
7.9	Hart-Scott-Rodino	53
7.10	No Termination	53
7.11	Legal Opinion	53
7.12	Required Consents	54
7.13	Environmental Assessment	54

ARTICLE VIII

INDEMNIFICATION

8.1	Indemnification	54
8.2	Defense of Claims	57

ARTICLE IX

MISCELLANEOUS AGREEMENTS AND ACKNOWLEDGMENTS

9.1	Survival of Representations and Warranties	58
9.2	Bulk Sales	59
9.3	Expenses	59
9.4	Entire Document	59
9.5	Schedules	59

-iv-

TABLE OF CONTENTS

(continued)

		Page
9.6	Counterparts, Facsimile Signatures	59
9.7	Severability	60
9.8	Assignability	60
9.9	Captions	60
9.10	Governing Law	60
9.11	Choice of Forum	60
9.12	Notices	61
9.13	Time is of the Essence	61
9.14	Termination	61
9.15	[Reserved]	63
9.16	No Third Party Beneficiaries	63
9.17	No Joint Venture	64
9.18	Construction of Agreement	64
9.19	Conflicts	64
9.20	Effect of Closing Over Known Unsatisfied Conditions or Breached Representations, Warranties or Covenants	64
9.21	CONSENT TO JURISDICTION	64

-v-

EXHIBITSTITLE

A	-	Form of Assignment and Assumption Agreement
B	-	Form of Bill of Sale
C	-	Confidentiality Agreement
D	-	[Reserved]
E	-	[Reserved]
F	-	Form of Special Warranty Deed
G	-	[Reserved]
H	-	[Reserved]
I	-	Form of Fuel Agreement Assignment
J	-	Form of PPA Assignment
K	-	Term Sheet for Transition Services Agreement
L	-	Sempra Energy J.Aron Guaranty
M	-	Sempra Energy Walnut Creek Guaranty

SCHEDULESTITLE

1.1	-	Seller’s and TOPIII’s Persons With Knowledge
1.2	-	Purchaser’s Persons With Knowledge
1.3-A	-	Legal Description of the Site
1.3-B	-	Legal Description of the Well Sites
2.1(b)	-	Improvements, Buildings, Structures and Equipment
2.1(c)	-	Other Real Property Rights
2.1(d)	-	Permits
2.1(e)	-	Emission Allowances and Emission Reduction Credits
2.1(g)	-	Inventories
2.1(h)	-	Other Personal Property
2.1(i)	-	Intellectual Property
2.1(m)	-	Warranties
2.2	-	Excluded Assets
3.3	-	Compliance Exceptions
3.4(a)	-	Permit Non-Compliance

-vi-

3.5(a)	-	Environmental Audits and Reports Not Provided to Purchaser
3.5(b)	-	Environmental Matters
3.6	-	Seller’s and TOPIII’s Litigation
3.7	-	Notices of Government Action
3.9(a)	-	Assigned Contracts
3.9(b)	-	Contractual Defaults or Terminations
3.10	-	Assets to be Obtained by Purchaser
3.13	-	Infringement Claims
3.14	-	Mechanics’ Liens
3.17	-	Real Property Disclosures
3.18	-	Insurance
3.19(a)	-	Seller’s Employees
3.19(b)	-	Labor Matters
3.21	-	Tax Matters
3.23	-	Capital Expenditures
4.2	-	Purchaser’s Litigation
5.3(a)	-	Seller’s and TOPIII’s Required Consents and Approvals
5.3(c)	-	Purchaser’s Required Consents
5.9	-	Conduct of Business Not in the Ordinary Course
5.17(d)	-	Minimum Severance Benefit
6.8	-	Closing Deliveries by Seller and TOPIII
7.4	-	Required Governmental Approvals
7.8	-	Closing Deliveries by Purchaser

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PURCHASE AND SALE AGREEMENT

This PURCHASE AND SALE AGREEMENT is made as of January 14, 2006 (the “Effective Date”), by and among TWIN OAKS POWER, LP, a Texas limited partnership (“Seller”), TWIN OAKS POWER III, LP, a Texas limited partnership (“TOPIII”), SEMPRA ENERGY, a California corporation (“Seller’s Parent”), for purposes of Section 5.22, Article 3, Article 8 and Article 9 only, ALTURA POWER L.P., a Texas limited partnership (“Purchaser”) and PNM RESOURCES, INC., a New Mexico corporation (“Purchaser’s Parent”) for purposes of Section 5.3(b), Section 5.20, Section 5.21, Article 4, Article 8 and Article 9 only.

BACKGROUND

A.Seller and TOPIII each own certain of the Assets (as defined below), including the Facility and the Proposed Expansion (as both terms are defined below), which Assets Seller and TOPIII desire to sell and intend to be the “operating assets” as such term is defined in Texas Comptroller Rule 3.316.

B.Seller, TOPIII, Seller’s Parent, Purchaser and Purchaser’s Parent are entering into this Agreement to evidence their respective duties, obligations and responsibilities with respect to the purchase and sale of the Assets.

NOW, THEREFORE, in consideration of the respective representations, warranties, covenants and agreements contained in this Agreement, the Parties (as defined herein) agree as follows:

ARTICLE I

DEFINITIONS

1.1Defined Terms. The following terms when used in this Agreement (or in the Schedules and Exhibits to this Agreement) with initial letters capitalized have the meanings set forth below:

“Affiliate” of a Person means any other Person that (a) directly or indirectly controls the specified Person; or (b) is controlled by or is under direct or indirect common control with the specified Person. For the purposes of this definition, “control,” when used with respect to any specified Person, means the power to direct the management or policies of the specified Person, directly or indirectly, whether through the ownership of voting securities, partnership or limited liability company interests, by contract or otherwise; provided, however, that a contract between a Person and any supplier of fuel or power purchaser does not, by itself, constitute “control” for the purposes of this definition.

“Agreement” means this Purchase and Sale Agreement, together with the Schedules and Exhibits hereto.

“Article” means a numbered article of this Agreement. An Article includes all the numbered sections of this Agreement that begin with the same number as that Article.

“Assets” has the meaning set forth in Section 2.1.

“Assigned Contracts” has the meaning set forth in Section 2.1(l).

“Assignment” means that certain Assignment and Assumption Agreement, in substantially the form of Exhibit A attached hereto, executed by Seller, TOPIII and Purchaser.

“Assumed Liabilities” has the meaning set forth in Section 2.3.

“Audit” has the meaning set forth in Section 2.7(a).

“Auditor” has the meaning set forth in Section 2.7(a).

“Benefit Plan” means all deferred compensation, profit-sharing, retirement and pension plans, including multiemployer plans, and all material bonus, fringe benefit and other employee benefit plans maintained by, or with respect to which contributions are made by or on behalf of, Seller, TOPIII, Sempra, or their respective ERISA Affiliates, in respect of Seller’s Employees.

“Bill of Sale” means the Bill of Sale, in substantially the form of Exhibit B attached hereto, transferring the Assets, not including the Real Property Interests, to Purchaser on the Closing Date.

“Books and Records” has the meaning set forth in Section 2.1(f).

“Business Day” means a day other than Saturday, Sunday or a day on which banks are legally closed for business in the States of Texas, California or New York.

“Capital Expenditure” means any additions to or replacements of property, plant and equipment included in the Assets that would be capitalized by Seller in accordance with generally accepted accounting principles in the United States.

“Casualty” means any damage to or destruction of all or any portion of the Assets, including without limitation, as a result of fire, lightning, wind, rain, hail, ice, snow, freezing, earthquake, earth movement, flood, or acts of terrorism, where the cost of restoring such Asset or Assets to the same quality and condition such Asset or Assets were in prior to the Casualty is likely to exceed Five Thousand Dollars ($5,000).

“CERCLA” means the Comprehensive Environmental Response Compensation and Liability Act 42 U.S.C.ss.9601, as it exists on the Closing Date.

“Closing” has the meaning set forth in Section 2.5.

“Closing Date” has the meaning set forth in Section 2.5.

“Closing Date Non-Transferred Assets List” has the meaning set forth in Section 2.7(a).

“COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, as it exists on the Closing Date.

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“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Commercially Reasonable Efforts” means efforts by a Party to perform its obligations under this Agreement which are customary and reasonable in transactions of the kind and nature contemplated by this Agreement in order for the performing Party to satisfy its obligations hereunder.

“Confidential Information” shall have the meaning set forth in the Confidentiality Agreement.

“Confidentiality Agreement” means that certain Confidentiality Agreement dated December 14, 2005, between Sempra Generation and Public Service Company of New Mexico, a copy of which is attached hereto as Exhibit C.

“Direct Claim” has the meaning set forth in Section 8.2(d).

“Disputes” has the meaning set forth in Section 5.3(e)(2).

“Due Diligence Inspections and Reviews” means reviews, inspections or investigations conducted by the Purchaser or its agents or representatives in connection with the transaction contemplated by this Agreement and the Related Agreements.

“Effective Date” has the meaning set forth in the introduction.

“Emission Allowances” means all authorizations to emit, discharge or release specified units of sulfur dioxide, oxides of nitrogen, hydrocarbons, particulate matter, and other comparable pollutants, including limitations on opacity, which units are established by any Governmental Authority with jurisdiction over the Facility under (a) an air pollution control and emission reduction program designed to mitigate global warming, interstate or intra-state release, transport or concentration of air pollutants; or (b) any pollution reduction program with a similar purpose. Emission Allowances include allowances, as described above, regardless as to whether the Governmental Authority establishing such Emission Allowances designates such allowances by a name other than “emissions,” “allowances” or “credits.”

“Emission Reduction Credits” means credits, in units that are established by any Governmental Authority with jurisdiction over the Facility, resulting from decreases in opacity or reductions in the emissions of air pollutants or particulate matter from an emitting source or facility (including, without limitation, and to the extent allowable under applicable law, reductions from shut-downs or control of emissions beyond that required by applicable law). The term includes emission reduction credits that have been approved by the applicable Texas environmental protection agency and are awaiting approval by the United States Environmental Protection Agency. The term also includes certified air emissions reductions, as described above, regardless as to whether the Governmental Authority certifying such reductions designates such certified air emissions reductions by a name other than “emission reduction credits.”

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“Environmental Laws” means applicable federal, state, and local laws governing the protection of the public and employee health and the environment, the storage, handling, and use of Hazardous Materials, the generation, processing, treatment, storage, transport, disposal or other management of Hazardous Materials of any kind, including without limitation, CERCLA; the Resource Conversation and Recovery Act; the Emergency Planning and Community Right-to-Know Act of 1986; the Hazardous Substances Transportation Act; the Solid Waste Act; the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Water Drinking Water Act; the Occupational Safety and Health Act; any analogous Texas environmental health or safety statute; and all regulations, policies and guidances adopted in respect of or promulgated under the foregoing laws.

“ERCOT” means the Electric Reliability Council of Texas, Inc., a Texas non-profit corporation, or its successor, as applicable.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“ERISA Affiliate” means any trade or business (whether or not incorporated) which is or ever has been under common control, or which is or ever has been treated as a single employer, with Seller, TOPIII, Sempra or their respective Affiliates under Section 414(b), (c), (m) or (o) of the Code.

“EST” means Eastern Standard Time.

“Excluded Assets” has the meaning set forth in Section 2.2.

“Excluded Liabilities” has the meaning set forth in Section 2.4.

“Exhibits” means the exhibits to this Agreement.

“Facility” means the two unit lignite-fired electric generating plant known as Twin Oaks Power Station, located in Robertson County, Texas, taken as a whole or any portion thereof, but excluding the Excluded Assets.

“FERC” means the Federal Energy Regulatory Commission, or its regulatory successor, as applicable.

“Fuel Agreement” means the Fuel Supply Agreement, dated November 18, 1987, between TNMP and Phillips Coal Company, as amended on April 1, 1988 and November 29, 1994 and assigned by Phillips Coal Company to Walnut Creek Mining Company and by TNMP to Seller, for the purchase and sale of lignite.

“Fuel Agreement Assignment” means that certain assignment of the Fuel Agreement in substantially the form of Exhibit I attached hereto executed by Seller and Purchaser.

“Governmental Authority” means any federal, state or local governmental, legislative, regulatory or administrative body, agency, court, tribunal, arbitral body, commission or other authority (whether foreign or domestic), including without limitation, ERCOT, having competent jurisdiction over a Party, the Facility, or the Site, as the case may be.

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“Hazardous Materials” means any chemical, material, substance or waste that is defined, listed, limited, prohibited or regulated under applicable Environmental Laws.

“HSR Act” has the meaning set forth in Section 5.3(d).

“Improvements” has the meaning set forth in Section 2.1(b).

“Income Taxes” means any federal, state, local or foreign Tax (a) based upon, measured by or calculated with respect to net income, profits or receipts (including, without limitation, capital gains Taxes and minimum Taxes) or (b) based upon, measured by or calculated with respect to multiple bases if one or more of the bases on which such Tax may be based, measured by or calculated with respect to, is described in clause (a), in each case together with any interest, penalties or additions to such Tax.

“Indemnifiable Loss” has the meaning set forth in Section 8.1(a).

“Indemnifying Party” has the meaning set forth in Section 8.1(e)(1).

“Indemnitee” has the meaning set forth in Section 8.1(e)(1).

“Indemnity Cap” has the meaning set forth in Section 8.1(e)(4).

“Initial Closing Date” means October 31, 2002.

“Intellectual Property” means all patents and patent rights, trademarks and trademark rights, inventions, copyrights and copyright rights owned by Seller or TOPIII that are necessary for the use, operation or maintenance of the Assets, and all pending applications made by or on behalf of Seller or TOPIII for registrations of patents, trademarks, and copyrights that are necessary for the use, operation or maintenance of the Assets.

“Inventories” means coal, lignite, petroleum coke, fuel oil, natural gas or alternative fuel inventories, limestone, water, lubricating oil, ash, vehicles and other rolling stock, tools, materials, consumable supplies and chemical and gas inventories relating to the use, ownership, operation or maintenance of the Facility or any part thereof, but not including those relating to the use, ownership, operation or maintenance of the Excluded Assets.

“Investment Banker” means Goldman Sachs or its successor, as applicable.

“ISO” means the Independent System Operator described in § 31.002(9) of the Texas Utilities Code.

“J. Aron PPA” means the Master Power Purchase and Sale Agreement, dated December 22, 2005, between Seller and J. Aron & Company, for the purchase and sale of electrical energy.

“Knowledge” or similar phrases in this Agreement means: a Party’s actual knowledge after due inquiry of their respective officers and employees listed in Schedule 1.1 or Schedule 1.2, as the case may be, on the date to which the representation, warranty or covenant refers; provided, however, where Schedule 1.1 “Seller’s and TOPIII’s Persons With Knowledge” and

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Schedule 1.2 “Purchaser’s Persons With Knowledge” respectively limit an employee’s, officer’s or director’s actual knowledge to specified representations, warranties and covenants, then “Knowledge” shall refer to the actual knowledge after due inquiry of such officer or director with respect to only the specified representations, warranties and covenants. As used in this Agreement or the Related Agreements, the phrase “to Seller’s Knowledge” (or words of similar import) shall also include the Knowledge of TOPIII and the phrase “to TOPIII’s Knowledge” (or words of similar import) shall also include the Knowledge of Seller.

“Liens” means any mortgages, deeds of trust, pledges, liens, mechanic’s liens, materialmen’s liens, judgment liens, liens for delinquent real property taxes or assessments, other tax or statutory liens, security interests, easements, rights-of-way, licenses, purchase options, rights of first refusal, rights of first negotiation, rights of first offer, ground leases, leases, subleases, occupancy or use agreements, concessions, oil and gas leases, mineral leases, rights or reservations, conditional and installment sale agreements, activity and use limitations, conservation limitations, covenants, conditions and restrictions, deed restrictions and encumbrances and charges of any kind.

“Load Testing” has the meaning set forth in Section 5.12.

“Material Adverse Effect” means any change (or changes taken together) in, or effect on, the Facility that is (are) (i) materially adverse to the operations or condition of the Facilty taken as a whole or (ii) results (result) in liabilities that are reasonably anticipated to require costs, fees, fines, penalties or other expenditures, other than those that Seller agrees to classify as Excluded Liabilities pursuant to Section 5.24, in excess of Twenty Five Million Dollars ($25,000,000) (provided that such condition, event or circumstance giving rise to such liabilities arose after the Initial Closing Date and has not been disclosed to Purchaser prior to the Effective Date), but excluding (1) any change (or changes taken together) or effect generally affecting the international, national, regional or local electric industry as a whole and not affecting the Facility materially differently from other like facilities, (2) any change (or changes taken together) or effect resulting from changes in the international, national, regional or local wholesale or retail markets for electric power, including changes in the cost of fuels or the pricing of electrical power, (3) any change (or changes taken together) or effect resulting from the international, national, regional or local markets for fuel used at the Facility, (4) any change (or changes taken together) in, or effect on, the North American, national, regional or local transmission system, (5) any change (or changes taken together) or effect which is cured (including by the payment of money) before the earlier of the Closing or the termination of this Agreement under Section 9.14, (6) any order of or action by any Governmental Authority applicable to providers of generation, transmission or distribution of electricity generally that imposes restrictions, regulations or other requirements thereon, (7) any change (or changes taken together) or effect resulting from action or inaction by a Governmental Authority with respect to a regional transmission operator, an independent system operator or retail access in Texas, (8) any adverse effect resulting from or arising out of the Disputes with Walnut Creek, including any adverse effect (including without limitation the loss of supply of fuel) from any litigation or settlement related thereto, (9) any change (or changes taken together) or effect resulting from or arising out of the execution of this Agreement, the consummation of the transactions contemplated hereby or the announcement of this Agreement or the transactions contemplated hereby or (10) changes, after the Effective Date, in laws, rules or regulations of general applicability or interpretation thereof by courts or Governmental Authorities. Any determination as to whether any condition or other matter has a Material Adverse Effect shall be made only after taking into account all effective insurance coverage and effective indemnifications with respect to such condition or matter.

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“Off-Site Disposal Facility” means a facility not located on the Site which receives or has received Hazardous Materials from the Facility for recycling, disposal, treatment, storage or processing.

“Operating Assets” means the “operating assets” (as such term is defined in Texas Comptroller Rule 3.316) associated with the Facility.

“Order” means any writ, judgment, decree, injunction or similar order of any Governmental Authority (in each such case whether preliminary or final).

“Owned Property” means the real property consisting of the Site and the Well Sites as more fully described on Schedule 1.3-A “Legal Description of the Site” and Schedule 1.3-B “Legal Description of the Well Sites.”

“Party” means Seller or Purchaser, or their respective permitted successors or assigns, as the context requires. “Party” also includes TOPIII to the extent that TOPIII holds title to certain of the Assets or is a party to an Assigned Contract. “Parties” means, collectively, Seller and Purchaser, or their respective permitted successors or assigns, and includes TOPIII, Seller’s Parent and/or Purchaser’s Parent where applicable under the definition of “Party.”

“Permit Applications” has the meaning set forth in Section 2.1(o).

“Permitted Liens” means (a) statutory liens for taxes not yet due or not yet delinquent; (b) mechanics’, workers’ or materialmen’s liens incurred in the ordinary course of Seller’s business, to the extent such business is related to the Facility, the Site, or the Assets, which individually or in the aggregate do not exceed $100,000; (c) the title exceptions set forth in the Title Commitment as Schedule B exceptions; (d) the matters described on Schedule 3.17 and (e) any additional encumbrances to title created after the Initial Closing Date to any Real Property Interest that would not reasonably be expected to have a Material Adverse Effect on the Owned Property or the Real Property Interests.

“Permits” means any approvals, authorizations, consents, licenses, permits, variances or certificates from any Governmental Authority necessary to own, operate or maintain the Assets, including, without limitation, all approvals, authorizations, consents, licenses, permits, registrations or certificates required under Environmental Laws, zoning and subdivision laws, ordinances and regulations, and building codes and regulations.

“Person” means an individual, partnership, joint venture, corporation, limited liability company, trust, association or unincorporated organization, or any Governmental Authority.

“Personal Property Leases” means all leases of personal property under which Seller or TOPIII is a lessee or lessor and which relate to the Assets or the use, ownership, operation or maintenance of the Facility.

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“Post-Closing Environmental Conditions” means the presence of Hazardous Materials at, on, over or under the Owned Property (including the air, soil or groundwater thereof), or any portion thereof after the Closing Date, but specifically excluding any migration through the air, soil or groundwater after the Closing Date of Hazardous Materials present at, on, over or under the Owned Property (including the air, soil or groundwater thereof) prior to the Closing Date.

“Power Agreements” means the [*] PPA and the J. Aron PPA.

“PPA Assignment” means that certain assignment of the [*] PPA and the J. Aron PPA, in substantially the form of Exhibit J attached hereto, executed by Seller and Purchaser.

“Pre-Initial Closing Environmental Conditions” means the presence of Hazardous Materials at, on, over or under the Owned Property (including the air, soil or groundwater thereof) or any portion thereof, prior to the Initial Closing Date.

“Prime Rate” means the rate of interest per annum announced from time to time by Union Bank of California at its Los Angeles, California office.

“Proposed Expansion” means a third solid fuel fired electric generating unit to be built on the Owned Property that would have a generating capacity of approximately 600 megawatts, which Sempra Generation currently plans to develop and construct.

“Prudent Utility Practices” means any of the practices, methods and acts engaged in or approved by a significant portion of the electric utility industry, including power generation companies, in the geographic region covered by ERCOT (or any successor entity) during the relevant time period, or any of the practices, methods or acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. Prudent Utility Practice is not intended to be limited to the optimum practice, method or act to the exclusion of all others, but rather to be acceptable practices, methods or acts generally accepted in the ERCOT region.

“PUC” means the Public Utility Commission of Texas, or its regulatory successor, as applicable.

“Purchase Price” has the meaning set forth in Section 2.6.

“Purchaser” has the meaning set forth in the introductory paragraph of this Agreement.

“Purchaser Indemnitee” has the meaning set forth in Section 8.1(b).

“Purchaser Plans” has the meaning set forth in Section 5.17(b).

“Purchaser-Caused Environmental Condition” means those Hazardous Materials at, on, over or under the Owned Property (including the air, soil or groundwater thereof) or any portion thereof from and after the Closing Date, including any migration of such Hazardous Materials from the Owned Property (including the air, soil or groundwater thereof) or any portion thereof, including any Off-Site Disposal Facility, to the extent that the presence or migration of such

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Hazardous Materials was caused by, arose from or relates to the operations or activities of Purchaser and its Affiliates, and their respective successors, or assigns, or any of their respective agents or representatives, at the Owned Property (including the air, soil or groundwater thereof) or any portion thereof from and after the Closing Date.

“Purchaser’s GP” has the meaning set forth in Section 4.1(a).

“Purchaser’s Guaranteed Obligations” has the meaning set forth in Section 5.21(a).

“Purchaser’s Parent” has the meaning set forth in the introductory paragraph of this Agreement.

“Purchaser’s Required Consents” has the meaning set forth in Section 5.3.

“Qualified Scheduling Entity” means a market participant that is certified by the ISO to submit schedules and ancillary bids.

“Real Property Interests” has the meaning set forth in Section 3.17.

“Related Agreements” means the Confidentiality Agreement, the Special Warranty Deed, the Bill of Sale, the Assignment, the Fuel Agreement Assignment, the PPA Assignment and any other document executed by the Parties and designated as a “Related Agreement” in such document (to the extent such agreement is not in connection with an Excluded Asset pursuant to Section 2.2(a)).

“Release” means release, spill, leak, discharge, dispose of, pump, pour, emit, empty, inject, leach, dump or allow to escape into or through the environment.

“Remediation” means any of the following activities required by a Governmental Authority or otherwise undertaken by a Party in the exercise of its reasonable judgment, to the extent such activities relate to or arise from the presence of Hazardous Materials at, on, over or under the Owned Property (including the soil, air or groundwater) or any off-Site location (including any Off-Site Disposal Facility): (a) monitoring, investigation, testing, cleanup, containment, capping, remediation, removal, transporting off-Site for disposal, disposal, mitigation, response or restoration work, and any operation, maintenance, repair or replacement of any structures, equipment, containment material or the like installed or constructed on the Owned Property pursuant to any remediation work, including any removal and replacement of underground or aboveground structures or utilities; (b) obtaining any Permits from any Governmental Authority necessary to conduct any such work; (c) preparing and implementing any plans or studies for such work; and (d) any other activities reasonably necessary, appropriate or required under Environmental Laws to address the presence of Hazardous Materials at, on, over or under the Owned Property (including the soil, air or groundwater) or any portion thereof.

“Retained Assets” means those assets that are subject to the Retained Assets Agreement.

“Retained Assets Agreement” means the Retained Assets Agreement, dated June 14, 2002, between Seller and TNP.

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“Schedules” means the schedules to this Agreement.

“SEC” means the Securities and Exchange Commission.

“Section” means a numbered section of this Agreement included within the Article that begins with the same number as that section.

“Seller-Caused Environmental Condition” means those Hazardous Materials at, on, over or under the Owned Property (including the soil, air or groundwater) or any portion thereof prior to the Closing Date, including any migration of such Hazardous Materials from the Owned Property (including the soil, air or groundwater) or any portion thereof, including any Off-Site Disposal Facility, to the extent that the presence or migration of such Hazardous Materials was caused by, arose from or relates to the operations or activities of Seller, TOPIII, their respective Affiliates, successors or assigns, or any of their respective agents or representatives, at the Owned Property or any portion thereof on or after the Initial Closing Date.

“Seller Indemnitee” has the meaning set forth in Section 8.1(a).

“Seller” has the meaning set forth in the introductory paragraph of this Agreement.

“Seller’s Dispute Notice” has the meaning set forth in Section 2.7(a).

“Seller’s Employees” has the meaning set forth in Section 3.19(a).

“Seller’s GP” has the meaning set forth in Section 3.1(a).

“Seller’s Guaranteed Obligations” has the meaning set forth in Section 5.22(a).

“Seller’s Parent” has the meaning set forth in the introductory paragraph of this Agreement.

“Seller’s Required Consents” has the meaning set forth in Section 5.3.

“Seller’s Title Policies” has the meaning set forth in Section 6.10.

“Sempra” means Sempra Energy, a California corporation, or Sempra Global, a California corporation, collectively and each individually, as the case may be.

“Site” means those certain parcel(s) of real property described on Schedule 1.3-A “Legal Description of the Site.” Any reference to the Site shall include, by definition, the surface and subsurface elements, including the soils and groundwater present at the Site, and any reference to items “at the Site” shall include all items “at, on, in, upon, over, across, under and within” the Site.

“Special Warranty Deed” means that certain deed in the form of Exhibit F attached hereto.

“Tax Claim” has the meaning set forth in Section 5.6(a).

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“Taxes” means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Section 59A of the Internal Revenue Code of 1986, as amended), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property (including assessments, fees or other charges based on the use or ownership of real property), personal property, intangible property, sales, use, utility users, business license, transfer, registration, value added, alternative or add-on minimum, estimated tax, or other tax of any kind whatsoever, including any interest, penalty or addition thereto, whether disputed or not, including any item for which liability arises as a transferee or successor-in-interest.

“Tax Returns” means any return, report, information return, declaration, claim for refund or other document (including any schedule or related or supporting information) required to be supplied to any taxing authority with respect to Taxes including amendments thereto.

“Third Party” means any Person who is not a party to this Agreement, other than Affiliates of Seller, TOPIII or Purchaser.

“Third Party Claim” means a claim, action, suit, demand or proceeding by a Third Party.

“Title Commitment” means that certain Commitment for Title Insurance issued by the Title Insurer on January 11, 2006 (with an effective date of January 9, 2006) covering the Real Property Interests.

“Title Insurer” has the meaning set forth in Section 6.10.

“Title Policies” has the meaning set forth in Section 6.10.

“TNMP” means Texas-New Mexico Power Company and its successor(s) in interest.

“TOPIII” has the meaning set forth in the introductory paragraph of this Agreement.

“TOPIII’s GP” has the meaning set forth in Section 3.1(a).

“TOPIII’s Required Consents” has the meaning set forth in Section 5.3.

“Transferred Employee” has the meaning set forth in Section 5.17(a).

“Transition Services Agreement” means that certain agreement, dated not later than the Closing Date, between Seller and Purchaser for the provision by Seller of the services described in Exhibit K.

“2002 Purchase and Sale Agreement” means that certain Purchase and Sale Agreement by and among Texas-New Mexico Power Company, Texas Generating Company, L.P. and Seller, dated as of June 14, 2002.

“[*] PPA” means the Amended and Restated Master Power Purchase and Sale Agreement, dated June 14, 2002, between Seller and [*], for the purchase and sale of electrical energy, and the Second Transaction Confirmation executed as of June 14, 2002.

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“Walnut Creek” has the meaning set forth in Section 5.3(e)(2).

“Well Sites” means those certain parcels of real property described on Schedule 1.3-B “Legal Description of the Well Sites.” Any reference to the Well Sites shall include, by definition, the surface and subsurface elements, including the soils and groundwater present at the Well Sites, and any reference to items “at the Well Sites” shall include all items “at, on, in, upon, over, across, under and within” the Well Sites.

1.2Interpretation. In this Agreement, unless a clear contrary intention appears:

(a)reference to any Person includes such Person’s successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity;

(b)reference to any gender includes each other gender;

(c)reference to any agreement (including this Agreement), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof;

(d)reference to any Article, Section, Schedule or Exhibit means such Article, Section, Schedule or Exhibit to this Agreement, and references in any Article, Section, Schedule, Exhibit or definition to any clause means such clause of such Article, Section, Schedule, Exhibit or definition;

(e)“hereunder,” “hereof,” “hereto” and words of similar import are references to this Agreement as a whole and not to any particular Section or other provision hereof or thereof;

(f)“including” (and with correlative meaning “include”) means including without limiting the generality of any description preceding such term; and

(g)relative to the determination of any period of time, “from” means “from and including,” “to” means “to but excluding,” and “through” means “through and including.”

ARTICLE II

PURCHASE AND SALE OF ASSETS

2.1Transfer of Assets. Subject to the terms and conditions of this Agreement, the Related Agreements and any reservations in the Special Warranty Deed, Seller and TOPIII will sell, convey, assign, transfer and deliver to Purchaser (or any directly or indirectly wholly-owned subsidiary of Purchaser’s Parent designated by Purchaser; provided that such designee becomes party to this Agreement and jointly liable with Purchaser with respect to Purchaser’s obligations hereunder), and Purchaser will purchase and acquire from Seller and TOPIII on the Closing Date, all of Seller’s and TOPIII’s respective rights, title and interests in and to the following assets, free and clear of any and all Liens other than Permitted Liens, which assets shall include all of the Operating Assets (such assets, collectively, the “Assets”):

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(a)Facility. The Facility.

(b)Improvements, Buildings, Structures and Equipment. Excluding the Excluded Assets, all improvements, buildings, structures, fixtures (including any containers, structures or equipment used for the transportation, storage, disposal, treatment and handling of hazardous waste, Hazardous Materials, condensate, used oil, or any of them) and any underground storage tanks and underground piping which are part of the Facility or which are otherwise located on the Owned Property or any portion thereof (collectively, the “Improvements”), including, without limitation, those items described in Schedule 2.1(b) “Improvements, Buildings, Structures and Equipment.”

(c)Real Property Rights. The Owned Property, as more particularly described on Schedule 1.3-A “Legal Description of the Site” and Schedule 1.3-B “Legal Description of the Well Sites,” the Real Property Interests, and all material easements, licenses, rights-of-way, profits-a-prendre, use or occupancy agreements and covenants running with the land held by or in favor of Seller or TOPIII or to which Seller or TOPIII is a party which relate to the Facility or the use, ownership, operation or maintenance thereof, as disclosed on Schedule 2.1(c) “Other Real Property Rights,” with the exception of (i) the reservations in the Special Warranty Deed and (ii) the Excluded Assets.

(d)Permits. All Permits described in Schedule 2.1(d) “Permits,” to the extent transferable. Neither Seller nor TOPIII makes any representation that any Permit is transferable. Seller and TOPIII will use Commercially Reasonable Efforts to assist Purchaser in any effort to transfer any Permit.

(e)Emission Allowances and Emission Reduction Credits. All Emission Allowances and Emission Reduction Credits, whether they have accrued prior to or after the Closing Date, to the extent associated with the Facility, as described on Schedule 2.1(e) “Emission Allowances and Emission Reduction Credits.”

(f)Books and Records. All books, records (including without limitation, accounting, purchasing, employment, payroll, benefits and tax records), documents, drawings, sepias, bluelines, engineering documents, design records, plant and equipment operating manuals and procedures, reports, operating data, safety and maintenance manuals, specifications, procedures and similar items of Seller or TOPIII relating to the Assets, in electronic form or otherwise and wherever located (collectively, “Books and Records”).

(g)Inventories. All Inventories, in each case to the extent located at the Owned Property, as described on Schedule 2.1(g) “Inventories.”

(h)Other Personal Property. All other tangible and intangible personal property relating to the Facility and owned or leased by Seller or TOPIII, in each case to the extent located at the Owned Property, as described on Schedule 2.1(h) “Other Personal Property.”

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(i)Intellectual Property. The Intellectual Property described in Schedule 2.1(i) “Intellectual Property.”

(j)Use of Names. The right to use the names “Twin Oaks Power, LP”, “Twin Oaks Power Station” and “Twin Oaks Power III, LP”, to the extent Seller and/or TOPIII has the right to use the names.

(k)Equipment. All machinery (mobile or otherwise), equipment (including without limitation, communication, computer and electronic equipment), furniture and furnishings, together with all other personal property of Seller or TOPIII used principally in the operation of the Facility, as listed on Schedule 2.1(b) “Improvements, Buildings, Structures and Equipment.”

(l)Assigned Contracts. All contracts, agreements, use or occupancy agreements, licenses, subleases and leases relating to the use, ownership, operation or maintenance of the Facility and the Assets, including, without limitation, any Personal Property Leases, in each case to the extent transferable to Purchaser, other than those contracts, agreements, use or occupancy agreements, licenses, subleases or leases which expire by their terms on or before the Closing Date (the “Assigned Contracts”), each as listed on Schedule 3.9(a) “Assigned Contracts.”

(m)Warranties. All unexpired warranties and guarantees as of the Closing Date that relate specifically to the Assets, to the extent transferable (it being understood that Seller makes no representation that any such unexpired warranties and guarantees exist, remain enforceable or are transferable), each as listed on Schedule 2.1(m) “Warranties.”

(n)Spare Parts. All spare parts for the operation and/or maintenance of the Facility, as described on Schedule 2.1(g) “Inventories.”

(o)Permit Applications. All applications for Permits existing or filed on or before the Closing Date related to the Proposed Expansion or the Facility (“Permit Applications”), to the extent transferable.

2.2Retained Assets and Excluded Assets.

(a)Nothing in this Agreement will constitute or be construed as conferring on Purchaser, and Purchaser is not acquiring or assuming, any right, title or interest in or to, or any liability or obligation relating to, any of the following (the “Excluded Assets”): (i) the assets listed or described on Schedule 2.2, which are associated with the Assets but are specifically excluded from the sale, (ii) the Retained Assets and (iii) any of the following: (x) any properties, assets, business, operation, subsidiary or division of Seller, TOPIII or any of their Affiliates, whether tangible or intangible, real, personal or mixed, not expressly set forth in Section 2.1 “Transfer of Assets,” including any cash or working capital of Seller, TOPIII or their Affiliates, even if the working capital or cash relates to the Facility, the Assets, or the Site; (y) any communications between Seller or TOPIII and any of their Affiliates and their respective counsels, including attorney-client privileged or work product material, in the books, records, documents or other information located at the Owned Property; or (z) the following names or acronyms: “Sempra Energy”, “Sempra”, “SRE”, “Sempra Energy Resources”, “SER”, “Sempra Generation” and any and all logos associated with the foregoing names or acronyms.

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(b)Purchaser acknowledges and agrees that TNMP shall retain the Retained Assets and may use, operate, maintain, replace and improve such Retained Assets pursuant to the Retained Assets Agreement and the reservations in the Special Warranty Deed.

2.3Assumed Liabilities. Subject to the terms of this Agreement, as of the Closing Date, Purchaser will be responsible for all obligations and liabilities related to, arising from or associated with use, ownership, operation or maintenance of the Assets which arise prior to the Initial Closing Date or on and after the Closing Date, including the obligations and liabilities set forth below in subparagraphs (a)-(h) inclusive (collectively, “Assumed Liabilities”):

(a)Liabilities relating to or resulting from any Pre-Initial Closing Environmental Conditions, Post-Closing Environmental Conditions and Purchaser-Caused Environmental Conditions, including responsibility for any Third Party Claims related to the same.

(b)Obligations to comply with Environmental Laws and to comply with the Permits listed in Schedule 2.1(d) “Permits,” or otherwise obtained or required in connection with the Assets, prior to the Initial Closing Date or on and after the Closing Date, or in connection with Purchaser’s acquisition of the Assets, including: (i) obligations to implement actions needed to comply with or operate in compliance with Environmental Laws and any Permits, Orders, variances and approvals prior to the Initial Closing Date or on and after the Closing Date; and (ii) liability for and in connection with any monitoring, testing, sampling or other environmental investigation required to comply with, or to establish or determine compliance with, applicable Environmental Laws and Permits, Orders, variances and approvals, or as an operational requirement under any applicable Environmental Laws and Permits, Order, variance or approval prior to the Initial Closing Date or on and after the Closing.

(c)Obligations arising on and after the Closing Date under any pending applications for new Permits relating to the Facility, and any pending applications for amendments, modifications, extensions or renewals of any existing Permits, in each case to the extent that Purchaser desires to proceed with such applications.

(d)Obligations under the Assigned Contracts arising after the Closing Date.

(e)Any liability, obligation or responsibility under or related to Environmental Laws or the common law caused by the off-Site disposal, storage, transportation, discharge, Release, or recycling of Hazardous Materials, or the arrangement for such activities by Purchaser in connection with Purchaser’s use, ownership, operation or maintenance of the Assets prior to the Initial Closing Date or from and after the Closing Date.

(f)Any liability, obligation or responsibility under or related to Environmental Laws or the common law, whether such liability, obligation or responsibility is known or unknown, contingent or accrued, as a result of any Remediation done by or on behalf of Purchaser or any of its Affiliates in respect of Pre-Initial Closing Environmental Conditions, Post-Closing Environmental Conditions and Purchaser-Caused Environmental Conditions (whether or not such Remediation commenced before the Closing Date or commences on or after the Closing Date) of Hazardous Materials that are disposed, stored, transported, discharged, Released, recycled, or the arrangement of such activities by or on behalf of Purchaser to the extent related to Purchaser’s or any of its Affiliates’ ownership, operation or maintenance of the Assets prior to the Initial Closing Date or from and after the Closing Date, at any off-Site location.

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(g)Third Party liability for or Third Party Claims arising as a result of or in connection with any toxic tort, loss of life or injury to persons due to the presence or Release of Hazardous Materials caused by Purchaser or any of its Affiliates at, on, over, under, adjacent to or migrating from the Owned Property prior to the Initial Closing Date or on or after the Closing Date.

(h)Any liabilities or obligations of TOPIII or Seller in respect of the Retained Assets, whether or not such liabilities or obligations arose prior to or after the Closing Date.

2.4Excluded Liabilities. Purchaser shall not assume or be obligated to pay, perform or otherwise discharge the following liabilities or obligations (the “Excluded Liabilities”):

(a)Any liabilities or obligations of TOPIII or Seller in respect of the Excluded Assets or other assets of TOPIII or Seller which are not part of the Assets.

(b)Except as provided in Section 5.6 “Taxes, Prorations and Closing Costs,” any liabilities or obligations in respect of Taxes attributable to the use, ownership, operation or maintenance of the Assets for taxable periods, or portions thereof, ending after the Initial Closing Date and on or before the Closing Date.

(c)Any liabilities or obligations of Seller or TOPIII accruing under any of the Assigned Contracts prior to the Closing Date.

(d)Any and all asserted or unasserted liabilities or obligations to Third Parties (including Seller’s Employees) or Affiliates of Seller or TOPIII for personal injury or tort or under contract, or similar causes of action arising out of the use, ownership, operation or maintenance of the Assets by Seller or TOPIII or their respective Affiliates on or after the Initial Closing Date and prior to the Closing Date.

(e)Any fines, penalties or costs imposed by a Governmental Authority resulting from (i) an investigation, proceeding, request for information or inspection before or by a Governmental Authority regarding acts of Seller, TOPIII or their respective Affiliates which occurred on or after the Initial Closing Date and prior to the Closing Date, or (ii) illegal acts, willful misconduct or gross negligence of Seller, TOPIII or their respective Affiliates which occurred on or after the Initial Closing Date.

(f)Any payment obligations of Seller, TOPIII or their respective Affiliates for goods purchased or delivered, or services rendered prior to the Closing Date, including but not limited to, rental payments payable by Seller, TOPIII or their respective Affiliates pursuant to the leases of real property or personal property.

(g)Any liability, obligation or responsibility under or related to Environmental Laws or the common law, whether such liability or obligation or responsibility is known or unknown, contingent or accrued, arising as a result of or in connection with loss of life, injury to persons or property or damage to natural resources (whether or not such loss, injury or damage arose or was

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made manifest before the Closing Date or arises or becomes manifest on or after the Closing Date) caused by the off-Site disposal, storage, transportation, discharge, Release, or recycling of Hazardous Materials, or the arrangement for such activities by Seller, TOPIII or their respective Affiliates, of Hazardous Materials, on or after the Initial Closing Date and prior to the Closing Date, in connection with the use, ownership, operation or maintenance of the Assets by Seller, TOPIII or their respective Affiliates.

(h)Any liability, obligation or responsibility under or related to Environmental Laws or the common law, whether such liability, obligation or responsibility is known or unknown, contingent or accrued, as a result of the Remediation done by or on behalf of Seller, TOPIII or their respective Affiliates in respect of Seller-Caused Environmental Conditions (whether or not such Remediation commenced before the Closing Date or commences on or after the Closing Date) of Hazardous Materials that are disposed, stored, transported, discharged, Released, recycled, or the arrangement of such activities by Seller, TOPIII or their respective Affiliates on or after the Initial Closing Date and prior to the Closing Date, in connection with the use, ownership, operation or maintenance of the Assets by Seller, TOPIII or their respective Affiliates, at any off-Site location.

(i)Third Party liability for or Third Party Claims arising as a result of or in connection with any toxic tort, loss of life or injury to persons (whether or not such loss or injury arose or was made manifest on or after the Closing Date) due to the presence or Release of Hazardous Materials caused by Seller, TOPIII or their respective Affiliates at, on, over, under, adjacent to or migrating from the Owned Property on or after the Initial Closing Date and prior to the Closing Date.

(j)Any liability relating to or resulting from any Seller-Caused Environmental Conditions, including responsibility for any Third Party Claims related to the same.

(k)Any liabilities or obligations relating to any Benefit Plan which have accrued prior to the Closing Date, including but not limited to any liability (i) relating to benefits payable under any such Benefit Plan; (ii) relating to the Pension Benefit Guaranty Corporation under Title IV of ERISA with respect to any such Benefit Plan; (iii) relating to any such Benefit Plan that is a multiemployer plan; (iv) with respect to non-compliance with the notice and benefit continuation requirements of COBRA in connection with any such Benefit Plan; (v) with respect to any non-compliance of any such Benefit Plan with ERISA or any other applicable laws; or (vi) with respect to any suit, proceeding or claim which is brought against (1) Purchaser with respect to any such Benefit Plan, (2) any such Benefit Plan or (3) any fiduciary or former fiduciary of any such Benefit Plan.

(l)Any liabilities or obligations relating to the employment or termination of employment of Seller’s Employees by Seller, including discrimination, wrongful discharge, unfair labor practices, or constructive termination by Seller of any individual, attributable to any actions or inactions by Seller prior to the Closing Date other than such actions or inactions taken at and in accordance with the written direction of Purchaser.

(m)Any obligations to Seller’s Employees or any independent contractors of Seller for wages, commissions, overtime, employment taxes, severance pay, transition payments in respect of compensation or similar benefits accruing or arising prior to the Closing Date under any term or provision of any contract, plan, instrument or agreement relating to any of the Assets.

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(n)Any liability of Seller or TOPIII arising out of a breach by Seller or TOPIII of any of their respective obligations under this Agreement or the Related Agreements.

(o)[Reserved]

(p)Any obligation or liability related to, arising from or associated with the use, ownership, operation or maintenance of the Assets on or after the Initial Closing Date and prior to the Closing Date.

(q)Any liability or obligation not otherwise expressly assumed by Purchaser under Section 2.3 “Assumed Liabilities”.

(r)Any liability or obligation classified as an Excluded Liability by Seller pursuant to Section 5.24.

2.5Closing.

(a)Closing Date. Subject to the provisions of Section 9.14 “Termination” and the following proviso, the closing of the sale of the Assets to, and the assumption by, Purchaser of the Assumed Liabilities (the “Closing”) shall take place at the offices of Cleary Gottlieb Steen & Hamilton LLP, One Liberty Plaza, New York, New York, 10006 at 10:00 a.m. EST on the later of (i) April 17, 2006 or (ii) the first such date as practicable after satisfaction or waiver of the conditions to the consummation of the transactions hereunder, or on such other date and at such other place as the Parties may mutually agree, provided that if such date falls on a non-Business Day, the Closing shall take place on the next succeeding Business Day. The date of Closing is hereinafter called the “Closing Date.” Each Party will use Commercially Reasonable Efforts to cause the Closing to occur at 10:00 a.m. EST on the Closing Date, including Purchaser’s wiring of funds and the Parties’ authorizing of recording of the Special Warranty Deed and the Assignment by such time on the Closing Date. Purchaser shall take physical possession of the Assets on the Closing Date.

2.6Purchase Price and Allocation.

(a)The consideration for the purchase of the Assets shall be Four Hundred Eighty Million Dollars ($480,000,000) (the “Purchase Price”), payable by Purchaser to Seller and TOPIII on the Closing Date in U.S. dollars by wire transfer of immediately available funds. Seller will designate no later than five (5) Business Days prior to the anticipated Closing Date the account or accounts of Seller to which the Purchase Price will be wire transferred. The Parties will attempt in good faith to agree upon the allocation of the Purchase Price for purposes of Code Section 1060 and Form 8594; provided, however, such agreement is not a condition precedent to the Closing; provided, further, that nothing contained herein shall be interpreted as an expression of an intention by a Party or an agreement between the Parties with respect to allocating the Purchase Price for any other purpose.

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(b)On the Closing Date, the Purchase Price shall be adjusted to account for the items prorated as of the Closing Date pursuant to Section 5.6 “Taxes, Prorations and Closing Costs”.

2.7Post-Closing Audit of Assets and Post-Closing Adjustment to Purchase Price.

(a)Within ten (10) Business Days after the Closing Date, Purchaser shall cause an audit or agreed upon procedure (the “Audit”) to be conducted by Deloitte & Touche, LLP (the “Auditor”) to determine whether any Assets disclosed on the disclosure schedules to this Agreement were not actually transferred and delivered to Purchaser by Seller or TOPIII, as the case may be, on the Closing Date. During the course of the Audit, the Auditor shall prepare a list of the specific Assets which Seller or TOPIII did not actually transfer and deliver to Purchaser on the Closing Date (the “Closing Date Non-Transferred Assets List”). At least two (2) Business Days prior to the Audit, Purchaser shall notify Seller and TOPIII of the date and time at which the Audit will commence and Seller and TOPIII shall each have the right, but not the obligation, to have their respective representatives present for the duration of the Audit; provided, however, if Purchaser fails to provide such notice to Seller and TOPIII, then Seller and TOPIII shall be relieved of any obligations under Section 2.7(b). If Seller and TOPIII dispute the Closing Date Non-Transferred Assets List, Seller and TOPIII shall notify Purchaser in writing within five (5) Business Days after receipt of the Closing Date Non-Transferred Assets List (“Seller’s Dispute Notice”). Seller’s Dispute Notice shall specify each item to which Seller and TOPIII take exception, specifying in reasonable detail the nature and extent of any such exception; provided, however, if Seller and TOPIII do not deliver Seller’s Dispute Notice within the five (5) Business Day period, the Closing Date Non-Transferred Assets List shall be deemed accepted by Seller and TOPIII and shall be conclusive and binding on Seller, TOPIII and Purchaser for the purposes of the adjustment described in Section 2.7(b).

(b)Subject to Section 2.7(d), if the fair market value of the items listed on the Closing Date Non-Transferred Assets List prepared by the Auditor under Section 2.7(a) exceeds $25,000 individually or $50,000 in the aggregate, Seller or TOPIII, as the case may be, shall, at Purchaser’s sole option and election, either (i) pay Purchaser, as an adjustment to the Purchase Price paid by Purchaser, an amount equal to the fair market value of the Assets not so transferred and delivered to Purchaser on the Closing Date, or (ii) replace the missing Asset or Assets with replacements of the same value, quality and warranty satisfactory to Purchaser in its reasonable discretion. Any payments required to be made by Seller or TOPIII pursuant to this Section shall be made by wire transfer of immediately available funds to an account or accounts designated by Purchaser and shall be made by Seller or TOPIII, as the case may be, within ten (10) Business Days of the date on which the Closing Date Non-Transferred Assets List is delivered to Seller or TOPIII, and becomes conclusive and binding on Seller and Purchaser or TOPIII and Purchaser in accordance with Section 2.7(a). Any replacements required to be delivered by Seller or TOPIII pursuant to this Section shall be delivered to Purchaser within a reasonable time. Notwithstanding anything to the contrary, Purchaser reserves all rights it may have against Seller or TOPIII at law or in equity arising from Seller’s or TOPIII’s failure to transfer and deliver to Purchaser on the Closing Date all Assets disclosed on the disclosure schedules as of the Effective Date.

(c)Any dispute between Seller or TOPIII and Purchaser regarding the Closing Date Non-Transferred Assets List shall be resolved in accordance with Section 2.8.

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(d)If any of the items listed on the Closing Date Non-Transferred Assets List are Operating Assets, Seller and TOPIII shall use Commercially Reasonable Efforts to deliver and transfer to Purchaser such Operating Assets within ten (10) Business Days of the date on which the Closing Date Non-Transferred Assets List is delivered to Seller and becomes conclusive and binding on Seller and Purchaser or TOPIII and Purchaser in accordance with Section 2.7(a); provided that if, despite the use of Commercially Reasonable Efforts, Seller or TOPIII, as the case may be, is unable to transfer and deliver to Purchaser all of such Operating Assets, and if the fair market value of the items listed on the Closing Date Non-Transferred Assets List (a) exceeds $25,000 individually or $50,000 in the aggregate, Seller or TOPIII, as the case may be, shall, at Purchaser’s sole option and election, either (i) pay Purchaser, as an adjustment to the Purchase Price paid by Purchaser, an amount equal to the fair market value of such Operating Assets not so transferred and delivered to Purchaser, or (ii) replace the missing Operating Assets with replacements of the same value, quality and warranty satisfactory to Purchaser in its reasonable discretion, each in accordance with Section 2.7(b). In addition, in the event that Seller, TOPIII or Purchaser discovers at any time after the Closing Date that any Operating Assets were not actually transferred and delivered to Purchaser on the Closing Date and such missing Operating Assets were not included on the Closing Date Non-Transferred Assets List, such Party shall notify the other Parties, which notice shall include a list of such missing Operating Assets, and Seller or TOPIII, as the case may be, shall use Commercially Reasonable Efforts to transfer and deliver such missing Operating Assets to Purchaser as soon as reasonably practicable.Notwithstanding anything to the contrary in this Agreement, with respect to any Operating Assets that were not identified in the Schedules attached to this Agreement and were not transferred and delivered to Purchaser on the Closing Date, Seller’s and TOPIII’s obligation to use Commercially Reasonable Efforts to transfer and deliver such undisclosed and missing Operating Assets to Purchaser pursuant to this Section 2.7(d) shall be Purchaser’s sole and exclusive remedy for the failure of Seller and TOPIII to transfer and deliver such undisclosed and missing Operating Assets on the Closing Date, and Seller and TOPIII shall not have any additional liability or obligation hereunder as a result of such failure, including, without limitation, any liability or obligation to pay more than Seller’s 50% share of all transfer and documentary transfer Taxes arising in connection with the transfer of the Assets, including any sales or use tax, pursuant to Section 5.6(a)(1).

(e)Notwithstanding anything to the contrary herein, the Parties hereto agree that neither Seller nor Purchaser shall seek a ruling or determination from the Texas Comptroller of Public Accounts or other applicable Governmental Authority regarding the sales and/or use tax consequences arising from the transactions contemplated by this Agreement without receiving prior written consent of the other Party, such consent to be provided at the sole discretion of each Party. The Parties hereto agree to cooperate with each other in connection with preparing and pursuing any such ruling or determination, if any, that they may agree is desirable.

2.8Resolution of Dispute Regarding Closing Date Non-Transferred Assets List. Any dispute which may arise between Seller or TOPIII and Purchaser regarding the Closing Date Non-Transferred Assets List shall be resolved in the following manner:

(a)During the five (5) Business Day period following the delivery of Seller’s Dispute Notice to Purchaser, Seller, TOPIII and Purchaser shall attempt to resolve such dispute and to determine the accuracy of the Closing Date Non-Transferred Assets List; and

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(b)If at the end of the five (5) Business Day period specified in subsection (a) above, Seller, TOPIII and Purchaser fail to reach a written agreement with respect to such dispute, the Parties may exercise any rights they may have at law or in equity.

2.9[Reserved].

2.10[Reserved].

2.11Earn-out. In the event that (i) the Texas Commission on Environmental Quality issues a final air quality permit to construct that authorizes the construction of the Proposed Expansion on terms and conditions that are materially similar to those specified in the Application for Air Quality Permit No. 76381 and PSD-TX-1054 (TOPIII) submitted to the Texas Commission on Environmental Quality on July 13, 2005, Seller and TOPIII shall be entitled to receive from Purchaser an aggregate amount equal to Two Million Five Hundred Thousand Dollars ($2,500,000) in cash within ten (10) Business Days of the later to occur of the Closing Date and the date of such permit issuance, and (ii) within two (2) years after the date of such permit issuance, (a) Purchaser (or its designee) proceeds with actual physical on-site construction of the Proposed Expansion beyond site clearing activities or (b) Purchaser (or its designee) sells, auctions or otherwise transfers to a third party (which is not its Affiliate) the opportunity to construct the Proposed Expansion, Seller and TOPIII shall be entitled to receive from Purchaser an aggregate amount equal to Two Million Five Hundred Thousand Dollars ($2,500,000) in cash within ten (10) Business Days of the earlier to occur of (ii)(a) and (b), above; provided, however, that for purposes of this Section 2.11, an air quality permit shall be deemed “final” when it is final and appealable, being no longer subject to further challenge through any proceeding or other process initiated before the Texas Commission on Environmental Quality.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER, TOPIII AND SELLER’S PARENT

Seller and TOPIII jointly and severally represent and warrant to Purchaser as follows as of the Effective Date and as of the Closing Date:

3.1Transaction Representations.

(a)Organization and Existence. Seller is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Texas. TOPIII is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Texas. Seller’s general partner, SETOP I, LLC (“Seller’s GP”) is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. TOPIII’s general partner, SETOP III, LLC (“TOPIII’s GP”) is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. Seller’s Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Each of Seller, TOPIII and Seller’s Parent has all requisite power and authority to own, lease, and operate its material properties and assets and to carry on its respective business as it is now being conducted. Each of Seller, TOPIII and Seller’s Parent is

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duly qualified to do business as a limited partnership or corporation, as appropriate, in each other jurisdiction in which its respective business as now being conducted shall require it to be so qualified, except where the failure to be so qualified would not reasonably be expected to have a Material Adverse Effect. Seller, TOPIII and Seller’s Parent have heretofore delivered to Purchaser true, complete and correct copies of their respective governing documents, including, as applicable, articles of incorporation, bylaws, certificates of limited partnership, limited partnership agreement, certificate of formation, or limited liability company agreement, as currently in effect.

(b)Execution, Delivery and Enforceability. Each of Seller, TOPIII and Seller’s Parent has the requisite organizational power to enter into, and to carry out its respective obligations under, this Agreement and the Related Agreements which are executed by Seller, TOPIII or Seller’s Parent, as the case may be. The execution and delivery of this Agreement and the Related Agreements which are executed by Seller, TOPIII or Seller’s Parent, as the case may be, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all organizational action required on the part of Seller (including all necessary action required on the part of Seller’s GP), TOPIII (including all necessary action required on the part of TOPIII’s GP) and Seller’s Parent. Assuming Purchaser’s and Purchaser’s Parent’s due authorization, execution and delivery of this Agreement and the Related Agreements which are executed by Purchaser or Purchaser’s Parent, as the case may be, this Agreement and the Related Agreements which are executed by Seller, TOPIII or Seller’s Parent, as the case may be, have been duly and validly executed and delivered by Seller’s GP on behalf of Seller, by TOPIII’s GP on behalf of TOPIII or by Seller’s Parent and constitute the valid and legally binding obligations of Seller, TOPIII and Seller’s Parent, as applicable, enforceable against Seller, TOPIII and Seller’s Parent, as the case may be, in accordance with its and their terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws of general application relating to or affecting the enforcement of creditors’ rights and by general equitable principles.

(c)No Violation. Subject to Seller and TOPIII obtaining all required consents and approvals set forth on Schedule 5.3(a) “Seller’s and TOPIII’s Required Consents and Approvals,” neither the execution and delivery of this Agreement or any of the Related Agreements executed by Seller, TOPIII or Seller’s Parent, nor the compliance with any provision hereof or thereof, nor the consummation of the transactions contemplated hereby or thereby will:

(1)violate, or conflict with, or result in a breach of any provisions of articles of incorporation, bylaws, the certificate of limited partnership, the agreement of limited partnership, certificate of formation, or limited liability company agreement, as applicable, of Seller, TOPIII or Seller’s Parent;

(2)violate any law or regulation applicable to Seller, TOPIII or Seller’s Parent or any agreement, instrument or obligation applicable to any Asset or to which Seller, TOPIII or Seller’s Parent is a party or is subject, which violation would reasonably be expected to have a Material Adverse Effect (with respect to the Assets, Seller, TOPIII or Seller’s Parent);

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(3)be rendered void or ineffective by or under the terms, conditions or provisions of any agreement, instrument or obligation to which Seller, TOPIII or Seller’s Parent is a party or is subject, which result would reasonably be expected to have a Material Adverse Effect (with respect to the Assets, Seller, TOPIII or Seller’s Parent);

(4)result in a default under the terms, conditions or provisions of any agreement instrument or obligation relating to or burdening any of the Assets or create any lien or encumbrance upon any such Asset, which default, lien or encumbrance would reasonably be expected to have a Material Adverse Effect (with respect to the Assets, Seller, TOPIII or Seller’s Parent); or

(5)result in the cancellation, forfeiture, revocation, suspension or adverse modification of any Permit relating to the Facility and that is otherwise transferable in accordance herewith, which action would reasonably be expected to have a Material Adverse Effect (with respect to the Assets).

(d)No Consents. Subject to Seller or TOPIII obtaining the consents and approvals set forth on Schedule 5.3(a) “Seller’s and TOPIII’s Required Consents and Approvals,” there is no consent or approval of, filing with, or notice to any Person which is required to be obtained or made by Seller, TOPIII and/or Seller’s Parent in connection with Seller’s, TOPIII’s or Seller’s Parent’s execution, delivery and performance of this Agreement and the Related Agreements which are executed by Seller, TOPIII and/or Seller’s Parent, or the consummation of the transactions contemplated hereby or thereby, which, if not obtained or made, will prevent Seller, TOPIII and/or Seller’s Parent from performing their respective obligations hereunder or thereunder.

3.2Reserved.

3.3Compliance with Laws. To the Seller’s and/or TOPIII’s Knowledge and except as set forth on Schedule 3.3 “Compliance Exceptions,” (a) Seller, TOPIII, the Facility and the Owned Property are in compliance with all laws in effect as of the Effective Date (and for purposes of Section 6.2, all laws in effect as of the Closing Date), including Environmental Laws, zoning and subdivision laws, ordinances and regulations, building codes and regulations, and setback requirements, applicable to the conduct of the business or operations of Seller and TOPIII (to the extent TOPIII’s business conduct or operations relate to the Assets) as presently conducted, the use, ownership, operation or maintenance of the Facility or the use of the Owned Property and the Assets, except for such non-compliance as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, and (b) Seller, TOPIII, the Facility and the Owned Property have all governmental Permits from state, federal or local and any foreign authorities (including, but not limited to, the Permits set forth on Schedule 2.1(d) “Permits” hereto), which are required for Seller and TOPIII to own, operate and maintain the Facility, except for those the absence of which would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

3.4Permits.

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(a)Seller, TOPIII and the Facility have all Permits (including without limitation, all Permits required under applicable Environmental Laws in effect as of the Closing Date) necessary to own, operate and maintain the Facility and the Assets, except where the failure to have such Permits commenced prior to the Initial Closing Date or would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. Except as disclosed on Schedule 3.4(a) “Permit Non-Compliance,” Seller, TOPIII and the Facility are in compliance with all Permits, except where non-compliance would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

(b)Schedule 2.1(d) “Permits” sets forth a true, accurate and complete list of all Permits.

3.5Environmental Matters.

(a)Except as disclosed on Schedule 3.5(a) “Environmental Audits and Reports Not Provided to Purchaser,” Seller and TOPIII have provided to Purchaser true, complete and accurate copies of all environmentally related audits, studies, reports, analyses and results of investigations that have been performed with respect to the Assets by or on behalf of Seller, TOPIII or their respective Affiliates on or after the Initial Closing Date.

(b)Except as set forth on Schedule 3.5(b) “Environmental Matters”:

(1)No Order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending or, to Seller’s and TOPIII’s Knowledge, threatened by any Governmental Authority with respect to any alleged failure by Seller, TOPIII or the Facility on or after the Initial Closing Date to have any Permit required in connection with the ownership, operation or maintenance of the Facility or the Assets or with respect to any treatment, storage, recycling, transportation, disposal or release as defined in 42 U.S.C. ss.9601(22), of any Hazardous Materials, and Seller and TOPIII have no Knowledge of any facts or circumstances which would reasonably be expected to form the basis for any such Order, complaint, penalty or investigation.

(2)Seller, TOPIII and their respective Affiliates have not Released or caused the Release of any Hazardous Materials at, on, under or over the Owned Property on or after the Initial Closing Date, and there are no aboveground or underground storage tanks installed on or after the Initial Closing Date, active or abandoned, at, on or under the Owned Property.

(3)Seller, TOPIII and their respective Affiliates have not transported or arranged for the transportation, on or after the Initial Closing Date, of any Hazardous Material from the Owned Property to any location which is the subject of any action or proceeding that could lead to claims against Purchaser, Seller or TOPIII for clean-up costs, Remediation, damages to natural resources or personal injury claims, including, but not limited to, claims under CERCLA.

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(4)No oral or written notification of a Release of a Hazardous Material has been filed by or on behalf of Seller, TOPIII or their respective Affiliates on or after the Initial Closing Date and no Owned Property is listed or, to Seller’s or TOPIII’s Knowledge, proposed for listing on the National Priorities List promulgated pursuant to CERCLA or on any similar state list of sites requiring investigation or clean-up.

(5)To Seller’s or TOPIII’s Knowledge, there are no Liens (other than Permitted Liens) arising under or pursuant to any Environmental Law or Order on any of the Owned Property, and no action of any Governmental Authority has been taken or, to Seller’s or TOPIII’s Knowledge, is in process which could subject any of the Owned Property to such Liens, neither Seller nor TOPIII would be required to place any notice or restriction relating to the presence of Hazardous Material at any Owned Property in any deed to such Owned Property, in each case to the extent relating to matters arising on or after the Initial Closing Date.

3.6Litigation. Except for any matters set forth on Schedule 3.6 “Seller’s and TOPIII’s Litigation,” there are no pending or, to the Knowledge of Seller and/or TOPIII, threatened actions, investigations or requests for information by any Governmental Authority or Third Party with respect to Seller, TOPIII (to the extent such actions, investigations or requests for information involving TOPIII relate to the Assets) or the Assets. Except as set forth on Schedule 3.6 “Seller’s and TOPIII’s Litigation,” there are no employee-related or personal injury claims, or any pending or, to the Knowledge of Seller and/or TOPIII, threatened litigation, claims, investigations or proceedings, private or governmental, which directly and specifically relate to the Assets or Seller’s or TOPIII’s ownership, management, operation, use or maintenance of the Facility (including the Assigned Contracts).

Except as set forth on Schedule 3.6 “Seller’s and TOPIII’s Litigation,” there are no pending or, to the Knowledge of Seller and/or TOPIII, threatened actions, investigations or requests for information by any Governmental Authority or Third Party, which would reasonably be expected to result, or has resulted, in (a) the institution of legal proceedings to prohibit or restrain the performance of this Agreement or any of the Related Agreements, or the consummation of the transactions contemplated hereby or thereby, or (b) a claim for damages as a result of this Agreement or any of the Related Agreements, or the consummation of the transactions contemplated hereby or thereby. Except as set forth on Schedule 3.6 “Seller’s and TOPIII’s Litigation,” there is no pending or, to the Knowledge of Seller and/or TOPIII, threatened litigation, claim, investigation or proceeding, private or governmental, which would reasonably be expected to result, or has resulted, in a material impairment of Seller’s and/or TOPIII’s ability to consummate the transactions or perform their respective obligations contemplated by this Agreement and the Related Agreements.

3.7Zoning and Condemnation. Except as set forth on Schedule 3.7 “Notices of Government Action,” there are no pending proceedings or actions to modify the zoning classification of, or to condemn or take by power of eminent domain, or to classify as a landmark, all or any part of the Assets. Seller and TOPIII have no Knowledge of any such threatened proceeding or action, which (in either case), if pursued, would reasonably be expected to have a Material Adverse Effect (with respect to the Assets). In addition, except as set forth on Schedule 3.7 “Notices of Government Action,” Seller and TOPIII have no Knowledge of any proceeding or action to modify the zoning classification of, or to condemn or take by power of eminent domain, or to classify as a landmark, all or any part of the Assets, which, if pursued,

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would reasonably be expected to have a Material Adverse Effect (with respect to the Assets). The Owned Property is properly zoned for the existence, occupancy and use of all of the Improvements. None of the Improvements are subject to any conditional use permits or “permitted non-conforming use” or “permitted non-conforming structure” classifications or similar permits or classifications.

3.8Brokers. Except for the Investment Banker, whose fees will be payable by Seller pursuant to Section 5.6(f) “Seller’s and TOPIII’s Closing Costs,” all negotiations relating to this Agreement and the transactions contemplated hereby have been carried on by Seller, TOPIII and their counsel without the intervention of any other Person and in such a manner as not to give rise to any claim against Purchaser (by reason of Seller’s, TOPIII’s or their counsel’s actions) for a brokerage commission, finder’s fee or other like payment to any Person (including, without limitation, real estate brokers or salesmen).

3.9Contracts.

(a)Schedule 3.9(a) “Assigned Contracts” sets forth a true, accurate and complete list of all Assigned Contracts, and Seller has provided to Purchaser a true, accurate and complete copy of each of the Assigned Contracts.

(b)Except as set forth on Schedule 3.9(b) “Contract Defaults or Termination,” (i) neither Seller nor TOPIII has received notice from a Third Party that it intends to cancel or terminate any Assigned Contract, or that Seller or TOPIII is in default in any respect under any material terms, conditions or provisions of any Assigned Contract, (ii) to Seller’s Knowledge or TOPIII’s Knowledge, the other party to any Assigned Contract is not in default in any respect under any material terms, conditions or provisions of any Assigned Contract and no event has occurred which (whether with or without notice, lapse of time, or both) would constitute a default by Seller or TOPIII or, to Seller’s Knowledge or TOPIII’s Knowledge, any other parties thereunder, and (iii) as of the Effective Date (and for purposes of Section 6.2, as of the Closing Date), each of the Assigned Contracts is in full force and effect and are valid, binding and enforceable against Seller or TOPIII, as the case may be, in accordance with their respective terms.

3.10Assets Used in the Operation of the Facility. The Assets, as set forth on Schedule 3.10 “Assets to be Obtained by Purchaser,” include all material assets and properties owned or leased by Seller or TOPIII that are necessary for the ownership, operation or maintenance of the Facility as currently operated and maintained by Seller and otherwise in accordance with Prudent Utility Practice with the exception of the following: (a) non-transferable authorizations, consents, licenses, permits, Orders, variances, approvals and applications, or other agreements for which a required approval of a Third Party is not obtained and (b) the Excluded Assets. Except as expressly set forth in this Agreement and the Related Agreements, neither Seller nor TOPIII shall retain any right or interest in any of the Assets after the Closing Date. As of the Effective Date and the Closing Date, the Assets, including without limitation, the level of spare parts inventory included in the Assets, are consistent with Seller’s operation and maintenance of the Facility during the eighteen (18) months preceding the Effective Date and otherwise are at levels consistent with Prudent Utility Practices.

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3.11Bankruptcy. No bankruptcy, reorganization or arrangement proceedings are pending against, being contemplated by, or, to Seller’s Knowledge, TOPIII’s Knowledge or Seller’s Parent’s Knowledge threatened against Seller, TOPIII or Seller’s Parent.

3.12Reserved.

3.13Non-Infringement. Except as set forth in Schedule 3.13 “Infringement Claims,” (a) to Seller’s Knowledge, Seller’s current use and operation of the Assets does not infringe on the rights of any Person, and (b) Seller and TOPIII have not received notice from any Person that Seller’s current use and operation of the Assets infringes or is claimed to infringe on the rights of any Person.

3.14Mechanics’ Liens. Except as set forth on Schedule 3.14 “Mechanics’ Liens,” there are no sums due or owing for labor or materials furnished to, or with respect to, the Real Property Interests or any Asset constituting an improvement or fixture for or on behalf of Seller which could give rise to a mechanic’s or materialman’s lien that will not be paid in the ordinary course of business prior to the Closing Date (subject to Seller’s right to contest the same in good faith).

3.15Title to the Assets. Each of Seller and TOPIII has good and marketable title to all of the Assets consisting of personal property it respectively owns and each has the full right to sell, convey, transfer and assign such Assets to Purchaser. Collectively, Seller and TOPIII own all of such Assets. Such Assets are free and clear of all Liens, other than Permitted Liens. To Seller’s and TOPIII’s Knowledge, Seller has good and indefeasible title to all of the Assets consisting of Owned Property and has the full right to sell, convey, transfer and assign such Assets to Purchaser. To Seller’s and TOPIII’s Knowledge, such Assets are free and clear of all Liens, other than Permitted Liens.

3.16Reserved.

3.17Real Property Interests.

(a)The real property interests (collectively, “Real Property Interests”) set forth in the exhibits to the Special Warranty Deed, Schedule 1.3-A “Legal Description of the Site,” Schedule 1.3-B “Legal Description of the Well Sites,” Schedule 2.1(b) “Improvements, Buildings, Structures and Equipment,” Schedule 2.1(c) “Other Real Property Rights,” and Schedule 3.9(a) “Assigned Contracts” constitute all material easements, rights of way, profits-a-prendre, licenses, use or occupancy agreements, covenants running with the land and other rights held by or in favor of Seller or TOPIII, as the case may be, or to which Seller or TOPIII is a party which relate to the Facility or the use, ownership, operation or maintenance thereof, with the exception of (a) the reservations in the Special Warranty Deed and (b) the Excluded Assets.

(b)Schedule 1.3-A “Legal Description of the Site” and Schedule 1.3-B “Legal Description of the Well Sites” legally describe the Owned Property fully, accurately and adequately, and the legal and other descriptions of the Real Property Interests included in or attached to the Special Warranty Deed describe the Real Property Interests fully, accurately and adequately. Except as set forth in Schedule 3.17 “Real Property Disclosures,” as the same may be amended no less than ten (10) days prior to the Closing Date, there are (i) no pending or, to

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Seller’s or TOPIII’s Knowledge, threatened public improvements or special assessments that would affect the Real Property Interests or that could result in any charge being levied or assessed, or in the creation of any lien, against the Real Property Interests; (ii) no encroachments of Improvements located on the Owned Property onto adjoining lands or onto any easement or right-of-way that burdens the Owned Property, nor any material encroachments onto the Owned Property of any improvements, fixtures, buildings, structures or fences located on adjoining lands; (iii) no mining, mineral or water extraction or development projects in progress on or under the Owned Property or any portion thereof (other than projects under the Fuel Agreement); (iv) no claim that Seller’s or TOPIII’s right to use gas, electricity, water and telephone necessary for operation of the Improvements or Seller’s or TOPIII’s right to vehicular access from the nearest public road to the Improvements violates the rights of any Person or Seller’s or TOPIII’s rights thereunder have lapsed or been abandoned or terminated or will lapse or be abandoned or terminated if Seller or TOPIII fails to use said rights for a specific period of time; (v) no pending claims by Third Persons exercising or, to Seller’s or TOPIII’s Knowledge, no threatened claims by Third Persons to exercise any right to cancel or terminate any of the Real Property Interests; (vi) no defaults by Seller or TOPIII under any terms, conditions or provisions of any of the Real Property Interests; (vii) no pending claims by Third Parties exercising or, to Seller’s or TOPIII’s Knowledge, no threatened claims by Third Parties to exercise their rights under a Lien or reservation affecting the Real Property Interests; (viii) no claims that Seller or TOPIII does not have the legal right to maintain the Improvements on the Real Property Interests where the Improvements are currently located; (ix) no leases, subleases, easements, licenses, concessions, use or occupancy agreements or other agreements (written or oral) granting to any Person the right to use or occupy the Real Property Interests or granting to any Person a right or interest in any of the Real Property Interests, except for Permitted Liens; (x) no outstanding options, rights of first offer, rights of first refusal or rights of first negotiation or other options or rights to purchase the Real Property Interests or any portion thereof or interests therein; (xi) no arrangements or commitments of any kind pursuant to which the Real Property Interests (or any portion thereof or interest therein) will become subject to any Liens; and (xii) no parties (other than Seller or TOPIII) in possession of the Owned Property, other than parties in possession pursuant to Permitted Liens.

(c)The Owned Property does not serve any adjoining property for any purpose inconsistent with the current use of the Owned Property, and no portion of the Owned Property is located within any flood plain or subject to any similar type restriction for which any permit or license necessary to the current use thereof has not been obtained. The Owned Property (and any non-contiguous portion thereof) abuts on and has direct vehicular access to a public road, or has access to a public road via a permanent, irrevocable, appurtenant easement benefiting the Owned Property (and any non-contiguous portion thereof), and access to the Owned Property (and any non-contiguous portion thereof) is provided by public right-of-way. All facilities located on the Owned Property are supplied with utilities and other services necessary for the use, ownership, operation or maintenance of the Facility, including gas, electricity, water, telephone and septic systems, all of which services are adequate in accordance with all applicable laws, ordinances, rules and regulations and are provided via public roads or via permanent, irrevocable, appurtenant easements benefiting such land. To Seller’s Knowledge, the Improvements are structurally sound and free of all material defects and the roofs, foundations, elevators, heating, air conditioning and ventilation systems, plumbing and electrical systems, boilers, furnaces and sprinkler systems are in good repair and working order. Except as set forth in Schedule 3.17

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“Real Property Disclosures,” as the same may be amended no less than ten (10) days prior to the Closing Date, Seller is the owner of record title to 100% of the Owned Property. True and correct copies of any current surveys, abstracts or title opinions in the possession of Seller, TOPIII or their respective agents or representatives, and any policies of title insurance currently in force and in the possession of Seller, TOPIII or their respective agents or representatives with respect to the Owned Property have heretofore been made available to Purchaser.

(d)To Seller’s or TOPIII’s Knowledge, there have been no material changes on the ground since the Initial Closing Date that would be shown on an update of the ALTA Survey delivered to Seller in connection with the 2002 Purchase and Sale Agreement that would reasonably be expected to have a Material Adverse Effect on the Owned Property or the Real Property Interests

(e)In no event shall any of the foregoing representations in this Section 3.17 be deemed breached to the extent they are not true as a result of facts or circumstances existing prior to the Initial Closing Date, or because they would not have been true had they been given by the seller under the 2002 Purchase and Sale Agreement to Seller as the purchaser thereunder.

3.18Insurance. Except as set forth in Schedule 3.18 “Insurance,” all policies of fire, liability, workers’ compensation and all other forms of insurance owned or held by or on behalf of Seller or TOPIII with respect to the Assets and Seller’s Employees are in full force and effect, all premiums with respect thereto covering all periods up to and including the Closing Date have been paid (other than retroactive premiums which may be payable with respect to comprehensive general liability and workers’ compensation insurance policies), and no notice of cancellation or termination has been received with respect to any such policy which was not replaced on substantially similar terms prior to the date of such cancellation. Except as described in Schedule 3.18 “Insurance,” within the thirty-six (36) months preceding Effective Date, neither Seller nor TOPIII has been refused any insurance with respect to the Assets nor has coverage been limited by any insurance carrier to which either Seller or TOPIII has applied for any such insurance or with which any Seller has carried insurance during the last twelve (12) months. For purposes of this Section 3.18 “Insurance,” insurance quoted at commercially unreasonable premiums which either Seller or TOPIII chose not to purchase shall not be deemed a refusal by an insurance carrier.

3.19Labor Matters.

(a)Schedule 3.19(a) “Seller’s Employees,” sets forth a true, accurate and complete list of all employees of Seller employed at the Facility (including individuals on vacation, short-term disability or similar leave) as of the Effective Date (“Seller’s Employees”), which such Schedule shall be amended as of the Closing Date to include such employees so employed immediately prior to the Closing Date. Such Schedule shall also include a description of each Seller Employee’s current base salary, target bonus for the 2005 fiscal year (if any), position and date of hire.

(b)None of Seller’s Employees are covered by any collective bargaining or union contracts. With respect to the business or operations of the Facility and the Assets, except to the extent set forth in Schedule 3.19(b) “Labor Matters” and except for such matters which would

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not reasonably be expected, individually or in the aggregate, to create a Material Adverse Effect, (i) Seller is in compliance with all applicable laws respecting labor and labor practices, employment and employment practices, terms and conditions of employment and wages and hours; (ii) Seller has no Knowledge of any threatened action against Seller and has not received notice of any unfair labor practice complaint against Seller pending before the National Labor Relations Board; (iii) no arbitration proceeding arising out of or under any collective bargaining agreements is pending against Seller; (iv) Seller has not experienced any work stoppage within the three-year period prior to the date hereof and, to Seller’s Knowledge, none is currently threatened; and (v) Seller has no Knowledge of any threatened action against Seller and has not received notice of any unfair employment practice complaint pending against Seller before any federal or state authority.

3.20[Reserved].

3.21Taxes. Seller and TOPIII have filed all Tax Returns that are required to be filed by it with respect to any Tax relating to the Assets, and Seller and TOPIII have paid all Taxes that have become due as indicated thereon, except where such Tax is being contested in good faith by appropriate proceedings, or where the failure to so file or pay would not reasonably be expected to create a Material Adverse Effect. Seller and TOPIII have complied in all material respects with all applicable laws, rules and regulations relating to withholding Taxes relating to Seller’s Employees. All Tax Returns relating to the Assets are true, correct and complete in all material respects. Except as set forth in Schedule 3.21 “Tax Matters,” no notice of deficiency or assessment has been received from any taxing authority with respect to liabilities for Taxes of Seller and TOPIII in respect of the Assets, which have not been fully paid or finally settled, and any such deficiency shown in Schedule 3.21 “Tax Matters” is being contested in good faith through appropriate proceedings. Except as set forth in Schedule 3.21 “Tax Matters,” there are no outstanding agreements or waivers extending the applicable statutory periods of limitation for Taxes associated with the Assets that will be binding upon Purchaser after the Closing Date. None of the Assets is property that is required to be treated as being owned by any other person pursuant to the so-called safe harbor lease provisions of former Section 168(f) of the Code, and none of the Assets is “tax-exempt use” property within the meaning of Section 168(h) of the Code. Schedule 3.21 “Tax Matters” sets forth the taxing jurisdictions in which Seller and TOPIII own assets or conducts business that require a notification to a taxing authority of the transactions contemplated by this Agreement, if the failure to make such notification or obtain Tax clearance certificates in connection therewith would either require Purchaser to withhold any portion of the Purchase Price or subject Purchaser to any liability for any Taxes of Seller or TOPIII.

3.22Intellectual Property. Schedule 2.1(i) “Intellectual Property,” sets forth all Intellectual Property used in and, individually or in the aggregate with other Intellectual Property, that is material to the operation or business of the Facility and the Assets. Except as disclosed in Schedule 2.1(i) “Intellectual Property,” (a) Seller is not, nor has Seller received any notice that it is, in default (or with the giving of notice or lapse of time or both, would be in default), under any contract to use such Intellectual Property, and to Seller’s Knowledge, such Intellectual Property is not being infringed by any other Person. Seller has not received notice that it is infringing any Intellectual Property of any other Person in connection with the operation or business of the Facility or the Assets, and, to Seller’s Knowledge, Seller is not infringing any Intellectual Property of any other Person the effect of which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.

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3.23Capital Expenditures. Except as set forth in Schedule 3.23 “Capital Expenditures,” there are no Capital Expenditures associated with the Assets that are planned by Seller and/or TOPIII from the Effective Date through the Closing Date.

3.24Facility Performance. As of the Effective Date and the Closing Date, to Seller’s Knowledge: (a) the Facility is capable of producing 305 megawatts of net electrical output at full load, and at full load, the Facility’s heat rate is 11,300 Btu/kWh. Seller has provided documentation satisfactory to Purchaser which evidences such net electrical output capacity and heat rate.

3.25Disclosure. All documents, reports or other written information pertaining to Seller, TOPIII, the Assets or the Facility that have been furnished to Purchaser by or on behalf of Seller or TOPIII are true and correct in all material respects and do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements contained therein not misleading. To Seller’s Knowledge and to TOPIII’s Knowledge, there is no fact, event or circumstance that has not been disclosed to Purchaser in writing, the existence of which would reasonably be expected to have a Material Adverse Effect.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PURCHASER’S PARENT

Purchaser and Purchaser’s Parent represent and warrant to Seller and TOPIII as follows, as of the Effective Date and as of the Closing Date:

4.1Transaction Representations.

(a)Organization and Existence. Purchaser is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Texas. Purchaser’s general partner, ALTURA POWER GP, LLC (“Purchaser’s GP”) is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. Purchaser’s Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of New Mexico. Each of Purchaser and Purchaser’s Parent is duly qualified to do business as a limited partnership or corporation, respectively, in each other jurisdiction where its business as now being conducted shall require it to be qualified, except where the failure to be so qualified would not reasonably be expected to have a material adverse effect on Purchaser’s or Purchaser’s Parent’s ability, as the case may be, to consummate the transactions or perform its obligations contemplated by this Agreement and the Related Agreements. Each of Purchaser and Purchaser’s Parent has heretofore delivered to Seller and TOPIII true, complete and correct copies of its certificate of limited partnership and limited partnership agreement and Restated Articles of Incorporation, respectively, as currently in effect.

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(b)Execution, Delivery and Enforceability. Each of Purchaser and Purchaser’s Parent has full partnership or corporate power, respectively, to enter into, and to carry out its obligations under, this Agreement and the Related Agreements which are executed by Purchaser or Purchaser’s Parent, as the case may be. The execution and delivery of this Agreement and the Related Agreements which are executed by Purchaser, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary partnership action required on the part of Purchaser (including all necessary action required on the part of Purchaser’s GP). The execution and delivery of this Agreement and the Related Agreements which are executed by Purchaser’s Parent, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action required on the part of Purchaser’s Parent. Assuming Seller’s, TOPIII’s and Seller’s Parent’s due authorization, execution and delivery of this Agreement and the Related Agreements which are executed by Seller, TOPIII or Seller’s Parent, as the case may be, this Agreement and the Related Agreements which are executed by Purchaser or Purchaser’s Parent, as the case may be, have been duly and validly executed and delivered by Purchaser’s GP on behalf of Purchaser or Purchaser’s Parent, as the case may be, and constitute the valid and legally binding obligations of Purchaser or Purchaser’s Parent, as the case may be, enforceable against Purchaser or Purchaser’s Parent, as the case may be, in accordance with its and their terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws of general application relating to or affecting the enforcement of creditors’ rights and by general equitable principles.

(c)No Violation. Subject to the Parties satisfying their respective obligations to obtain or process (as applicable) the authorizations, consents, licenses, permits, Orders, variances, approvals and applications described in Section 5.3 “Consents and Approvals,” neither the execution and delivery of this Agreement or any of the Related Agreements executed by Purchaser or Purchaser’s Parent, as the case may be, nor the compliance with any provision hereof or thereof, nor the consummation of the transactions contemplated hereby or thereby will:

(1)violate or conflict with, or result in a breach of any provisions of the organizational documents of Purchaser or Purchaser’s Parent, as the case may be;

(2)violate any material law, Order, judgment, decree or regulation applicable to Purchaser or Purchaser’s Parent, as the case may be; or

(3)be rendered void or ineffective by or under the terms, conditions or provisions of any agreement, instrument or obligation to which the Purchaser or Purchaser’s Parent, as the case may be, is a party or is subject.

(d)No Consents. Subject to Purchaser obtaining the consents and approvals set forth on Schedule 5.3(c) “Purchaser’s Required Consents,” no consent or approval of, filing with, or notice to any Person is required to be obtained or made by Purchaser or Purchaser’s Parent in connection with Purchaser’s or Purchaser’s Parent’s execution, delivery and performance of any of this Agreement and the Related Agreements which are executed by Purchaser or Purchaser’s Parent, as the case may be, or the consummation of the transactions contemplated hereby or thereby, which, if not obtained or made, will prevent Purchaser or Purchaser’s Parent from performing its obligations hereunder or thereunder.

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4.2Litigation. Except as set forth on Schedule 4.2 “Purchaser’s Litigation,” there are no pending or, to Purchaser’s and Purchaser’s Parent’s Knowledge, threatened actions, investigations or requests for information by any Governmental Authority or Third Party, which would reasonably be expected to result, or has resulted, in (a) the institution of legal proceedings to prohibit or restrain the performance of this Agreement or any of the Related Agreements, or the consummation of the transactions contemplated hereby or thereby, or (b) a claim for damages as a result of this Agreement or any of the Related Agreements, or the consummation of the transactions contemplated hereby or thereby. Except as set forth on Schedule 4.2 “Purchaser’s Litigation,” there is no pending or, to Purchaser’s and Purchaser’s Parent’s Knowledge, threatened litigation, claim, investigation or proceeding, private or governmental, which would reasonably be expected to result, or has resulted, in a material impairment of either of Purchaser’s or Purchaser’s Parent’s ability to consummate the transactions or perform its obligations contemplated by this Agreement and the Related Agreements.

4.3Brokers. Except for any advisors to Purchaser and/or Purchaser’s Parent, whose fees will be payable by Purchaser pursuant to Section 5.6(e) “Purchaser’s Closing Costs,” all negotiations relating to this Agreement and the transactions contemplated hereby have been carried on by Purchaser, Purchaser’s Parent and their counsel without the intervention of any other Person and in such a manner as not to give rise to any claim against Seller or TOPIII (by reason of Purchaser’s, Purchaser’s Parent’s or their counsel’s actions) for a brokerage commission, finder’s fee, or other like payment to any Person.

4.4Sufficient Funds. Purchaser and/or Purchaser’s Parent has sufficient funds available to consummate the transactions contemplated hereby in accordance with the terms of this Agreement.

4.5Bankruptcy. No bankruptcy, reorganization or arrangement proceedings are pending against, being contemplated by, or, to Purchaser’s and Purchaser’s Parent’s Knowledge, threatened against Purchaser or Purchaser’s Parent.

ARTICLE V

CERTAIN AGREEMENTS

5.1Purchaser’s Acknowledgement and Agreement.

(a)Purchaser understands the methods by which power will be provided to the station loads during individual unit outages. Unit start up and maintenance power will be provided through the start-up transformer and power will need to be purchased from a retail energy provider and scheduled through ERCOT through a Qualified Scheduling Entity for power used by either unit at the Facility during unit outages.

(b)Purchaser will bear all of its own costs, expenses and charges incurred in connection with its Due Diligence Inspections and Reviews.

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5.2“AS IS” SALE. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, AND EXCEPT FOR SELLER’S AND TOPIII’S REPRESENTATIONS AND WARRANTIES SET FORTH HEREIN, AND IN THE RELATED AGREEMENTS, THE ASSETS ARE BEING ACQUIRED “AS IS, WHERE IS” ON THE CLOSING DATE, AND IN THEIR CONDITION ON THE CLOSING DATE, AND PURCHASER IS RELYING SOLELY ON ITS OWN EXAMINATION OF THE ASSETS AND THE PROVISIONS OF THIS AGREEMENT AND THE RELATED AGREEMENTS. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT AND THE RELATED AGREEMENTS, PURCHASER DISCLAIMS RELIANCE ON ANY REPRESENTATIONS, WARRANTIES OR GUARANTEES, EITHER EXPRESSED OR IMPLIED, BY SELLER AND/OR TOPIII, INCLUDING BUT NOT LIMITED TO ANY ORAL, WRITTEN OR ELECTRONIC RESPONSE TO ANY INFORMATION REQUESTED BY THE PURCHASER.

THE PURCHASER ACKNOWLEDGES AND AGREES THAT SELLER AND TOPIII HAVE PERMITTED PURCHASER TO CONDUCT TO PURCHASER’S SATISFACTION SUCH INVESTIGATION AND EXAMINATION OF THE ASSETS, AND THAT THE PURCHASER IS RELYING ON ITS OWN DUE DILIGENCE INSPECTIONS AND REVIEWS OF THE ASSETS AS THE PURCHASER REQUESTED AND DETERMINED IN ITS SOLE DISCRETION TO BE NECESSARY AND SUFFICIENT, AND THAT THE PURCHASER IS NOT RELYING ON ANY REPRESENTATION OR WARRANTY MADE BY SELLER AND/OR TOPIII, OR ANY BROKER OR INVESTMENT BANKER, OTHER THAN THE REPRESENTATIONS AND WARRANTIES OF SELLER AND/OR TOPIII SET FORTH IN THIS AGREEMENT AND THE RELATED AGREEMENTS.

5.3Consents and Approvals.

(a)Seller and TOPIII, as the case may be, will use Commercially Reasonable Efforts to obtain all authorizations, consents, Orders, variances, approvals and applications listed on Schedule 5.3(a) “Seller’s and TOPIII’s Required Consents and Approvals” for the transfer and assignment of the Assets to Purchaser and all consents and approvals for the transfer and assignment of all Permits, Permit Applications and Assigned Contracts (“Seller’s Required Consents” and “TOPIII’s Required Consents”). Notwithstanding anything herein to the contrary, in connection with obtaining the assignment of the Fuel Agreement, Commercially Reasonable Efforts shall not require any action or inaction with respect to the pending litigation involving the Disputes or any settlement that may take place in connection therewith.

(b)In connection with obtaining any Seller’s Required Consents or TOPIII’s Required Consents from Third Parties, each Party will use Commercially Reasonable Efforts to obtain a release of Seller or TOPIII and any of their Affiliates, as applicable, as the case may be, from any and all liabilities and obligations to Third Parties under the Asset being assigned or transferred arising in respect of any period occurring after the Closing. In the event a release of Sempra and any of its Affiliates, as applicable, is not obtained with respect to the Fuel Agreement and any related agreements and Seller waives its condition precedent in Section 7.12, then Purchaser’s Parent shall be required to indemnify, defend and hold harmless Sempra Energy and any of its Affiliates, as applicable, for any payment, loss, liability or expense incurred by Sempra Energy or any of its Affiliates, as applicable, under the Fuel Agreement or any related agreements for any claim made in respect of any period after the Closing Date. Purchaser will not reject any transfer (or, as applicable, reissuance) of any Permit, approval or application held by Seller or TOPIII with respect to the Facility with terms and conditions substantially similar to

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those in effect on the Effective Date. Promptly following any request by Purchaser, which request shall not be made more frequently than once per month, Seller or TOPIII shall provide a report as to status of their respective Required Consents. After the Closing, Purchaser, Seller and TOPIII shall notify promptly all relevant Governmental Authorities and all Third Parties, as necessary, of the change in ownership of the Assets resulting from the transactions contemplated herein, to the extent required by applicable law or the Assigned Contracts.

(c)Purchaser will use Commercially Reasonable Efforts to obtain those approvals, consents or Permits listed on Schedule 5.3(c) “Purchaser’s Required Consents” required to be obtained by Purchaser from any Governmental Authority which are necessary for Purchaser to purchase the Assets from Seller and TOPIII and to consummate the transactions contemplated hereunder and under the Related Agreements (“Purchaser’s Required Consents”).

(d)Hart-Scott-Rodino. The Parties will comply with the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”) to the extent applicable to the transactions contemplated hereunder. Promptly after the Effective Date, the Parties will make any required filings under the HSR Act. If any Governmental Authority having jurisdiction under the HSR Act requires the filing of any additional information with respect to the transactions contemplated hereunder, each Party will provide such information in a prompt and diligent manner. Purchaser shall pay all filing fees under the HSR Act and each Party will bear its own costs of the preparation of any filing.

(e)Cooperation.

(1)Each Party will use Commercially Reasonable Efforts to assist the other Party’s efforts in obtaining all Seller’s Required Consents, TOPIII’s Required Consents and Purchaser’s Required Consents and will reasonably cooperate with the other Parties in executing such applications and other documents as are reasonably required. In addition, without limiting the foregoing, with respect to Seller’s Required Consents relating to the assignment of the Power Agreements and the Fuel Agreement, Purchaser shall provide the credit support required and will use Commercially Reasonable Efforts to provide the credit support reasonably requested by J.Aron with respect to the J.Aron PPA, by [*] with respect to the [*] PPA and by Walnut Creek with respect to the Fuel Agreement; provided, however, that in each case, the reasonableness of requests for credit support shall be determined in light of those practices which are customary and reasonable in transactions of the kind and nature contemplated by the respective agreement. Each Party will bear its own costs for these applications and proceedings except as otherwise provided in Section 5.6 “Taxes, Prorations and Closing Costs.” Without limiting the generality of the foregoing, Seller and TOPIII will use Commercially Reasonable Efforts to provide Purchaser promptly after the Effective Date with current forms of applications, agreements, financial assurance documentation and other documentation that must be submitted to Governmental Authorities in order for Purchaser to obtain the material Permits, variances, approvals and applications listed in Schedule 2.1(d) “Permits,” and Seller and TOPIII will make Commercially Reasonable Efforts to respond to Purchaser’s questions relating to the process of completing such applications, agreements, financial assurance documentation and other documentation, and the process of obtaining the transfer or reissuance of such material Permits, variances, approvals and applications.

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(2)After the Effective Date but prior to the Closing Date, (i) Seller shall have the right to continue to control the prosecution and any settlement of (A) the litigation in connection with the dispute with Walnut Creek Mining Company (“Walnut Creek”) regarding the Fuel Agreement, provided, however, that prior to the commencement of the jury trial currently anticipated to begin on January 23, 2006, Seller and Purchaser shall endeavor to enter into such arrangements, including joint defense or other arrangements, as are mutually acceptable to Purchaser and Seller and reasonably required consistent with applicable rules of legal ethics, in order to permit Purchaser to participate in the conduct of such trial while maintaining all recognized privileges otherwise available, including the attorney-client privilege, the attorney work product privilege and any other relevant privilege, (B) any negotiation commenced in accordance with Section 6.02 of the Fuel Agreement and (C) any arbitration commenced in accordance with Section 6.03 of the Fuel Agreement (collectively, the “Disputes”), with the counsel of its choice at its sole cost and expense; provided that Seller shall consult in good faith with Purchaser throughout the course of such litigation, arbitration or settlement, and (ii) no settlement of the Disputes shall be made prior to the Closing Date without the prior written consent of Purchaser, which consent may not be unreasonably withheld; provided further that in the event that Seller enters into a settlement of the Disputes without the consent of Purchaser, Seller and Purchaser shall enter into good faith discussions to seek to agree on a possible reduction of the Purchase Price, the scope of which must be mutually agreed upon by the Parties. In the event the Parties are unable to agree on a reduction to the Purchase Price within ten (10) Business Days of such settlement, then Purchaser shall have, as its sole remedy, the right to terminate this Agreement pursuant to Section 9.14(a)(6). After the Closing Date, Purchaser shall (i) take control of the prosecution of the litigation, if any,thenegotiations and the arbitration, if any,in respect of the Disputes at its sole cost and expense and shall keep Seller informed of all material developments relating thereto and (ii) have the right to enter into any settlement of the Disputes; provided that no settlement shall be made unless it provides a complete release of Seller and its Affiliates from any and all liabilities and obligations to Walnut Creek and its Affiliates arising out of such Disputes.

(f)No Transfer if Consent or Approval Not Obtained.

(1)Neither Seller nor TOPIII is obligated to assign or transfer their respective interest in a particular Asset or Assets (other than the Fuel Agreement and the Power Agreements, the transfers of which are governed by Section 6.15 and Section 7.12 below) (or any claim, right or benefit arising under or resulting from such Asset or Assets), although Seller or TOPIII may elect to do so, if an assignment or transfer or an attempt to make such an assignment or transfer of such Asset or Assets is (A) without the consent of a Third Party if such consent is required for the Asset to be transferred to Purchaser or (B) a violation of any law, decree, Order or regulation of any Governmental Authority.

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(2)Purchaser is not required to accept an interest in a particular Asset or Assets (other than the Fuel Agreement and the Power Agreements, the transfers of which are governed by Section 6.15 and Section 7.12 below) (or any claim, right or benefit arising under or resulting from such Asset or Assets), although Purchaser may elect to do so, if an assignment or transfer or an attempt to make such an assignment or transfer is (A) without the consent of a Third Party if such consent is required for the Asset or Assets to be transferred to Purchaser, (B) a violation of any law, decree, Order or regulation of any Governmental Authority or (C) subject to terms and conditions which are materially more onerous than those in effect on the Effective Date.

(3)Nothing contained in this Section 5.3(f) “No Transfer if Consent or Approval Not Obtained” shall limit or modify the Parties’ respective obligations under the other provisions of this Section 5.3 “Consents and Approvals.”

5.4Confidentiality.

(a)Each Party (and its officers, employees, counsel, representatives and agents) agrees to be bound by the terms of the Confidentiality Agreement as if set forth in this Agreement.

(b)Upon the other Party’s prior written approval, which will not be unreasonably withheld, either Party may provide Confidential Information to ERCOT, the ISO, PUC, FERC, SEC or other Governmental Authorities as necessary to comply with Section 5.3 “Consents and Approvals.” The disclosing Party will seek confidential treatment, if possible, for the Confidential Information provided to any Governmental Authority and the disclosing Party will notify the other Party as far in advance as is practicable of its intention to release to any Governmental Authority any Confidential Information.

(c)Survival. The Parties’ respective obligations in this Section 5.4 “Confidentiality” and under the Confidentiality Agreement shall survive for a period of two (2) years after the Closing Date or termination of this Agreement, as applicable.

5.5Cooperation. Upon reasonable advance written notice by Purchaser to Seller and TOPIII, Seller and TOPIII shall reasonably cooperate with Purchaser regarding the transition of ownership, operation and/or maintenance of the Facility and the Assets to Purchaser, including access to facilitate Purchaser’s integration of accounting, insurance, telecommunications and management information systems and other operations at the Facility with Purchaser’s programs and systems. Solely with respect to work done by Seller or TOPIII at Purchaser’s request to facilitate Purchaser’s integration of its systems and operations described in the preceding sentence and to further the separation of the Assets from any of the Excluded Assets, Purchaser shall reimburse Seller and TOPIII for their actual reasonable costs for the personnel performing such work. After the Closing, each Party will, upon the reasonable request of the other Party, execute and deliver any further instruments or documents of conveyance, assignment, assumption or transfer, and take such further actions using Commercially Reasonable Efforts as may reasonably be required to fulfill and implement the terms of this Agreement or realize the benefits intended to be afforded hereby. For a period of three (3) years immediately following the Closing Date, Purchaser shall reasonably cooperate with Seller and TOPIII regarding the filing of all required documents with the PUC, FERC, or any other Governmental Authority to the extent directly related to the transactions contemplated hereby. If any Excluded Assets are

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inadvertently delivered to Purchaser, Purchaser will promptly return the same to Seller and/or TOPIII, as the case may be, to the extent Purchaser obtains Knowledge of such inadvertent delivery. On the Closing Date, Seller and TOPIII shall deliver to Purchaser the original drawings, sepias and bluelines related solely to the Assets and not located on the Site.

5.6Taxes, Prorations and Closing Costs.

(a)Taxes.

(1)Purchaser shall pay 50% and Seller shall pay 50% of all transfer and documentary transfer Taxes, arising in connection with the transfer of the Assets, including any sales or use tax. Seller and Purchaser will each pay their own Income Taxes. State and local real and personal property Taxes relating to the Assets for the tax year ending December 31, 2006 (which taxes are due and payable on or before January 31, 2007) will be prorated between Purchaser and Seller on the following basis: Seller shall be responsible for all such Taxes for the period up to the Closing Date and Purchaser shall be responsible for all such Taxes for the period on and after the Closing Date. All Taxes assessed on an annual basis will be prorated on the assumption that an equal amount of Taxes applies to each day of the year, regardless of how any installment payments are billed or made, except that Purchaser will bear all supplemental or other state and local real and personal property Taxes which arise out of a change in ownership of the Assets.

(2)If the amount of real and personal property Taxes due for the 2006 tax year (commencing January 1, 2006) has not been assessed by the taxing authorities as of the Closing Date, then the amount of real and personal property Taxes as prorated between Seller and Purchaser for the 2006 tax year will be estimated on the basis of the 2005 tax year’s real and personal property taxes and such amount will be subject to a true-up adjustment after the Closing Date based upon the actual amount of Taxes assessed.

(3)Seller will be entitled to any refunds or credits of Taxes relating to the Assets for the period after the Initial Closing Date and prior to the Closing Date and the Purchaser shall be entitled to such refunds or credits of Taxes relating to the Assets for the period prior to the Initial Closing Date or on and after the Closing Date. Each Party will promptly notify and forward to the other Party the amounts of any such refunds or credits within thirty (30) days after receipt thereof.

(4)After the Closing Date, Purchaser will notify Seller and TOPIII in writing, within fifteen (15) days after its receipt of any correspondence, notice or other communication from a taxing authority or any representative thereof, of any pending or threatened tax audit, or any pending or threatened judicial or administrative proceeding that involves Taxes relating to the Assets for the period after the Initial Closing Date and prior to the Closing Date, and furnish Seller and TOPIII with copies of all correspondence received from any taxing authority in connection with any audit or information request with respect to any such Taxes relating to the Assets for the period after the Initial Closing Date and prior to the Closing Date. After the Closing Date, Seller

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and TOPIII will notify Purchaser in writing, within fifteen (15) days after its receipt of any correspondence, notice or other communication from a taxing authority or any representative thereof, of any pending or threatened tax audit, or any pending or threatened judicial or administrative proceeding that involves Taxes relating to the Assets for the period prior to the Initial Closing Date or after the Closing Date, and furnish Purchaser with copies of all correspondence received from any taxing authority in connection with any audit or information request with respect to any such Taxes relating to the Assets for the period prior to the Initial Closing Date or after the Closing Date.

(5)Notwithstanding any provision of this Agreement to the contrary, with respect to any claim for refund, audit, examination, notice of deficiency or assessment or any judicial or administrative proceeding that involves Taxes relating to the Assets (collectively, “Tax Claim”), each Party will reasonably cooperate with the other Party in prosecuting and/or contesting any Tax Claim, including making available original books, records, documents and information for inspection, copying and, if necessary, introduction as evidence at any such Tax Claim contest or proceeding and making employees available on a mutually convenient basis to provide additional information or explanation of any material provided hereunder with respect to such Tax Claim or to testify at proceedings relating to such Tax Claim. Seller and TOPIII will control all proceedings taken in connection with any Tax Claim that pertains entirely to the period after the Initial Closing Date and prior to the Closing Date, Purchaser will control all proceedings taken in connection with any Tax Claim that pertains entirely to the period prior to the Initial Closing Date or on or after the Closing Date, and Seller, TOPIII and Purchaser will jointly control all proceedings taken in connection with any Tax Claim pertaining to the period after the Initial Closing Date and both prior to and after the Closing Date; provided, however, Purchaser may request that Seller or TOPIII take any action reasonably necessary to remove any liens or other encumbrances on the Assets relating to any Tax Claim that pertains entirely to the period after the Initial Closing Date and prior to the Closing Date. Purchaser has no right to settle or otherwise compromise any Tax Claim which pertains entirely to the period after the Initial Closing Date and prior to the Closing Date; neither Seller nor TOPIII have a right to settle or otherwise compromise any Tax Claim which pertains entirely to the period prior to the Initial Closing Date or on or after the Closing Date and neither Party has the right to settle or otherwise compromise any Tax Claim which pertains to the period after the Initial Closing Date and both prior to and on or after the Closing Date without the other Party’s prior written consent, which consent shall not be unreasonably withheld.

(b)Income and Expenses. Except as set forth in this Section 5.6 “Taxes, Prorations and Closing Costs,” all items of income and expense, including rents and other charges under the Assigned Contracts, in each case, for the period prior to the Closing, will be for the account of Seller or TOPIII, and all items of income and expense, including rents and other charges under the Assigned Contracts, for the period on and after the Closing will be for the account of Purchaser, all as determined by the accrual method of accounting. If either Party actually receives any rents or other charges under the Assigned Contracts that are, in whole or in part, designated as payments for the period credited to the other Party under this Section 5.6(b) “Income and Expenses,” the recipient will, within a reasonable period of time, remit such amounts to the other Party.

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(c)Proration Method. For purposes of calculating prorations, including the prorations described in the other subsections of this Section 5.6 “Taxes, Prorations and Closing Costs,” Purchaser will be deemed to own the Assets, and, therefore, entitled to the income therefrom and responsible for the expenses thereof as of 10:00:01 a.m. EST on the Closing Date. All prorations will be made on the basis of the actual number of days of the month which will have elapsed as of the Closing Date and based upon a three hundred sixty-five day year. The amount of the prorations will be subject to adjustment in cash after the Closing, as and when complete and accurate information becomes available, and the Parties agree to cooperate and use their good faith efforts to make such adjustments.

(d)Governmental Fees. Any fees imposed by any Governmental Authority related to or arising from operations of the Assets (including fees relating to air emissions pursuant to any Permit) will be prorated between Purchaser and Seller and TOPIII on the following basis: Seller and TOPIII are responsible for the portion of such fees relating to the period up to the Closing Date; and Purchaser is responsible for the portion of such fees relating to the period on and after the Closing Date. All fees will be prorated on the assumption that an equal amount of fees applies to each day of the license period, regardless of how or when any installment payments are billed or made. Notwithstanding the foregoing, Purchaser will bear all fees which arise out of a change in ownership of the Assets, including the transfer of the governmental permits, licenses, Orders, variances, approvals and applications described in Schedule 2.1(d) “Permits,” and all fees and expenses (including expenses related to or arising from the preparation of a renewal application, such as environmental consultants’ fees) associated with a renewal of a license or permit where the expiration date occurs after the Closing Date.

(e)Purchaser’s Closing Costs. Purchaser will pay all costs and fees of (i) Purchaser’s Due Diligence Inspections and Reviews, (ii) all costs of obtaining Purchaser’s Required Consents, (iii) any Person that is entitled to a brokerage commission, finder’s fee or other like payment by reason of Purchaser’s or Purchaser’s Parent’s actions, (iv) document recordation in connection with the Closing, and (v) Purchaser and Purchaser’s Parent to negotiate and execute this Agreement and the Related Agreements.

(f)Seller’s and TOPIII’s Closing Costs. Seller will pay: (i) all fees payable to Investment Banker in connection with this transaction or any other Person that is entitled to a brokerage commission, finder’s fee or other like payment by reason of Seller’s or TOPIII’s actions, (ii) all costs of obtaining the approvals described in Section 5.3(a), (iii) all costs incurred in obtaining Seller’s Required Consents and TOPIII’s Required Consents, (iv) the cost of the Title Policies and any endorsements to the Title Policies reasonably requested by Purchaser, (v) the cost of obtaining any new surveys or updates to existing surveys, and (vi) the cost of all UCC, lien, litigation, judgment or similar searches relating to the Assets, except to the extent Seller has already paid for said searches in connection with the issuance of the Title Policies, and (vii) all fees of Seller or TOPIII to negotiate and execute this Agreement and the Related Agreements.

5.7No Recourse. To the extent the transfer, conveyance, assignment and delivery of Assets to Purchaser as provided in this Agreement is accomplished by deeds, assignments, sublicenses, subleases, subcontracts or other instruments of transfer and conveyance, whether executed at the Closing or thereafter, these instruments are made without representation or warranty by, or recourse against, the transferring or conveying Party except as expressly provided in this Agreement, any Related Agreement or any deed, assignment or other instrument of transfer and conveyance.

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5.8Risk of Loss.

(a)From the Effective Date through 10:00 a.m. EST on the Closing Date, all risk of loss (including, without limitation, risk of an eminent domain taking or condemnation), or Casualty to the Facility or any of the Assets shall be borne by Seller and/or TOPIII.

(b)If, after the Effective Date but prior to 10:00 a.m. EST on the Closing Date, all or any portion of the Assets (i) is taken by eminent domain or condemnation or is the subject of a pending or threatened taking or condemnation of which Seller or TOPIII becomes aware and which has not been consummated, or (ii) has suffered a Casualty, Seller shall notify Purchaser promptly in writing of such fact:

(1)In the case of a Casualty, Purchaser and Seller shall negotiate in good faith for either a fair and equitable adjustment to the Purchase Price or for Seller’s restoration (at Seller’s sole expense) of the Assets to the same quality and condition such Assets were in prior to the Casualty; if Purchaser and Seller agree to restoration of the Assets in the event of a Casualty, Purchaser shall have the right to observe, inspect and approve the repairs necessitated by such Casualty. If no negotiated settlement is reached within thirty (30) days after Seller has notified Purchaser of such Casualty, Purchaser or Seller may terminate this Agreement pursuant to Section 9.14.

(2)In the case of an eminent domain taking or condemnation involving the Assets, Purchaser or Seller may terminate this Agreement pursuant to Section 9.14(a)(5) or Section 9.14(a)(9).

5.9Conduct of Business Relating to the Assets. From the Effective Date through the Closing Date, except as described in Schedule 5.9 “Conduct of Business Not in the Ordinary Course,” or as expressly contemplated by this Agreement or to the extent Purchaser otherwise consents in writing, Seller and TOPIII (a) will operate and maintain the Facility and the Assets (including, without limitation, maintaining adequate levels of spare parts) in the ordinary course of business consistent with the past practices of Seller in the eighteen months immediately preceding the Effective Date to the extent such past practices are no less stringent than those practices required by Prudent Utility Practices and otherwise in accordance with Prudent Utility Practices, (b) shall use all Commercially Reasonable Efforts to preserve intact the Assets, and endeavor to preserve the goodwill and relationships with customers, suppliers and others having business dealings with it, (c) shall maintain the insurance coverage described in Section 3.18, and (d) shall comply with all applicable laws relating to the Assets, including without limitation, all Environmental Laws then in effect, except where the failure to so comply would not reasonably be expected to result in a Material Adverse Effect. Without limiting the generality of the foregoing, and, except as contemplated in this Agreement or as described in Schedule 5.9 “Conduct of Business Not in the Ordinary Course,” or as required under applicable law or by any Governmental Authority, prior to the Closing Date, without the prior written consent of Purchaser, Seller and TOPIII shall not with respect to the Assets:

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(i)Make any material change in the levels of Inventories customarily maintained by Seller with respect to the Assets, other than changes which are consistent with Prudent Utility Practices;

(ii)Sell, lease (as lessor), sublease (as sublessor), enter into any license (as licensor) or use or occupancy agreement (as grantor), encumber with any Liens (other than with Permitted Liens), pledge, transfer or otherwise dispose of, any Assets individually or in the aggregate (except for Assets used, consumed or replaced in the ordinary course of business consistent with past practices of Seller during the eighteen (18) months immediately preceding the Effective Date, to the extent such past practices are no less stringent than those practices required by Prudent Utility Practices and otherwise in accordance with Prudent Utility Practices);

(iii)Modify, amend or voluntarily terminate prior to the expiration date any of the Assigned Contracts or any of the Permits in any material respect, other than (a) in the ordinary course of business, to the extent consistent with the past practices of Seller in the eighteen (18) months immediately preceding the Effective Date, to the extent such past practices are no less stringent than those practices required by Prudent Utility Practices and otherwise in accordance with Prudent Utility Practices, (b) with cause, to the extent consistent with past practices of Seller to the extent such past practices are no less stringent than those practices required by Prudent Utility Practices and otherwise in accordance with Prudent Utility Practices, or (c) as may be required in connection with transferring Seller’s or TOPIII’s, as the case may be, rights or obligations thereunder to Purchaser pursuant to this Agreement and the Related Agreements;

(iv)Except for commitments under the Fuel Agreement or as otherwise permitted by the Fuel Agreement, enter into any commitment for the purchase, sale, or transportation of coal, lignite or other alternative fuel;

(v)Sell, lease or otherwise dispose of Emission Allowances or Emission Reduction Credits, except to the extent necessary to operate the Assets in accordance with this Section;

(vi)Except as otherwise provided herein, enter into any contract, agreement, commitment or arrangement relating to the Assets that individually exceeds Fifty Thousand Dollars ($50,000) or in the aggregate exceeds One Hundred Thousand Dollars ($100,000) unless it is terminable by Seller or TOPIII, as applicable, (or, after the Closing, by Purchaser) without penalty or premium upon no more than thirty (30) days’ notice;

(vii)(a) hire at, or transfer to the Facility, any new employees prior to the Closing, other than to fill vacancies in existing positions in the reasonable discretion of Seller, (b) voluntarily transfer any of Seller’s Employees from the Facility or terminate any of Seller’s Employees other than “for cause” (which “cause” shall be in Seller’s reasonable discretion); (c) materially increase salaries

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or wages of Seller’s Employees prior to the Closing, (d) take any action prior to the Closing to effect a material change in any employment agreements with Seller’s Employees, or (e) take any action prior to the Closing to materially increase the aggregate benefits payable to the Seller’s Employees;

(viii)Make any Capital Expenditures which exceed Fifty Thousand Dollars ($50,000) in any instance or One Hundred Thousand Dollars ($100,000) in the aggregate;

(ix)Use any spare parts listed on Schedule 2.1(g) “Inventories” except in the ordinary course for the operation and/or maintenance of the Facility in accordance with Prudent Utility Practice or move such spare parts to any off-Site location; or

(x)Except as otherwise provided herein, enter into any written or oral contract, agreement, commitment or arrangement with respect to any of the proscribed transactions set forth in the foregoing paragraphs (i) through (ix).

5.10Access to Information. Between the Effective Date and the Closing Date, Seller and TOPIII will, at reasonable times and upon reasonable notice: (i) give Purchaser and its representatives reasonable access to their respective managerial personnel and to all Books and Records, plans, equipment, offices and other facilities and properties constituting the Assets; (ii) furnish Purchaser with such financial and operating data and other information with respect to the Assets as Purchaser may from time to time reasonably request, and permit Purchaser to make such reasonable inspections thereof as Purchaser may request; (iii) furnish Purchaser at its request a copy of each material report, schedule or other document filed by Seller, TOPIII or their respective Affiliates with respect to the Assets with the SEC, FERC, PUC or any other Governmental Authority; and (iv) furnish Purchaser with all such other information as shall be reasonably necessary to enable Purchaser to verify the accuracy of the representations and warranties of Seller or TOPIII contained in this Agreement and the Related Agreements; provided, however, that (A) any such inspection and investigations shall be conducted in such a manner as not to interfere unreasonably with the operation of the Facility or the Assets, (B) Seller and TOPIII shall not be required to take any action which would constitute a waiver of the attorney-client privilege; and (C) Seller and TOPIII need not supply Purchaser with any information which Seller is under a legal or contractual obligation not to supply.

5.11Public Statements. Subject to the requirements imposed by any applicable law or any Governmental Authority or stock exchange, prior to the Closing Date, no press release or other public announcement or public statement or comment in response to any inquiry relating to the transactions contemplated by this Agreement shall be issued or made by any Party without three (3) Business Days’ advance notice to the other Parties. Where practicable, the Parties agree to cooperate in preparing such announcements.

5.12Expenses. Except to the extent specifically provided herein, whether or not the transactions contemplated hereby are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be borne by the Party incurring such costs and expenses. Purchaser shall be responsible for the costs and

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expenses of its independent consultant(s) performing any load following tests and analyses (whether conducted prior to or after the Effective Date) regarding the Facility (the “Load Testing”) and Seller and/or TOPIII shall be responsible for costs and expenses (including fuel costs) in connection with operation of the Facility during such Load Testing.

5.13[Reserved].

5.14Spare Parts. In the event that on the Closing Date, the spare parts listed on Schedule 2.1(g) “Inventories” have not been used in the operation and/or maintenance of the Facility prior to the Closing Date but are not accounted for, Seller shall at its sole cost and expense, replace such spare parts promptly after the Closing Date with spare parts of the same value, quality and warranty as determined by Purchaser in its reasonable discretion. Seller’s payment for such replacement spare parts shall be offset, as applicable, against any amount payable by Seller to Purchaser under Section 2.7(b).

5.15Further Assurances. Subject to the terms and conditions of this Agreement, each of the Parties hereto shall use its best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the purchase and sale of the Assets pursuant to this Agreement and the assumption of the Assumed Liabilities, including without limitation using its Commercially Reasonable Efforts to ensure satisfaction of the conditions precedent to each Party’s obligations hereunder, including obtaining all necessary consents, approvals, and authorizations of third parties and Governmental Authorities required to be obtained in order to consummate the transactions hereunder, and to effectuate a transfer of the transferable Permits to Purchaser.

5.16Post-Closing - Information and Records.

(a)Each Party agrees that, from and after the Closing Date, it will, promptly following the written request of the other Party, provide such information (other than privileged and/or attorney work product documents or information) and administrative support as will be reasonably requested by the other Party to enable the requesting Party to comply with its obligations with respect to any Excluded Liability and obligations with respect to any Governmental Authority, including without limitation, FERC, PUC and New Mexico Public Regulation Commission or its obligations with respect to the issuance of Forms W-2 and 1099, and other tax reports, reports and notices relating to pension, profit sharing, health and other plans, income tax returns, preparation of financial statements and completion of the requesting Party’s audit for the two fiscal years ended December 31 following the Closing Date, and other similar matters.

(b)(1)  For a period of seven (7) years after the Closing Date (or, if requested in writing by Seller or TOPIII within seven (7) years after the Closing Date, until the closing of the examination of Seller’s, TOPIII’s, Seller’s Parent’s and its subsidiaries’ federal income tax returns for all periods prior to and including the Closing, if later), Purchaser will not dispose of any books, records, documents or information relating to any of the Assets delivered to it by Seller or TOPIII without first giving notice to Seller and TOPIII thereof and permitting Seller and TOPIII to retain or copy such books and records as Seller or TOPIII may select (other than

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privileged and/or attorney work product documents and information). During such period, Purchaser will permit Seller and TOPIII to examine and make copies, at Seller’s and TOPIII’s expense, of such books, records, documents and information for any reasonable purpose, including anything reasonably required in connection with any Excluded Liability, litigation now pending or hereafter commenced against Seller or TOPIII by any third party or Governmental Authority or the preparation of income or other Tax Returns.

(2)Purchaser will permit Seller and TOPIII to examine and make copies, at Seller’s and TOPIII’s expense, of such books, records, documents and information relating to any of the Assets delivered to it by Seller or TOPIII for any reasonable purpose, including anything reasonably required in connection with any Excluded Liability, any litigation now pending or hereafter commenced against Seller or TOPIII by any third party or Governmental Authority. Seller and TOPIII will provide reasonable notice to Purchaser of their need to access such books, records, documents or other information and will submit a request in writing that (A) describes the books or records requested, (B) states the purpose for which the book or record is necessary, (C) certifies that Seller and TOPIII will only use the book or record for the purpose stated (and will restrict access to such book and record to such persons within its organization or attorneys on a need-to-know basis) and that such use is reasonably related to the stated purpose and (D) commits Seller and TOPIII to return such book or record (and/or destroy all copies of such book or record) when the use is completed or purpose has been achieved, unless Seller or TOPIII is required by law, statute, regulation or Order, to retain such documents for a statutory period of time before destruction is permitted. Seller and TOPIII agree such books, records, documents or other information shall be deemed to constitute Confidential Information.

(3)If privileged and/or attorney work product documents or information, including communications between Seller and its counsel or TOPIII and its counsel, are inadvertently disclosed to Purchaser in the books, records, documents or other information located at the Site or otherwise delivered to Purchaser, or if any other document or information constituting Excluded Assets remains on the Site after the Closing, Purchaser agrees (A) such disclosure is inadvertent, (B) not to assert that such disclosure constitutes a waiver, in whole or in part, of any privilege or work product, (C) such information will constitute Confidential Information, and (D) it will promptly return to Seller or TOPIII, as the case may be, all copies of such information in the possession of Purchaser to the extent Purchaser obtains Knowledge of such inadvertent disclosure.

(4)If privileged and/or attorney work product documents or information, including communications between Purchaser and its counsel, are inadvertently disclosed to Seller or TOPIII in the books, records, documents or other information delivered to Seller or TOPIII, Seller and TOPIII agree (A) such disclosure is inadvertent, (B) not to assert that such disclosure constitutes a waiver, in whole or in part, of any privilege or work product, (C) such information will constitute Confidential Information, and (D) it will promptly return to Purchaser all copies of such information in the possession of Seller or TOPIII to the extent Seller or TOPIII, as the case may be, obtain Knowledge of such inadvertent disclosure.

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(c)Each Party will make available to the other Party, on a reasonable basis and as requested from time to time by the other Party after Closing, those employees of such Party with Knowledge of or relevant to the matters described in this Section 5.16 “Post-Closing - Information and Records” for the purpose of consultation in connection with such matters.

5.17Employees.

(a)Seller shall terminate, effective as of the Closing Date, the employment of all employees listed on Schedule 3.19(a) “Seller’s Employees,” and shall pay to Seller’s Employees all wages, salaries, commissions (if any) and bonuses which are due to them, including, without limitation, all unused Paid Time Off as defined under Seller’s policies accrued up to the Closing Date. Purchaser agrees to make an offer of employment to each of Seller’s Employees on or before the Closing Date; provided, however, that any offer of employment to, and any employment by Purchaser or any of its Affiliates of, a Seller’s Employee are subject to all of Purchaser’s and its Affiliates’, as applicable, standard employment requirements. Each offer of employment to a Seller’s Employee shall include base pay no less than the base pay payable to such Seller’s Employee as set forth on Schedule 3.19(a), and such employment shall have a principal place of work that is at the Facility. Each of Seller’s Employees who accepts such offer of employment, commences employment with Purchaser and satisfactorily completes all of Purchaser’s standard employment requirements shall be hereinafter referred to as a “Transferred Employee.” Unless otherwise agreed between Purchaser and a Transferred Employee, offers of employment shall be on an at-will basis.

(b)Purchaser shall (i) provide each Transferred Employee, for the one-year period ending on the first anniversary of the Closing Date, a rate of base pay that is no less than the rate of base pay set forth on Schedule 3.19(a) with respect to such Transferred Employee and (ii) provide such Transferred Employees (as a group) during their employment with Purchaser with employee benefit plans, programs and policies (other than equity-based plans, programs or policies) that are substantially similar in the aggregate to those employee benefit plans, programs and policies that are maintained by Purchaser or its Affiliates from time to time for the benefit of similarly situated employees of Purchaser or its Affiliates (any such employee benefit plans, programs or policies of Purchaser or its Affiliates in which Transferred Employees become eligible to participate after the Closing Date shall be referred to hereinafter as, the “Purchaser Plans”). Notwithstanding the foregoing, Purchaser shall not be required to provide the Transferred Employees with any benefits under any defined benefit pension plan or retiree medical plan of Purchaser that is frozen as of the Closing Date, unless otherwise required by law or the terms of any such plan. If there are no similarly situated employees of Purchaser or its Affiliates, Purchaser shall provide such Transferred Employees (as a group) with employee benefit plans, programs and policies that are substantially similar in the aggregate to those of Seller, in which case Seller hereby agrees to provide Purchaser, upon written request, with any information reasonably required by Purchaser in order for it to fulfill such obligation. Neither Purchaser nor Purchaser Plans shall receive assets from, nor be required to assume any liabilities of, the Benefit Plans.

(c)With respect to Purchaser Plans, except to the extent otherwise required by applicable law, Purchaser shall use commercially reasonable efforts to (i) with respect to each such Purchaser Plan that is a medical or health plan, waive, or cause the waiver of, any

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exclusions for pre-existing conditions and waiting periods for each Transferred Employee and his/her dependents to the extent that such pre-existing condition exclusions and waiting periods were previously satisfied by such Transferred Employee or his/her dependents under the analogous Benefit Plan in which such Transferred Employee participated immediately prior to the Closing Date, (ii) with respect to each such Purchaser Plan that is a medical or health plan, provide each Transferred Employee with credit for any deductibles and out-of-pocket expenses paid or incurred by such Transferred Employee prior to his or her transfer to the Purchaser Plan (to the same extent such credit was given under the analogous Benefit Plan in which such Transferred Employee participated immediately prior to the Closing Date) in satisfying any applicable deductible or out-of-pocket requirements under such Purchaser Plan for the plan year that includes such transfer and (iii) recognize service of the Transferred Employees credited by Seller and/or Sempra for purposes of eligibility to participate and vesting in any Purchaser Plan in which the Transferred Employees’ are eligible to participate after the Closing Date; provided, however that in no event shall the Transferred Employees be entitled to any credit to the extent that it would result in a duplication of benefits with respect to the same period of service.

(d)Purchaser shall provide severance benefits in an amount no less than that described in Schedule 5.17(d) “Minimum Severance Benefit” to any Transferred Employee who, during the period beginning on the Closing Date and ending on the date which is twelve (12) months after the Closing Date: (i) is terminated without cause; or (ii) elects to terminate his employment with Purchaser within seven (7) days after Purchaser notifies such Transferred Employee of Purchaser’s intent to (1) reduce such Transferred Employee’s rate of base pay or (2) assign such Transferred Employee to a principal place of work that is different than the Facility.

(e)No Seller’s Employee who declines employment with Purchaser shall receive a greater severance benefit, if any, from Seller than said employee would have received had the offer of employment been accepted.

(f)In accordance with the elections made pursuant to Section 401(a)(31) of the Code by Transferred Employees and to the extent permissible under applicable law, Seller shall facilitate the transfer of assets held in the respective accounts of such Transferred Employees from the Twin Oaks Savings Plan to a plan or plans designated by Purchaser. Purchaser agrees to accept intact rollovers of the cash and loans associated with such Transferred Employees’ accounts.

(g)After the Effective Date and prior to the Closing Date, Purchaser shall have the right to meet with Seller’s Employees from time to time to discuss post-Closing employment matters; provided, however, Purchaser shall notify Seller at least two (2) Business Days prior to the date on which the meeting is proposed to be held, and Seller shall have the right to have one or more Seller’s Representatives (as defined below) attend such meetings. If any written materials are to be provided or used during a meeting, Purchaser shall provide copies of such written materials to Seller at least two (2) Business Days prior to the meeting. For purposes of this paragraph, “Seller’s Representatives” shall mean one or more representatives of Seller but shall not include any of the Seller’s Employees. After the Effective Date and prior to the Closing Date, Seller covenants that it shall (i) use Commercially Reasonable Efforts to retain Seller’s Employees, (ii) allow Purchaser reasonable access to Seller’s Employees to discuss post-Closing

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employment with Purchaser and other employment-related matters, provided that notice is given pursuant to this paragraph, and meetings are conducted in a group and not on a one-to-one basis and (iii) not make or attempt to make, directly or indirectly, alternative employment offers to Seller’s Employees or otherwise solicit or attempt to solicit Seller’s Employees for employment after the Closing Date other than with Purchaser.

5.18Review of Accounts Payable. If Purchaser is responsible for paying an account payable relating to the Assets which becomes due and payable after the Closing but relates to a pre-Closing Date period, Seller or TOPIII, as the case may be, shall provide copies of such accounts payable to Purchaser.

5.19Advice of Changes. Prior to the Closing, each Party will advise the other in writing with respect to any matter arising after the Effective Date of which the applicable Party obtains Knowledge and which, if existing or occurring at the Effective Date, would have been required to be set forth in any of the Schedules.

5.20Purchaser’s Parent Undertakings with Respect to Assignments. In connection with the J.Aron PPA and the PPA Assignment related thereto, Purchaser’s Parent shall provide a guaranty of the liabilities and obligations of Purchaser under the J.Aron PPA in form substantially similar to the Sempra Energy guaranty attached hereto as Exhibit L, and such other credit support requested by J.Aron in connection with the assignment of the J.Aron PPA to Purchaser. In connection with the [*] PPA and the PPA Assignment related thereto, Purchaser’s Parent shall provide the credit support required by the [*] PPA and any related agreements and such other credit support requested by [*] in accordance with such agreements in connection with the assignment of the [*] PPA to Purchaser. In connection with the Fuel Agreement and the Fuel Agreement Assignment, Purchaser’s Parent shall provide a guaranty of the liabilities and obligations of Purchaser under the Fuel Agreement, if required, in form substantially similar to the Sempra Energy guaranty attached hereto as Exhibit M.

5.21Purchaser’s Parent Guaranty.

(a)Purchaser’s Parent hereby irrevocably, absolutely and unconditionally guarantees to Seller, TOPIII and their respective successors, endorsees, transferees and assigns the full, complete, prompt and faithful payment and performance by Purchaser (and any permitted designee of Purchaser pursuant to Section 2.1) when due of all of the liabilities and obligations of Purchaser (and any permitted designee of Purchaser pursuant to Section 2.1) under any or all of this Agreement and the Related Agreements to which Purchaser (and any permitted designee of Purchaser pursuant to Section 2.1) is or becomes a party, including without limitation, Purchaser’s (and any permitted designee of Purchaser pursuant to Section 2.1) indemnification obligations under Article 8 (collectively, the “Purchaser’s Guaranteed Obligations”). Purchaser’s Parent hereby irrevocably and unconditionally covenants and agrees that it is liable for the Purchaser’s Guaranteed Obligations as primary obligor, and that this is a guaranty of performance and payment when due and not of collectibility. Purchaser’s Parent agrees that a separate action or actions may be brought and prosecuted against Purchaser’s Parent for any of the Purchaser’s Guaranteed Obligations not otherwise performed by Purchaser (or any permitted designee of Purchaser pursuant to Section 2.1), whether action is brought against Purchaser (and any

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permitted designee of Purchaser pursuant to Section 2.1) or whether Purchaser (and any permitted designee of Purchaser pursuant to Section 2.1) is joined in any such action or actions. Purchaser’s Parent hereby waives any right to require Seller or TOPIII to first proceed against Purchaser (and any permitted designee of Purchaser pursuant to Section 2.1), except that prior to making any demand or claim against Purchaser’s Parent under this Section 5.21, Seller and/or TOPIII shall have made written demand upon Purchaser (and any permitted designee of Purchaser pursuant to Section 2.1) to satisfy the Purchaser’s Guaranteed Obligations in question and Purchaser (and any permitted designee of Purchaser pursuant to Section 2.1) shall have failed to satisfy such demand within five (5) Business Days.

(b)After the Closing Date, the obligations of Purchaser’s Parent in Section 5.21(a) shall not exceed a cumulative total of Twenty-Five Million Dollars ($25,000,000) to the extent such obligations relate exclusively to Purchaser’s (and any permitted designee of Purchaser pursuant to Section 2.1) obligations under Section 8.1(a)(2).

(c)The obligations of Purchaser’s Parent in Section 5.21(a) shall expire on the date which is two (2) years after the Closing Date, except that the obligations of Purchaser’s Parent in respect of any unsatisfied obligations of Purchaser (and any permitted designee of Purchaser pursuant to Section 2.1) arising under Section 2.11 shall survive until the earlier of (i) Purchaser’s (or any permitted designee of Purchaser pursuant to Section 2.1) payment of the fees provided in Section 2.11, or (ii) the date which is two (2) years after the issuance of the permit described in Section 2.11; provided that, in the event that after the expiration of the obligations of Purchaser’s Parent under Section 5.21(a), Purchaser (and any permitted designee of Purchaser pursuant to Section 2.1) transfers or otherwise disposes of all or substantially all of its right, title and/or interest in the Assets to a third party and such third party purchaser does not assume all of the obligations of Purchaser hereunder in a manner reasonably acceptable to Seller, the obligations of Purchaser’s Parent under Section 5.21(a) shall automatically be reinstated and effective against Purchaser’s Parent and Purchaser’s Parent shall be liable to Seller and/or TOPIII for such obligations of Purchaser’s Parent under Section 5.21(a). Notwithstanding any provision of this Section 5.21(c), expiration of the obligations of Purchaser’s Parent shall not bar any claim or demand upon Purchaser’s Parent in respect of any Purchaser’s Guaranteed Obligation so long as such claim or demand is initiated within one (1) year of such expiration.

5.22Seller’s Parent Guaranty.

(a)Seller’s Parent hereby irrevocably, absolutely and unconditionally guarantees to Purchaser and its respective successors, endorsees, transferees and assigns the full, complete, prompt and faithful payment and performance by Seller and TOPIII when due of all of the liabilities and obligations of Seller and TOPIII under any or all of this Agreement and the Related Agreements to which Seller and/or TOPIII is or becomes a party, including without limitation, Seller’s and TOPIII’s indemnification obligations under Article 8 (collectively, the “Seller’s Guaranteed Obligations”). Seller’s Parent hereby irrevocably and unconditionally covenants and agrees that it is liable for the Seller’s Guaranteed Obligations as primary obligor, and that this is a guaranty of performance and payment when due and not of collectibility. Seller’s Parent agrees that a separate action or actions may be brought and prosecuted against Seller’s Parent for any of the Seller’s Guaranteed Obligations not otherwise performed by Seller and/or TOPIII, whether action is brought against Seller and/or TOPIII or whether Seller and/or TOPIII is joined in any such action or actions. Seller’s Parent hereby waives any right to require

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Purchaser to first proceed against Seller and/or TOPIII, except that prior to making any demand or claim against Seller’s Parent under this Section 5.22, Purchaser shall have made written demand upon Seller and/or TOPIII to satisfy the Seller’s Guaranteed Obligations in question and Seller and/or TOPIII shall have failed to satisfy such demand within five (5) Business Days.

(b)After the Closing Date, the obligations of Seller’s Parent in Section 5.22(a) shall not exceed a cumulative total of Twenty-Five Million Dollars ($25,000,000) to the extent such obligations relate exclusively to Seller’s and TOPIII’s obligations under Section 8.1(b)(2).

(c)The obligations of Seller’s Parent in Section 5.22(a) shall expire on the date which is two (2) years after the Closing Date; provided that such obligations of Seller’s Parent in Section 5.22(a) shall not expire to the extent they relate exclusively to Section 8.1(b)(3) to the extent there are any liabilities to be treated as Excluded Liabilities pursuant to Section 5.24

5.23Transition Services Agreement. Seller agrees to provide the services described in Exhibit K, subject to terms and conditions to be mutually agreed by the Parties. The Parties shall use Commercially Reasonable Efforts to enter into a Transition Services Agreement within thirty (30) Business Days of the Effective Date, which shall become effective on the Closing Date.

5.24Notice of Potential Excluded Liabilities. Purchaser shall give Seller prompt written notice of any matter that it believes Seller shall have the option to classify as an Excluded Liability pursuant to the definition of Material Adverse Effect and/or Section 6.14, stating the nature of such matter in reasonable details and indicating the basis for such assertion and the estimated amount of such liability (and how it was determined), if practicable, but in any event such notice shall not be given later than five (5) Business Days after Purchaser becomes aware of such matter, and Seller shall have a period of twenty (20) Business Days within which to respond to such notice and agree to classify such matter as an Excluded Liability pursuant to the definition of Material Adverse Effect and/or Section 6.14. If Seller does not respond within such twenty (20) Business Day period, Purchaser shall issue a second notice to Seller and Seller shall have a period of ten (10) Business Days within which to respond to such second notice. If Seller does not respond to the second notice within such ten (10) Business Day period, then Seller shall not be deemed to have classified such matter as an Excluded Liability.

ARTICLE VI

CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER

The obligations of Purchaser under this Agreement to complete the purchase of the Assets and assume the Assumed Liabilities are subject to the satisfaction or waiver by Purchaser, on or prior to the Closing Date, of each of the following conditions precedent:

6.1No Injunctions. No preliminary or permanent injunction or other Order or decree by any federal or state court or Governmental Authority which prevents the consummation of the sale of the Assets contemplated herein shall have been issued and remain in effect (each Party agreeing to use its reasonable best efforts to have any such injunction, Order or decree lifted) and no statute, rule or regulation shall have been enacted by any state or federal government or Governmental Authority which prohibits the consummation of the sale of the Assets.

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6.2True Representations and Warranties. The representations and warranties of Seller set forth in this Agreement shall be true and correct in all material respects as of the Closing Date as though made at and as of the Closing Date (except where such representation and warranty speaks by its terms as of a different date, in which case it shall be true and correct as of such date), except to the extent that, individually or in the aggregate, such inaccuracies have not had, and are not reasonably likely to have, a Material Adverse Effect.

6.3Compliance with Provisions. Seller and TOPIII have performed or complied in all material respects with all covenants, agreements and conditions contained in this Agreement and the Related Agreements on their respective parts required to be performed or complied with at or prior to the Closing Date.

6.4Seller’s and TOPIII’s Receipt of Approvals of Governmental Authorities. The condition set forth in Section 7.4 “Seller’s and TOPIII’s Receipt of Approvals of Governmental Authorities” has been satisfied or waived by Seller.

6.5Purchaser’s Receipt of Approvals of Governmental Authorities. Purchaser has received all Seller’s Required Consents (other than Seller’s Required Consents relating to the Fuel Agreement Assignment and the PPA Assignment), TOPIII’s Required Consents and Purchaser’s Required Consents in form and substance reasonably satisfactory to Purchaser (including no material adverse conditions).

6.6Officer’s Certificates. Purchaser shall have received certificates from an authorized officer of each of Seller and TOPIII, each dated as of the Closing Date, to the effect that the conditions set forth in Section 6.2 have been satisfied by Seller and TOPIII.

6.7Legal Opinion. Purchaser shall have received an opinion from Seller’s and TOPIII’s counsel, dated the Closing Date, in form and substance reasonably satisfactory to Purchaser.

6.8Deliveries. Seller and TOPIII have delivered, or caused to be delivered, to Purchaser at the Closing the documents and payments referenced in Schedule 6.8 “Closing Deliveries by Seller and TOPIII.” If an event or circumstance occurs after the Effective Date that would require an update to a representation, warranty, or of any Schedule to this Agreement by Seller or TOPIII, then Seller or TOPIII, as the case may be, shall have ten (10) Business Days within which to update said representation, warranty, or Schedule.

6.9[Reserved].

6.10Title Insurance. Title to the Real Property Interests shall have been evidenced by the willingness of Stewart Title Guaranty Company (the “Title Insurer”) to issue ALTA (1970 Form B) owner’s, or lessee’s, as the case may be, extended coverage policies of title insurance, or the Texas equivalent (the “Title Policies”), with the general survey exception removed, in an amount equal to the Purchase Price showing title to the Real Property Interests vested in Purchaser, with such endorsements as were contained in the title policies delivered to Seller pursuant to the 2002 Purchase and Sale Agreement (the “Seller’s Title Policies”) and similar in form and content to such title policies. Such Title Policies shall show title vested in Purchaser

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subject only to the matters to which the Seller’s Title Policies were subject and any Permitted Liens. The willingness of the Title Insurer to issue the Title Policies shall be evidenced either by the issuance thereof on the Closing Date or by the Title Insurer’s delivery of written commitments or binders, dated as of the Closing Date, to issue such Title Policies within a reasonable time after the Closing Date, subject to actual transfer of the real property in question.

6.11No Material Adverse Effect. Between the Effective Date and Closing Date, no Material Adverse Effect shall have occurred and be continuing.

6.12Hart-Scott-Rodino. The conditions precedent set forth in Section 5.3(d) “Hart-Scott-Rodino” shall have been satisfied.

6.13No Termination. No Party shall have exercised any termination right such Party is entitled to exercise pursuant to Section 9.14 “Termination.”

6.14Environmental Assessment. Purchaser shall have received from Seller a customary Phase I environmental assessment of the Site conducted by an independent third party, and such assessment shall not identify any ongoing non-compliance with applicable Environmental Law or Remediation currently required by applicable Environmental Law, in each case (a) arising after the Initial Closing Date, (b) not disclosed to Purchaser prior to the Effective Date, and (c) reasonably anticipated to require costs, other than those that Seller agrees to classify as Excluded Liabilities pursuant to Section 5.24, in excess of Twenty-Five Million Dollars ($25,000,000).

6.15J.Aron PPA and Fuel Agreement. The J.Aron PPA and the Fuel Agreement are in full force and effect and are valid, binding and enforceable against Seller immediately prior to the Closing and Purchaser shall have received Seller’s Required Consent related to the PPA Assignment with respect to the J.Aron PPA and the Fuel Agreement Assignment; provided that this condition precedent shall not apply unless Purchaser shall have satisfied its obligations with respect to credit support pursuant to Section 5.3(e)(1) and Purchaser’s Parent has satisfied its obligations with respect to guaranties and credit support pursuant to Section 5.20. Notwithstanding the foregoing, in the event that the Fuel Agreement has been terminated as a result of the Disputes, this condition precedent shall not apply to the Fuel Agreement.

ARTICLE VII

CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND TOPIII

The obligations of Seller and TOPIII under this Agreement to complete the sale of the Assets and transfer the Assets and Assumed Liabilities to Purchaser are subject to the satisfaction or waiver by Seller or TOPIII, on or prior to the Closing Date, of each of the following conditions precedent:

7.1No Injunctions. No preliminary or permanent injunction or other Order or decree by any federal or state court of Governmental Authority which prevents the consummation of the sale of the Assets contemplated herein shall have been issued and remain in effect (each Party agreeing to use its reasonable best efforts to have any such injunction, Order or decree lifted) and no statute, rule or regulation shall have been enacted by any state or federal government or Governmental Authority which prohibits the consummation of the sale of the Assets.

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7.2Compliance with Provisions. Purchaser has performed or complied in all material respects with all covenants, agreements and conditions contained in this Agreement and the Related Agreements on its part required to be performed or complied with at or prior to the Closing Date.

7.3True Representations and Warranties. The representations and warranties of Purchaser as set forth in this Agreement shall be true and correct in all material respects as of the Closing Date as though made at and as of the Closing Date (except where such representation and warranty speaks by its terms as of a different date, in which case it shall be true and correct as of such date), except to the extent that, individually or in the aggregate, such inaccuracies have not had, and are not reasonably likely to have, a Material Adverse Effect.

7.4Seller’s and TOPIII’s Receipt of Approvals of Governmental Authorities. Seller and TOPIII have received and approved (in their sole discretion) any approval required to be obtained from the Governmental Authorities listed on Schedule 7.4 “Required Governmental Approvals,” as such Schedule may be amended prior to Closing, and which approvals are in full force and effect on the Closing Date.

7.5Purchaser’s Receipt of Approvals of Governmental Authorities. The condition set forth in Section 6.5 “Purchaser’s Receipt of Approvals of Governmental Authorities” has been satisfied or waived by Purchaser, and Seller and TOPIII have confirmed that the specific consents, approvals, permits and licenses listed on Schedule 5.3(c) “Purchaser’s Required Consents” have been obtained by Purchaser.

7.6Officer’s Certificates. Seller and TOPIII shall have received certificates from an authorized officer of Purchaser, dated as of the Closing Date, to the effect that the conditions set forth in Section 7.2 and Section 7.3 have been satisfied by Purchaser.

7.7No Adverse Proceedings. No court or administrative agency of competent jurisdiction shall have issued an order or injunction which restrains or prohibits the transactions contemplated hereunder.

7.8Deliveries. Purchaser has delivered, or will cause to be delivered, to Seller and TOPIII at the Closing, the documents and payments referenced in Schedule 7.8 “Closing Deliveries by Purchaser.” If an event or circumstance occurs after the Effective Date that would require an update to a representation, warranty, or of any Schedule to this Agreement by Purchaser, then Purchaser shall have ten (10) Business Days within which to update said representation, warranty, or Schedule.

7.9Hart-Scott-Rodino. The conditions precedent set forth in Section 5.3(d) “Hart-Scott-Rodino” shall have been satisfied.

7.10No Termination. No Party shall have exercised any termination right such Party is entitled to exercise pursuant to Section 9.14 “Termination.”

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7.11Legal Opinion. Seller and TOPIII shall have received an opinion from Purchaser’s counsel, dated the Closing Date, in form and substance reasonably satisfactory to Seller and TOPIII.

7.12Required Consents. Purchaser shall have received the Seller’s Required Consents relating to the Fuel Agreement Assignment and the PPA Assignment and Seller and any of its Affiliates, as applicable, shall have been released from any and all liabilities and obligations under or in connection with the Fuel Agreement and the Power Agreements. Notwithstanding the foregoing, in the event that the Fuel Agreement has been terminated as a result of the Disputes, this condition precedent shall not apply to the Fuel Agreement.

7.13Environmental Assessment. Seller shall have received a customary Phase I environmental assessment of the Site conducted by an independent third party, and such assessment shall not identify any ongoing non-compliance with applicable Environmental Law or Remediation currently required by applicable Environmental Law, in each case (a) arising after the Pre-Initial Closing Date, (b) not disclosed to Purchaser prior to the Effective Date, and (c) reasonably anticipated to require costs, other than those that Seller agrees to classify as Excluded Liabilities pursuant to Section 5.24, in excess of Twenty-Five Million Dollars ($25,000,000).

ARTICLE VIII

INDEMNIFICATION

8.1Indemnification.

(a)Purchaser shall indemnify, defend and hold harmless Seller, TOPIII, their respective officers, directors, employees, shareholders, Affiliates and agents (each, a “Seller Indemnitee”) from and against any and all claims, demands, suits, losses, liabilities, damages, obligations, payments, costs and expenses (including, without limitation, the costs and expenses of any and all actions, suits, proceedings, assessments, judgments, settlements and compromises relating thereto and reasonable attorneys’ fees and reasonable disbursements in connection therewith) (each, an “Indemnifiable Loss”), asserted against or suffered by any Seller Indemnitee relating to, resulting from or arising out of:

(1)any breach by Purchaser of any covenant or agreement of Purchaser contained in this Agreement or the representations and warranties contained in Article 4;

(2)any untrue representations or warranties of Purchaser in this Agreement or the Related Agreements;

(3)the Assumed Liabilities;

(4)any loss or damages, including Third Party Claims, resulting from or caused by any inspection performed by or on behalf of Purchaser of the Assets, whether performed before or after the Closing Date; or

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(5)any Third Party Claims against a Seller Indemnitee arising out of or in connection with Purchaser’s ownership, operation or maintenance of the Facility and other Assets prior to the Initial Closing Date or on or after the Closing Date.

(b)Seller and TOPIII shall defend and hold harmless Purchaser, its officers, directors, employees, shareholders, Affiliates and agents (each, a “Purchaser Indemnitee”) from and against any and all Indemnifiable Losses, except for the Indemnifiable Losses referred to in Sections 8.1(a)(1), 8.1(a)(2), 8.1(a)(3), 8.1(a)(4) and 8.1(a)(5), asserted against or suffered by any Purchaser Indemnitee relating to, resulting from or arising out of:

(1)any breach by Seller or TOPIII of any covenant or agreement of Seller or TOPIII contained in this Agreement or the representations and warranties contained in Article 3, to the extent such breach of representation or warranty relates to events or conditions occurring after the Initial Closing Date and prior to the Closing Date;

(2)any untrue representations or warranties of Seller or TOPIII in this Agreement or the Related Agreements;

(3)the Excluded Liabilities; and

(4)any Third Party Claims against a Purchaser Indemnitee arising out of or in connection with Seller’s or TOPIII’s ownership, operation or maintenance of the Excluded Assets on or after the Closing Date and of the Assets on or after the Initial Closing Date and prior to the Closing Date.

(c)Purchaser’s Parent shall indemnify, defend and hold harmless all Seller Indemnitees from and against any and all Indemnifiable Losses asserted against or suffered by any Seller Indemnitee relating to, resulting from or arising out of:

(1) any breach by Purchaser’s Parent of any covenant or agreement of Purchaser’s Parent contained in this Agreement or the representations or warranties contained in Article 4; or

(2) any untrue representations or warranties of Purchaser’s Parent in this Agreement or Related Agreements.

(d)Seller’s Parent shall indemnify, defend and hold harmless all Purchaser Indemnitees from and against any and all Indemnifiable Losses asserted against or suffered by any Purchaser Indemnitee relating to, resulting from or arising out of:

(1)any breach by Seller’s Parent of any covenant or agreement of Seller’s Parent contained in this Agreement or the representations or warranties contained in Article 3; or

(2)any untrue representations or warranties of Seller’s Parent in this Agreement or Related Agreements.

(e)Notwithstanding anything to the contrary contained herein:

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(1)Any Seller Indemnitee or Purchaser Indemnitee entitled to receive indemnification under this Agreement (an “Indemnitee”) by a Party hereunder (the “Indemnifying Party”) shall use Commercially Reasonable Efforts to mitigate all Indemnifiable Losses, including availing itself of any defenses, limitations, rights of contribution, claims against Third Parties and other rights at law or equity. The Indemnitee’s Commercially Reasonable Efforts shall include the reasonable expenditure of money to mitigate or otherwise reduce or eliminate any loss or expenses for which indemnification would otherwise be due, and, subject to Section 8.2, the Indemnifying Party shall reimburse the Indemnitee for the Indemnitee’s reasonable expenditures in undertaking the mitigation.

(2)Any Indemnifiable Loss shall be net of the dollar amount of any insurance or other proceeds actually receivable by the Indemnitee or any of its Affiliates with respect to the Indemnifiable Loss to the extent realized by the Indemnitee. Any party seeking indemnity hereunder shall use Commercially Reasonable Efforts to seek coverage (including both costs of defense and indemnity) under applicable insurance policies with respect to any such Indemnifiable Loss.

(3)An Indemnifying Party shall not be obligated to indemnify any Indemnitee under Sections 8.1(a)(2) and 8.1(b)(2) until and unless the aggregate amount of Indemnifiable Losses equals or exceeds Two Million Five Hundred Thousand Dollars ($2,500,000), whereupon the Indemnifying Party shall be liable for all Indemnifiable Losses excluding the first Two Million Five Hundred Thousand Dollars ($2,500,000).

(4)The respective indemnification obligations of Purchaser and of Seller and TOPIII (as a group) under Sections 8.1(a)(2) and 8.1(b)(2), respectively, and of Purchaser’s Parent and Seller’s Parent under Sections 8.1(c)(2) and 8.1(d)(2), respectively, shall not exceed Twenty-Five Million Dollars ($25,000,000) individually or in the aggregate (the “Indemnity Cap”).

(f)The expiration or termination of any covenant, representation, warranty or agreement under this Agreement shall not affect the Parties’ obligations under this Section if the Indemnitee provided the Indemnifying Party with proper notice of the claim or event for which indemnification is sought prior to such expiration or termination.

(g)Except to the extent otherwise provided herein, the rights and remedies of the Parties under this Article 8 are exclusive and in lieu of any and all other rights and remedies which the Parties may have under this Agreement or otherwise for monetary relief, with respect to (i) any breach of or failure to perform any covenant, agreement, or representation or warranty set forth in this Agreement, or (ii) the Assumed Liabilities or the Excluded Liabilities, as the case may be. The indemnification obligations of the Parties set forth in this Article 8 apply only to matters arising out of this Agreement and the Related Agreements.

(h)Notwithstanding anything to the contrary herein, no Party (including an Indemnitee) shall be entitled to recover from any other Party (including an Indemnifying Party) for any Indemnifiable Losses under this Agreement any amount in excess of the actual compensatory damages, court costs and reasonable attorney’s and other advisor fees suffered by

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such Party. Purchaser, Seller and TOPIII waive any right to recover from any other Party punitive, incidental, special, exemplary and consequential damages arising in connection with or with respect to this Agreement or the Related Agreements. The provisions of this Section 8.1(h) shall not apply to indemnification for a Third Party Claim.

8.2Defense of Claims.

(a)If any Indemnitee receives notice of the assertion or commencement of any Third Party Claim with respect to which indemnification is to be sought from an Indemnifying Party, the Indemnitee shall give such Indemnifying Party prompt written notice thereof, but in any event such notice shall not be given later than five (5) calendar days after the Indemnitee’s receipt of notice of such Third Party Claim. Such notice shall describe the nature of the Third Party Claim in reasonable detail and shall indicate the estimated amount, if practicable, of the Indemnifiable Loss that has been or may be sustained by the Indemnitee. The Indemnifying Party will have the right to participate in or, by giving written notice to the Indemnitee, to elect to assume the defense of any Third Party Claim at such Indemnifying Party’s expense and by such Indemnifying Party’s own counsel, provided that the counsel for the Indemnifying Party who shall conduct the defense of such Third Party Claim shall be reasonably satisfactory to the Indemnitee. The Indemnifying Party shall have full and complete control over the conduct of such proceeding on behalf of the Indemnitee and shall, in its sole discretion, have the right to decide all matters of procedure, strategy, substance and settlement relating to such proceeding. The Indemnitee shall cooperate in good faith in such defense at such Indemnitee’s own expense.

(b)If, within five (5) calendar days after an Indemnitee provides written notice to the Indemnifying Party of any Third Party Claim, the Indemnitee receives written notice from the Indemnifying Party that such Indemnifying Party has elected to assume the defense of such Third Party Claim as provided in Section 8.2(a), the Indemnifying Party will not be liable for any legal expenses subsequently incurred by the Indemnitee in connection with the defense thereof; provided, however, that if the Indemnifying Party fails to take reasonable steps necessary to defend diligently such Third Party Claim within thirty (30) calendar days after receiving notice from the Indemnitee that the Indemnitee believes the Indemnifying Party has failed to take such steps, the Indemnitee may assume its own defense and the Indemnifying Party shall be liable for all reasonable expenses thereof.

(1)Without the prior written consent of the Indemnitee, the Indemnifying Party shall not enter into any settlement of any Third Party Claim which would lead to liability or create any financial or other obligation on the part of the Indemnitee for which the Indemnitee is not entitled to indemnification hereunder. If a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnitee for which the Indemnitee is not entitled to indemnification hereunder and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying party shall give written notice to the Indemnitee to that effect. If the Indemnitee fails to consent to such firm offer within five (5) calendar days after its receipt of such notice, the Indemnifying Party shall be relieved of its obligations to defend such Third Party Claim and the Indemnitee may contest or defend such Third Party Claim. In such event, the maximum liability of the Indemnifying Party as to such Third Party Claim will be the amount of such settlement offer.

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(c)The Indemnifying Party shall not, in the defense of any claim or litigation, except with the consent of the Indemnitee (which consent shall not be unreasonably withheld or delayed), consent to entry of judgment or enter into any settlement that provides for injunctive or other non-monetary relief affecting the Indemnitee.

(d)Any claim by an Indemnitee on account of an Indemnifiable Loss which does not result from a Third Party Claim (a “Direct Claim”) shall be asserted by giving the Indemnifying Party prompt written notice thereof, stating the nature of such claim in reasonable detail and indicating the estimated amount, if practicable, but in any event such notice shall not be given later than five (5) calendar days after the Indemnitee becomes aware of such Direct Claim, and the Indemnifying Party shall have a period of twenty (20) calendar days within which to respond to such Direct Claim. If the Indemnifying Party does not respond within such twenty (20) calendar day period, the Indemnitee shall issue a second notice to the Indemnifying Party and the Indemnifying Party shall have a period of ten (10) calendar days within which to respond to such second notice. If the Indemnifying Party does not respond to the second notice within ten (10) calendar days, then the Indemnifying Party shall be deemed to have accepted such claim. If the Indemnifying Party rejects such claim, the Indemnitee will be free to seek enforcement of its right to indemnification under this Agreement.

(e)If the amount of any Indemnifiable Loss, at any time subsequent to the making of an indemnity payment in respect thereof, is reduced by recovery, settlement or otherwise under or pursuant to any insurance coverage, or pursuant to any claim, recovery, settlement or payment by, from or against any other entity, the amount of such reduction, less any costs, expenses or premiums incurred in connection therewith (together with interest thereon from the date of payment thereof at the publicly announced Prime Rate shall promptly be repaid by the Indemnitee to the Indemnifying Party.

(f)A failure to give timely notice as provided in this Section 8.2 shall not affect the rights or obligations of any Party hereunder expect if, and only to the extent that, as a result of such failure, the Party which was entitled to receive such notice was actually prejudiced as a result of such failure.

ARTICLE IX

MISCELLANEOUS AGREEMENTS AND ACKNOWLEDGMENTS

9.1Survival of Representations and Warranties.

(a)Except as provided in subsection (b) below or otherwise provided in this Agreement, each representation and warranty contained in this Agreement shall survive the Closing Date and delivery of the Special Warranty Deed and Assignment for a period of eighteen months from and after the Closing Date.

(b)Notwithstanding subsection (a) above:

(1)the representations and warranties set forth in Sections 3.1 “Transaction Representations,” 3.14 “Mechanics’ Liens,” 3.15 “Title to the Assets” (except as described below in Section 9.1(b)(4)), 3.17 “Real Property Interests” and Section 4.1 “Transaction Representations” shall survive the Closing Date without time limitation;

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(2)a Party’s right to bring claims or actions relating to the representations and warranties set forth in Section 3.5 “Environmental Matters” or relating to Seller-Caused Environmental Conditions or Purchaser-Caused Environmental Conditions shall survive for a period of five (5) years from and after the Closing Date;

(3)a Party’s right to bring claims or actions relating to Section 5.6 “Taxes, Prorations and Closing Costs” shall survive the Closing Date for the applicable statute of limitations period (including any extensions thereof granted by the taxpayer or the taxing authority); and

(4)the representations and warranties set forth in the last two sentences of Section 3.15 “Title to the Assets” shall not survive the Closing Date.

9.2Bulk Sales. The Parties acknowledge that Article 6 of the Uniform Commercial Code as enacted in the State of Texas (as successor to the Texas Bulk Sales Act) has been repealed and is not applicable to the transactions contemplated by this Agreement.

9.3Expenses. Except as otherwise provided herein, each Party is responsible for its own costs and expenses (including attorneys’ and consultants’ fees, costs and expenses) incurred in connection with this Agreement and the consummation of the transactions contemplated by this Agreement. Notwithstanding anything to the contrary, in any dispute among Purchaser, Seller and TOPIII (whether or not the subject of indemnification under Article 8), the prevailing Party or Parties shall be entitled to recover from any other Party or Parties their reasonable and necessary costs and expenses, including reasonable attorneys’ fees, incurred in the resolution of such dispute.

9.4Entire Document. This Agreement (including the Exhibits and Schedules to this Agreement) and the Related Agreements contain the entire agreement between the Parties with respect to the transactions contemplated hereby, and supersede all negotiations, representations, warranties, commitments, offers, contracts and writings (except for the Confidentiality Agreement) prior to the Effective Date of this Agreement, written or oral. No waiver and no modification or amendment of any provision of this Agreement is effective unless made in writing and duly signed by the Parties referring specifically to this Agreement, and then only to the specific purpose, extent and interest so provided.

9.5Schedules. The Schedules delivered pursuant to the terms of this Agreement are an integral part of this Agreement to the same extent as if they were set forth verbatim herein. Each schedule shall be self-contained; that is, no material on any one schedule shall be deemed to be incorporated into any other schedule unless it is done so explicitly in each schedule in which it is deemed to appear.

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9.6Counterparts, Facsimile Signatures. This Agreement may be executed in one or more counterparts and by facsimile, each of which shall be deemed an original, but all together shall constitute one and the same instrument for all purposes.

9.7Severability. If any provision hereof is held invalid or unenforceable by any Governmental Authority, such holding or action will be strictly construed and will not affect the validity or effect of any other provision hereof. To the extent permitted by law, the Parties waive, to the maximum extent permissible, any provision of law that renders any provision hereof prohibited or unenforceable in any respect.

9.8Assignability. This Agreement is binding upon and inures to the benefit of the successors and assigns of the Parties, but is not assignable by any Party without the prior written consent of the other Party, which consent will not be unreasonably withheld. Any such assignment is conditioned on the assignee’s agreement in writing to assume the assigning Party’s duties and obligations under this Agreement and the Related Agreements. Any assignment effected in accordance with this Section 9.8 “Assignability” will not relieve the assigning Party of its obligations and liabilities under this Agreement and the Related Agreements (unless agreed to by the non-assigning Party), including all obligations under this Agreement or the Related Agreements arising on or after the assignment to such assignee.

9.9Captions. The captions of the various Articles, Sections, Exhibits and Schedules of this Agreement have been inserted only for convenience of reference and do not modify, explain, enlarge or restrict any of the provisions of this Agreement.

9.10Governing Law. The validity, interpretation and effect of this Agreement are governed by and will be construed in accordance with the laws of the State of New York applicable to contracts made and performed in such State and without regard to conflicts of law doctrines except Section 5-1401 of the New York General Obligations Law and except to the extent that certain matters are preempted by Federal law or are governed by the law of the jurisdiction of organization of the respective Parties.

9.11Choice of Forum. The Parties hereto agree that should any suit, action or proceeding arising out of this Agreement be instituted by any Party hereto (other than a suit, action or proceeding to enforce or realize upon any final court judgment arising out of this Agreement), such suit, action or proceeding shall be instituted only in a state or federal court sitting in the Southern District of New York. Each of the Parties hereto consents to the in personam jurisdiction of any state or federal court sitting in the Southern District of New York and waives any objection to the venue of any such suit, action or proceeding. The Parties hereto recognize that courts outside the Southern District of New York may also have jurisdiction over suits, actions or proceedings arising out of this Agreement, and in the event that any Party hereto shall institute a proceeding involving this Agreement in a jurisdiction outside the Southern District of New York, the Party instituting such proceeding shall indemnify any other party hereto for any losses and expenses that may result from the breach of the foregoing covenant to institute such proceeding only in a state or federal court in the Southern District of New York, including without limitation any additional expenses incurred as a result of litigating in another jurisdiction, such as reasonable fees and expenses of local counsel and travel and lodging expenses for Parties, witnesses, experts and support personnel. Each of the Parties shall appoint and maintain an agent for service of process in the State of New York.

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9.12Notices. All notices, requests, demands and other communications under this Agreement must be in writing and must be delivered in person or by facsimile, certified mail, postage prepaid, or overnight delivery, and properly addressed as follows:

If to Seller, TOPIII or Seller’s Parent:	Twin Oaks Power, LP c/o Sempra Energy Resources 101 Ash Street San Diego, California 92101 Attention: Reuben Rosen, Esq. Fax: (619) 696-4443
With a copy to:	Cleary Gottlieb Steen & Hamilton LLP One Liberty Plaza New York, New York 10006 Attention: Richard J. Cooper, Esq. Fax: (212) 225-3999
If to Purchaser or Purchaser’s Parent:	PNM Resources Alvarado Square Albuquerque, New Mexico 87158-2802 Attention: Hugh Smith Fax: (505) 241-2819
With a copy to:	Troutman Sanders LLP 401 9th Street, N.W. Suite 1000 Washington, D.C. 20004-2134 Attention: Ronald R. Ross, Esq. Fax: (202) 654-5625

Any Party may from time to time change its address for the purpose of notices to that Party by a similar notice specifying a new address, but no such change is effective until it is actually received by the Party sought to be charged with its contents.

All notices and other communications required or permitted under this Agreement which are addressed as provided in this Section 9.12 “Notices” are effective upon delivery, if delivered personally or by overnight mail, and, are effective five (5) days following deposit in the United States mail, postage prepaid if delivered by mail.

9.13Time is of the Essence. Time is of the essence of each term of this Agreement. Without limiting the generality of the foregoing, all times provided for in this Agreement for the performance of any act will be strictly construed.

9.14Termination.

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(a)Rights To Terminate. This Agreement may, by written notice given on or prior to the Closing Date, in the manner provided in Section 9.12 “Notices,” be terminated at any time prior to the Closing Date:

(1)by Seller, TOPIII or Purchaser if (A) any Governmental Authority shall have issued an Order, judgment or decree permanently restraining, enjoining or otherwise prohibiting the Closing, and such Order, judgment or decree shall have become final and appealable or (B) any statute, rule, Order or regulation shall have been enacted or issued by any Governmental Authority which, directly or indirectly, prohibits the consummation of the Closing;

(2)by Seller or TOPIII if there has been a material misrepresentation as of the Effective Date with respect to any of Purchaser’s representations and warranties in this Agreement or a material default or breach by Purchaser with respect to the due and timely performance of any of Purchaser’s covenants and agreements contained in this Agreement or in any Related Agreement, which misrepresentation, default or breach, either individually or in the aggregate, has had, or is reasonably likely to have, a Material Adverse Effect, and such misrepresentation, default or breach is not cured or waived in writing by the earlier of the Closing Date or the date ten (10) days after receipt by Purchaser of written notice specifying particularly such misrepresentation, default or breach;

(3)by Purchaser if there has been a material misrepresentation as of the Effective Date with respect to Seller’s or TOPIII’s representations and warranties in this Agreement or a material default or breach by Seller or TOPIII with respect to the due and timely performance of any of Seller’s or TOPIII’s covenants and agreements contained in this Agreement or in any Related Agreement, which misrepresentation, default or breach, either individually or in the aggregate, has had, or is reasonably likely to have, a Material Adverse Effect, and such misrepresentation, default or breach is not cured or waived in writing by the earlier of the Closing Date or the date ten (10) days after receipt by Seller or TOPIII of written notice specifying particularly such misrepresentation, default or breach;

(4)by mutual agreement of Seller, TOPIII and Purchaser;

(5)by Seller, TOPIII or Purchaser if the Closing has not occurred on or before June 16, 2006 because any condition precedent set forth in Article 6 or Article 7 has not been waived or satisfied (but with respect to the conditions relating to the deliverables set forth in Sections 6.6, 6.7, 7.6, 7.11, in clauses (a) and (c) through (j) of Schedule 6.8 “Closing Deliveries By Seller and TOPIII,” and in clauses (a) through (g), (i) and of Schedule 7.8 “Closing Deliveries By Purchaser,” such conditions are capable of being satisfied by delivery of the applicable agreement, certificate, document or opinion if the Closing were to have occurred on June 16, 2006); provided that the right to terminate this Agreement under this Section 9.14(a)(5) shall not be available to any Party whose failure to fulfill any obligation under this Agreement has been the direct cause of, or directly resulted in, the failure to satisfy the relevant condition precedent on or before June 16, 2006;

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(6)by Purchaser, in the event that the Parties are unable, after good faith efforts, to reach a mutual agreement on the Purchase Price reduction contemplated by Section 5.3(e)(2) within ten (10) Business Days of the settlement described in Section 5.3(e)(2); provided that Purchaser shall only have the right to terminate this Agreement pursuant to this Section 9.14(a)(6) within the ten (10) Business Day period after the ten (10) Business Day period provided for negotiation of a Purchase Price reduction pursuant to Section 5.3(e)(2);

(7)except as otherwise provided in this Agreement, by Purchaser if any Seller’s Required Consents and TOPIII’s Required Consents, the receipt of which is a condition to the obligation of Purchaser to consummate the Closing, shall not have been obtained or shall have been obtained but in form and substance not reasonably satisfactory to Purchaser; provided that the right to terminate this Agreement under this Section 9.14(a)(7) shall not be available to Purchaser unless Purchaser shall have satisfied its obligations with respect to credit support pursuant to Section 5.3(e)(1) and Purchaser’s Parent has satisfied its obligations with respect to guaranties and credit support pursuant to Section 5.20. Notwithstanding the foregoing, in the event that the Fuel Agreement has been terminated as a result of the Disputes, this termination right shall not apply to the Fuel Agreement;

(8)by Seller or TOPIII, if any of Seller’s Required Consents or TOPIII’s Required Consents, the receipt of which is a condition to the obligation of Seller or TOPIII to consummate the Closing, shall have been denied; or

(9)by Purchaser if there shall have occurred a Material Adverse Effect.

(b)Effect of Termination. In the event of termination of this Agreement by any of the Parties pursuant to Section 9.14(a), written notice thereof shall forthwith be given by the terminating Party to the other Party. If this Agreement is terminated pursuant to Section 9.14(a) for any reason, the rights, obligations and liabilities of the Parties to each other under this Agreement and the Related Agreements will terminate and thereafter no Party shall have any recourse against the other by reason of this Agreement, other than (i) for the obligations set forth in Sections 3.8 “Brokers,” 4.3 “Brokers,” 5.4 “Confidentiality,” and Article 9 “Miscellaneous Agreements and Acknowledgments;” (ii) for the obligations of the Parties set forth in the Confidentiality Agreement and (iii) for liabilities or losses resulting from or arising out of a breach of this Agreement prior to such termination. Upon termination, the originals of any items, documents or written materials provided by one Party to the other Party will be returned by the receiving Party to the providing Party, and any Confidential Information retained by the receiving Party will be kept confidential.

9.15[Reserved].

9.16No Third Party Beneficiaries. Except as may be specifically set forth in this Agreement, nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any Persons other than the Parties and their respective permitted successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any Third Parties to any Party, nor give any Third Parties any right of subrogation or action against any Party.

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9.17No Joint Venture. Nothing contained in this Agreement creates or is intended to create an association, trust, partnership, or joint venture or impose a trust or partnership duty, obligation, or liability on or with regard to any Party.

9.18Construction of Agreement. Ambiguities or uncertainties in the wording of this Agreement will not be construed for or against any Party, but will be construed in the manner that most accurately reflects the Parties’ agreement as of the Effective Date.

9.19Conflicts. In the event of any conflicts or inconsistencies between the terms of this Agreement and the terms of any of the Related Agreements, the terms of this Agreement will govern and prevail.

9.20Effect of Closing Over Known Unsatisfied Conditions or Breached Representations, Warranties or Covenants. If Seller, TOPIII or Purchaser elects to proceed with the Closing with Knowledge that any closing condition in its favor has not been satisfied or with Knowledge of a breach of any representation, warranty or covenant by the other Party, the closing condition that is unsatisfied or the representation, warranty or covenant which is breached as of the Closing Date will be deemed waived by such Party, and absent a written waiver, the terms of which shall govern, such Party will be deemed to fully release and forever discharge the other Party on account of any and all claims, demands or charges, known or unknown, with respect to the same.

9.21CONSENT TO JURISDICTION. EACH OF SELLER, TOPIII AND PURCHASER CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK OR ADJUDICATION OF A PRELIMINARY INJUNCTION OR OTHER PROVISIONAL JUDICIAL REMEDY. EACH OF SELLER, TOPIII AND PURCHASER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. EACH OF THE PARTIES SHALL APPOINT AND MAINTAIN AN AGENT FOR SERVICE OF PROCESS IN THE STATE OF NEW YORK.

* * * * *

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above.

SELLER:

TWIN OAKS POWER, LP, a Texas limited partnership

By: SETOP I, LLC, a Delaware limited liability company, its general partner

By: __/s/ Michael R. Niggli_____________

Name: Michael R. Niggli

Title: President

TOPIII:

TWIN OAKS POWER III, LP, a Texas limited partnership

By: SETOP III, LLC, a Delaware limited liability company, its general partner

By: __/s/ Michael R. Niggli_____________

Name: Michael R. Niggli

Title: President

For purposes of Section 5.22, Article 3, Article 8 and Article 9 only:

SELLER’S PARENT:

SEMPRA ENERGY, a California corporation

By: __/s/ Charles A. McMonagle_________

Name: Charles A. McMonagle

Title: Vice President & Treasurer

By: __/s/ Mark Snell___________________

Name: Mark Snell

Title: Executive Vice President & CFO

PURCHASER:

ALTURA POWER L.P., a Texas limited partnership

By: ALTURA POWER GP, LLC, a Delaware limited liability company, its general partner

By: __/s/ Wendy Carlson______________

Name: Wendy Carlson

Title: Treasurer

For purposes of Section 5.3(b), Section 5.20, Section 5.21, Article 4, Article 8 and Article 9 only:

PURCHASER’S PARENT:

PNM RESOURCES, INC., a New Mexico corporation

By: __/s/ Hugh W. Smith_______________

Name: Hugh W. Smith

Title: Senior Vice President, Energy Resources

EX-4.6

Exhibit 4.6

EXECUTION COPY

PNM RESOURCES, INC.

and

U.S. BANK NATIONAL ASSOCIATION,
as Collateral Agent, Custodial Agent and Securities Intermediary

and

U.S. BANK NATIONAL ASSOCIATION,
as Purchase Contract Agent

PLEDGE AGREEMENT

Dated as of October 7, 2005

Table of Contents

Page

ARTICLE 1

DEFINITIONS

Section 1.01 Definitions 1

ARTICLE 2

PLEDGE

Section 2.01	Pledge	5
Section 2.02	Control	5
Section 2.03	Termination	6

ARTICLE 3

DISTRIBUTIONS ON PLEDGED COLLATERAL

Section 3.01	Income and Distributions	6
Section 3.02	Principal Payments Following Termination Event	6
Section 3.03	Principal Payments Prior to or on Purchase Contract Settlement Date	6
Section 3.04	Payments to Purchase Contract Agent	7
Section 3.05	Assets Not Properly Released	7

ARTICLE 4

CONTROL

Section 4.01	Establishment of Collateral Account	7
Section 4.02	Treatment as Financial Assets	8
Section 4.03	Sole Control by Collateral Agent	8
Section 4.04	Securities Intermediary’s Location	8
Section 4.05	No Other Claims	8
Section 4.06	Investment and Release	8
Section 4.07	Statements and Confirmations	8
Section 4.08	Tax Allocations	9
Section 4.09	No Other Agreements	9
Section 4.10	Powers Coupled with an Interest	9
Section 4.11	Waiver of Lien; Waiver of Set-off	9

i

ARTICLE 5

INITIAL DEPOSIT; CREATION OF TREASURY UNITS AND RECREATION

OF CORPORATE UNITS

Section 5.01	Initial Deposit of Senior Notes	9
Section 5.02	Creation of Treasury Units	10
Section 5.03	Recreation of Corporate Units	11
Section 5.04	Termination Event	12
Section 5.05	Cash Settlement	13
Section 5.06	Early Settlement and Cash Merger Early Settlement	14
Section 5.07	Application of Proceeds in Settlement of Purchase Contracts	15
Section 5.08	Special Event Redemption	17

ARTICLE 6

VOTING RIGHTS - PLEDGED SENIOR NOTES

Section 6.01 Voting Rights 17

ARTICLE 7

RIGHTS AND REMEDIES

Section 7.01	Rights and Remedies of the Collateral Agent	18
Section 7.02	Special Event Redemption	19
Section 7.03	Initial Remarketing	19
Section 7.04	Final Remarketing	19
Section 7.05	Successful Initial Remarketing	19
Section 7.06	Substitutions	20

ARTICLE 8

REPRESENTATIONS AND WARRANTIES; COVENANTS

Section 8.01	Representations and Warranties	20
Section 8.02	Covenants	21

ARTICLE 9

THE COLLATERAL AGENT, THE CUSTODIAL AGENT AND THE

SECURITIES INTERMEDIARY

Section 9.01	Appointment, Powers and Immunities	21
Section 9.02	Instructions of the Company	22
Section 9.03	Reliance by Collateral Agent, Custodial Agent and Securities Intermediary	22

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Section 9.04	Certain Rights	23
Section 9.05	Merger, Conversion, Consolidation or Succession to Business	23
Section 9.06	Rights in Other Capacities	23
Section 9.07	Non-reliance on Collateral Agent, the Custodial Agent and Securities Intermediary	24
Section 9.08	Compensation and Indemnity	24
Section 9.09	Failure to Act	25
Section 9.10	Resignation of Collateral Agent, the Custodial Agent and Securities Intermediary	25
Section 9.11	Right to Appoint Agent or Advisor	27
Section 9.12	Survival	27
Section 9.13	Exculpation	27

ARTICLE 10

AMENDMENT

Section 10.01	Amendment Without Consent of Holders	27
Section 10.02	Amendment with Consent of Holders	28
Section 10.03	Execution of Amendments	29
Section 10.04	Effect of Amendments	29
Section 10.05	Reference of Amendments	29

ARTICLE 11

MISCELLANEOUS

Section 11.01	No Waiver	29
Section 11.02	Governing Law; Submission to Jurisdiction	29
Section 11.03	Notices	30
Section 11.04	Successors and Assigns	30
Section 11.05	Counterparts	30
Section 11.06	Severability	30
Section 11.07	Expenses, Etc	30
Section 11.08	Security Interest Absolute	31
Section 11.09	Notice of Special Event, Special Event Redemption and Termination Event	31

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EXHIBITS

Exhibit A - Instruction from Purchase Contract Agent to Collateral Agent (Creation of Treasury Units)

Exhibit B - Instruction from Collateral Agent to Securities Intermediary (Creation of Treasury Units)

Exhibit C - Instruction from Purchase Contract Agent to Collateral Agent (Recreation of Corporate Units)

Exhibit D - Instruction from Collateral Agent to Securities Intermediary (Recreation of Corporate Units)

Exhibit E - Notice of Cash Settlement from Collateral Agent to Purchase Contract Agent

Exhibit F - Instruction to Custodial Agent Regarding Remarketing

Exhibit G - Instruction to Custodial Agent Regarding Withdrawal From Remarketing

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PLEDGE AGREEMENT dated as of October 7, 2005 between PNM RESOURCES, INC., a New Mexico corporation (the“Company”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association, as collateral agent (in such capacity, together with its successors in such capacity, the “Collateral Agent”), as custodial agent (in such capacity, together with its successors in such capacity, the “Custodial Agent”), and as securities intermediary (as defined in Section 8-102(a)(14) of the UCC) with respect to the Collateral Account (in such capacity, together with its successors in such capacity, the “Securities Intermediary”), and as purchase contract agent and as attorney-in-fact of the Holders from time to time of the Units (in such capacity, together with its successors in such capacity, the “Purchase Contract Agent”) under the Purchase Contract Agreement.

RECITALS

WHEREAS, the Company and the Purchase Contract Agent are parties to the Purchase Contract Agreement dated as of October 7, 2005 (as modified and supplemented and in effect from time to time, the “Purchase Contract Agreement”), pursuant to which 4,000,000 Corporate Units will be issued.

WHEREAS, each Corporate Unit, at issuance, consists of a unit comprised of (a) a stock purchase contract (a “Purchase Contract”) pursuant to which the Holder will purchase from the Company on the Purchase Contract Settlement Date, for an amount equal to $25 (the “Stated Amount”), a number of shares of the Company’s common stock, no par value (“Common Stock”), equal to the Settlement Rate and (b) a 1/40, or 2.5%, beneficial ownership interest in a Senior Note.

WHEREAS, pursuant to the terms of the Purchase Contract Agreement and the Purchase Contracts, the Holders of the Units have irrevocably authorized the Purchase Contract Agent, as attorney-in-fact of such Holders, among other things, to execute and deliver this Agreement on behalf of such Holders and to grant the pledge provided herein of the Collateral to secure the Obligations.

NOW, THEREFORE, the Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Purchase Contract Agent agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.01Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:

(a)the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular, and nouns and pronouns of the masculine gender include the feminine and neuter genders;

(b)the words “herein,”“hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section, Exhibit or other subdivision;

(c)the following terms which are defined in the UCC shall have the meanings set forth therein: “certificated security,” “control,” “financial asset,” “entitlement order,” “securities account” and “security entitlement”;

(d)capitalized terms used herein and not defined herein have the meanings assigned to them in the Purchase Contract Agreement; and

(e)the following terms have the meanings given to them in this Section 1.01(e):

“Agreement” means this Pledge Agreement, as the same may be amended, modified or supplemented from time to time.

“Cash” means any coin or currency of the United States as at the time shall be legal tender for payment of public and private debts.

“Collateral” means the collective reference to:

(i)the Collateral Account and all investment property and other financial assets from time to time credited to the Collateral Account and all security entitlements with respect thereto, including, without limitation, (A) the Senior Notes and security entitlements relating thereto that are a component of the Corporate Units from time to time, (B) the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio that are a component of the Corporate Units from time to time, (C) any Treasury Securities and security entitlements relating thereto delivered from time to time upon creation of Treasury Units in accordance with Section 5.02 hereof and (D) payments made by Holders pursuant to Section 5.05 hereof;

(ii)all Proceeds of any of the foregoing (whether such Proceeds arise before or after the commencement of any proceeding under any applicable bankruptcy, insolvency or other similar law, by or against the pledgor or with respect to the pledgor); and

(iii)all powers and rights now owned or hereafter acquired under or with respect to the Collateral.

“Collateral Account” means the securities account of U.S. Bank National Association, as Collateral Agent, maintained by the Securities Intermediary and designated “U.S. Bank National Association, as Collateral Agent of PNM Resources, Inc., as pledgee of U.S. Bank National Association, as the Purchase Contract Agent on behalf of and as attorney-in-fact for the Holders”.

“Collateral Agent” has the meaning specified in the paragraph preceding the recitals of this Agreement.

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“Common Stock” has the meaning specified in the second paragraph of the recitals of this Agreement.

“Company” means the Person named as the “Company” in the first paragraph of this Agreement until a successor shall have become such pursuant to the applicable provisions of the Purchase Contract Agreement, and thereafter “Company” shall mean such successor.

“Custodial Agent” has the meaning specified in the paragraph preceding the recitals of this Agreement.

“Indemnitees” has the meaning given such term in Section 9.08(b).

“Loss” or “Losses” has the meaning given such term in Section 9.08(b).

“Obligations” means, with respect to each Holder, all obligations and liabilities of such Holder under such Holder’s Purchase Contract, the Purchase Contract Agreement and this Agreement or any other document made, delivered or given in connection herewith or therewith, in each case whether on account of principal, interest (including, without limitation, interest accruing before and after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to such Holder, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Company or the Collateral Agent or the Securities Intermediary that are required to be paid by the Holder pursuant to the terms of any of the foregoing agreements).

“Permitted Investments” means any one of the following, in each case maturing on the Business Day following the date of acquisition:

(1) any evidence of indebtedness with an original maturity of 365 days or less issued, or directly and fully guaranteed or insured, by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support of the timely payment thereof or such indebtedness constitutes a general obligation of it);

(2) deposits, certificates of deposit or acceptances with an original maturity of 365 days or less of any institution which is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $500 million at the time of deposit (and which may include the Collateral Agent);

(3) investments with an original maturity of 365 days or less of any Person that are fully and unconditionally guaranteed by a bank referred to in clause (2);

(4) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally guaranteed by the United States of America or issued by any agency thereof and backed as to timely payment by the full faith and credit of the United States of America;

(5) investments in commercial paper, other than commercial paper issued by the Company or its Affiliates, of any corporation incorporated under the laws of the United States of America or any State thereof, which commercial paper has a rating at the time of purchase at least equal to “A-1” by Standard & Poor’s Ratings Services (“S&P”) or at least equal to “P-1” by Moody’s Investors Service, Inc. (“Moody’s”); and

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(6) investments in money market funds (including, but not limited to, money market funds managed by the Collateral Agent or an affiliate of the Collateral Agent) registered under the Investment Company Act of 1940, as amended, rated in the highest applicable rating category by S&P or Moody’s.

“Person” means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency, instrumentality or political subdivision thereof.

“Pledge” means the lien and security interest created by this Agreement.

“Pledged Applicable Ownership Interests” means the Holder’s Applicable Ownership Interests (as specified in clause (i) of the definition thereof) in the Treasury Portfolio and security entitlements with respect thereto from time to time credited to the Collateral Account and not then released from the Pledge.

“Pledged Senior Notes” means Senior Notes and security entitlements with respect thereto from time to time credited to the Collateral Account and not then released from the Pledge.

“Pledged Securities” means the Pledged Senior Notes, the Pledged Applicable Ownership Interests and the Pledged Treasury Securities, collectively.

“Pledged Treasury Securities” means Treasury Securities and security entitlements with respect thereto from time to time credited to the Collateral Account and not then released from the Pledge.

“Proceeds” has the meaning ascribed thereto in the UCC and includes, without limitation, all interest, dividends, cash, instruments, securities, financial assets and other property received, receivable or otherwise distributed upon the sale (including, without limitation, the Remarketing), exchange, collection or disposition of any financial assets from time to time held in the Collateral Account.

“Purchase Contract” has the meaning specified in the second paragraph of the recitals of this Agreement.

“Purchase Contract Agent” has the meaning specified in the paragraph preceding the recitals of this Agreement.

“Purchase Contract Agreement” has the meaning specified in the first paragraph of the recitals of this Agreement.

“Purchase Contract Settlement Date” means November 16, 2008.

“Securities Intermediary” has the meaning specified in the paragraph preceding the recitals of this Agreement.

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“Stated Amount” has the meaning specified in the second paragraph of the recitals of this Agreement.

“TRADES” means the Treasury/Reserve Automated Debt Entry System maintained by the Federal Reserve Bank of New York pursuant to the TRADES Regulations.

“TRADES Regulations” means the regulations of the United States Department of the Treasury, published at 31 C.F.R. Part 357, as amended from time to time. Unless otherwise defined herein, all terms defined in the TRADES Regulations are used herein as therein defined.

“Transfer” means (i) in the case of certificated securities in registered form, delivery as provided in § 8-301(a) of the UCC, endorsed to the transferee or in blank by an effective endorsement, (ii) in the case of Treasury Securities, registration of the transferee as the owner of such Treasury Securities on TRADES and (iii) in the case of security entitlements, including, without limitation, security entitlements with respect to Treasury Securities, a securities intermediary indicating by book entry that such security entitlement has been credited to the transferee’s securities account.

“Treasury Securities” means zero-coupon U.S. treasury securities that mature on November 15, 2008 (CUSIP No. 912828EC0).

“UCC” means the Uniform Commercial Code as in effect in the State of New York from time to time.

“Value” means, with respect to any item of Collateral on any date, as to (1) Cash, the face amount thereof, (2) Treasury Securities or Senior Notes, the aggregate principal amount thereof at maturity and (3) Applicable Ownership Interests (as specified in clause (i) of the definition of such term), the appropriate percentage of the aggregate principal amount at maturity of the Treasury Portfolio.

ARTICLE 2

PLEDGE

Section 2.01Pledge. Each Holder, acting through the Purchase Contract Agent as such Holder’s attorney-in-fact, and the Purchase Contract Agent, acting solely as such attorney-in-fact, hereby pledges and grants to the Collateral Agent, as agent of and for the benefit of the Company, a continuing first priority security interest in and to, and a lien upon and right of set-off against, all of such Person’s right, title and interest in and to the Collateral to secure the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of the Obligations. The Collateral Agent shall have all of the rights, remedies and recourses with respect to the Collateral afforded a secured party by the UCC, in addition to, and not in limitation of, the other rights, remedies and recourses afforded to the Collateral Agent by this Agreement.

Section 2.02Control. The Collateral Agent shall have control of the Collateral Account pursuant to the provisions of Article 4 of this Agreement.

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Section 2.03Termination. As to each Holder, this Agreement and the Pledge created hereby shall terminate upon the satisfaction of such Holder’s Obligations. Upon such termination, the Collateral Agent shall, except as otherwise provided herein, instruct the Securities Intermediary to Transfer such Holder’s portion of the Collateral to the Purchase Contract Agent for distribution to such Holder, free and clear of the Pledge created hereby.

ARTICLE 3

DISTRIBUTIONS ON PLEDGED COLLATERAL

Section 3.01Income and Distributions. The Collateral Agent shall transfer all income and distributions received by the Collateral Agent on account of the Pledged Senior Notes, the Pledged Applicable Ownership Interests or Permitted Investments from time to time held in the Collateral Account (ABA No. 789017000, Re: PNM Resources, Inc.) to the Purchase Contract Agent for distribution to the applicable Holders as provided in the Purchase Contracts or Purchase Contract Agreement.

Section 3.02Principal Payments Following Termination Event. Following a Termination Event, the Collateral Agent shall transfer all principal payments it receives, if any, in respect of (1) the Pledged Senior Notes, (2) the Pledged Applicable Ownership Interests and (3) the Pledged Treasury Securities, to the Purchase Contract Agent for the benefit of the applicable Holders for distribution to such Holders in accordance with their respective interests, free and clear of the Pledge created hereby.

Section 3.03Principal Payments Prior to or on Purchase Contract Settlement Date.

(a)Subject to the provisions of Sections 5.06 and 5.08, and except as provided in Section 3.03(b) below, if no Termination Event shall have occurred, all principal payments received by the Securities Intermediary in respect of (1) the Pledged Senior Notes, (2) the Pledged Applicable Ownership Interests and (3) the Pledged Treasury Securities, shall be held and invested in Permitted Investments until the Purchase Contract Settlement Date, and transferred to the Company on the Purchase Contract Settlement Date as provided in Section 5.07 hereof. Any balance remaining in the Collateral Account shall be released from the Pledge and transferred to the Purchase Contract Agent for the benefit of the applicable Holders for distribution to such Holders in accordance with their respective interests, free and clear of the Pledge created thereby. The Company shall instruct the Collateral Agent in writing as to the type of Permitted Investments in which any payments made under this Section 3.03(a) shall be invested; provided, however, that if the Company fails to deliver such instructions by 10:30 a.m. (New York City time) on the day such payments are received by the Collateral Agent, the Collateral Agent shall invest such payments in the Permitted Investments as described in clause (6) of the definition of Permitted Investments. The Collateral Agent shall have no liability in respect of losses incurred as a result of the failure of the Company to provide timely written investment direction.

(b)All principal payments received by the Securities Intermediary in respect of (1) the Senior Notes, (2) the Applicable Ownership Interests (as specified in clause (i) of the definition thereof) in the Treasury Portfolio and (3) the Treasury Securities or security entitlements thereto, that, in each case, have been released from the Pledge pursuant hereto shall be transferred to the Purchase Contract Agent for the benefit of the applicable Holders for distribution to such Holders in accordance with their respective interests.

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Section 3.04Payments to Purchase Contract Agent. The Securities Intermediary shall use commercially reasonable efforts to deliver payments to the Purchase Contract Agent hereunder to the account designated by the Purchase Contract Agent for such purpose not later than 12:00 p.m. (New York City time) on the Business Day such payment is received by the Securities Intermediary; provided, however, that if such payment is received on a day that is not a Business Day or after 11:00 a.m. (New York City time) on a Business Day, then the Securities Intermediary shall use commercially reasonable efforts to deliver such payment to the Purchase Contract Agent no later than 10:30 a.m. (New York City time) on the next succeeding Business Day.

Section 3.05Assets Not Properly Released. If the Purchase Contract Agent or any Holder shall receive any principal payments on account of financial assets credited to the Collateral Account and not released therefrom in accordance with this Agreement, the Purchase Contract Agent or such Holder shall hold the same as trustee of an express trust for the benefit of the Company and, upon receipt of an Officers’ Certificate of the Company so directing, promptly deliver the same to the Securities Intermediary for credit to the Collateral Account or to the Company for application to the Obligations of the Holders, and the Purchase Contract Agent and Holders shall acquire no right, title or interest in any such payments of principal amounts so received. The Purchase Contract Agent shall have no liability under this Section 3.05 unless and until it has been notified in writing that such payment was delivered to it erroneously and shall have no liability for any action taken, suffered or omitted to be taken prior to its receipt of such notice.

ARTICLE 4

CONTROL

Section 4.01Establishment of Collateral Account. The Securities Intermediary hereby confirms that:

(a)the Securities Intermediary has established the Collateral Account;

(b)the Collateral Account is a securities account;

(c)subject to the terms of this Agreement, the Securities Intermediary shall identify in its records the Collateral Agent as the entitlement holder entitled to exercise the rights that comprise any financial asset credited to the Collateral Account;

(d)all property delivered to the Securities Intermediary pursuant to this Agreement or the Purchase Contract Agreement, including any Applicable Ownership Interests (as specified in clause (i) of such definition) in the Treasury Portfolio and any Permitted Investments, will be credited promptly to the Collateral Account; and

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(e)all securities or other property underlying any financial assets credited to the Collateral Account shall be (i) registered in the name of the Purchase Contract Agent and endorsed to the Securities Intermediary or in blank, (ii) registered in the name of the Securities Intermediary or (iii) credited to another securities account maintained in the name of the Securities Intermediary. In no case will any financial asset credited to the Collateral Account be registered in the name of the Purchase Contract Agent or any Holder or specially endorsed to the Purchase Contract Agent or any Holder unless such financial asset has been further endorsed to the Securities Intermediary or in blank.

Section 4.02Treatment as Financial Assets. Each item of property (whether investment property, financial asset, security, instrument or cash) credited to the Collateral Account shall be treated as a financial asset.

Section 4.03Sole Control by Collateral Agent. Except as provided in Section 6.01, at all times prior to the termination of the Pledge, the Collateral Agent shall have sole control of the Collateral Account, and the Securities Intermediary shall take instructions and directions with respect to the Collateral Account solely from the Collateral Agent. If at any time the Securities Intermediary shall receive an entitlement order issued by the Collateral Agent and relating to the Collateral Account, the Securities Intermediary shall comply with such entitlement order without further consent by the Purchase Contract Agent or any Holder or any other Person. Except as otherwise permitted under this Agreement, until termination of the Pledge, the Securities Intermediary will not comply with any entitlement orders issued by the Purchase Contract Agent or any Holder.

Section 4.04Securities Intermediary’s Location. The Collateral Account, and the rights and obligations of the Securities Intermediary, the Collateral Agent, the Purchase Contract Agent and the Holders with respect thereto, shall be governed by the laws of the State of New York. Regardless of any provision in any other agreement, for purposes of the UCC, New York shall be deemed to be the Securities Intermediary’s jurisdiction.

Section 4.05No Other Claims. Except for the claims and interest of the Collateral Agent and of the Purchase Contract Agent and the Holders in the Collateral Account, the Securities Intermediary (without having conducted any investigation) does not know of any claim to, or interest in, the Collateral Account or in any financial asset credited thereto. If any Person asserts any lien, encumbrance or adverse claim (including any writ, garnishment, judgment, warrant of attachment, execution or similar process) against the Collateral Account or in any financial asset carried therein, the Securities Intermediary will promptly notify the Collateral Agent and the Purchase Contract Agent.

Section 4.06Investment and Release. All proceeds of financial assets from time to time deposited in the Collateral Account shall be invested and reinvested as provided in this Agreement. At no time prior to termination of the Pledge with respect to any particular property shall such property be released from the Collateral Account except in accordance with this Agreement or upon written instructions of the Collateral Agent.

Section 4.07Statements and Confirmations. The Securities Intermediary will promptly send copies of all statements, confirmations and other correspondence concerning the Collateral Account and any financial assets credited thereto simultaneously to each of the Purchase Contract Agent and the Collateral Agent at their addresses for notices under this Agreement.

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Section 4.08Tax Allocations. The Purchase Contract Agent shall report all items of income, gain, expense and loss recognized in the Collateral Account, to the extent such reporting is required by law, to the Internal Revenue Service authorities in the manner required by law. Neither the Securities Intermediary nor the Collateral Agent shall have any tax reporting duties hereunder.

Section 4.09No Other Agreements. The Securities Intermediary has not entered into, and prior to the termination of the Pledge will not enter into, any agreement with any other Person relating to the Collateral Account or any financial assets credited thereto, including, without limitation, any agreement to comply with entitlement orders of any Person other than the Collateral Agent.

Section 4.10Powers Coupled with an Interest. The rights and powers granted in this Article 4 to the Collateral Agent have been granted in order to perfect its security interests in the Collateral Account, are powers coupled with an interest and will be affected neither by the bankruptcy of the Purchase Contract Agent or any Holder nor by the lapse of time. The obligations of the Securities Intermediary under this Article 4 shall continue in effect until the termination of the Pledge with respect to any and all Collateral.

Section 4.11Waiver of Lien; Waiver of Set-off. The Securities Intermediary waives any security interest, lien or right to make deductions or set- offs that it may now have or hereafter acquire in or with respect to the Collateral Account, any financial asset credited thereto or any security entitlement in respect thereof. Neither the financial assets credited to the Collateral Account nor the security entitlements in respect thereof will be subject to deduction, set-off, banker’s lien or any other right in favor of any Person other than the Company.

ARTICLE 5

INITIAL DEPOSIT; CREATION OF TREASURY UNITS AND RECREATION OF CORPORATE UNITS

Section 5.01Initial Deposit of Senior Notes.

(a)Prior to or concurrently with the execution and delivery of this Agreement, the Purchase Contract Agent, on behalf of the initial Holders of the Corporate Units, shall Transfer to the Securities Intermediary, for credit to the Collateral Account, the Senior Notes or security entitlements relating thereto, and, in the case of security entitlements, the Securities Intermediary shall indicate by book-entry that a securities entitlement to such Senior Notes has been credited to the Collateral Account.

(b)The Collateral Agent may, at any time or from time to time, in its sole discretion, cause any or all securities or other property underlying any financial assets credited to the Collateral Account to be registered in the name of the Securities Intermediary, the Collateral Agent or their respective nominees; provided, however, that unless any Event of Default (as defined in the Indenture) shall have occurred and be continuing, the Collateral Agent agrees not to cause any Senior Notes to be so re-registered.

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Section 5.02Creation of Treasury Units.

(a)Unless the Treasury Portfolio has replaced the Senior Notes as a component of the Corporate Units, a Holder of Corporate Units shall have the right, at any time on or prior to 5:00 p.m. (New York City time) on the fifth Business Day immediately preceding the Purchase Contract Settlement Date, to create Treasury Units by substitution of Treasury Securities or security entitlements with respect thereto for the Pledged Senior Notes comprising a part of all or a portion of such Holder’s Corporate Units, in integral multiples of 40 Corporate Units by:

(i)transferring to the Purchase Contract Agent, for credit to the Collateral Account, Treasury Securities or security entitlements with respect thereto having a Value equal to the aggregate principal amount of the Pledged Senior Notes to be released, accompanied by a notice, substantially in the form of Exhibit C to the Purchase Contract Agreement, whereupon the Purchase Contract Agent shall deliver to the Collateral Agent a notice, substantially in the form of Exhibit A hereto, (A) stating that such Holder has notified the Purchase Contract Agent that such Holder has Transferred Treasury Securities or security entitlements with respect thereto to the Collateral Agent for credit to the Collateral Account, (B) stating the Value of the Treasury Securities or security entitlements with respect thereto Transferred by such Holder and (C) requesting that the Collateral Agent release from the Pledge the Pledged Senior Notes that are a component of such Corporate Units; and

(ii)delivering the related Corporate Units to the Purchase Contract Agent.

Upon receipt of such notice and confirmation that Treasury Securities or security entitlements with respect thereto have been credited to the Collateral Account as described in such notice, the Collateral Agent shall instruct the Securities Intermediary by a notice, substantially in the form of Exhibit B hereto, to release such Pledged Senior Notes from the Pledge by Transfer to the Purchase Contract Agent for distribution to such Holder, free and clear of the Pledge created hereby.

If the Treasury Portfolio has replaced the Senior Notes as a component of the Corporate Units and subject to the conditions of the Purchase Contract Agreement, a Holder of Corporate Units may, at any time on or prior to the second Business Day immediately preceding the Purchase Contract Settlement Date, substitute Treasury Securities for the Applicable Ownership Interests in the Treasury Portfolio with respect to such Corporate Units, but only in multiples of 4,000 Corporate Units. In such an event, the Holder shall transfer the required amount of Treasury Securities to the Securities Intermediary, for credit to the Collateral Account, and the Purchase Contract Agent shall request the Collateral Agent to instruct the Securities Intermediary to release the Pledge of and transfer to the Holder the appropriate Applicable Ownership Interests in the Treasury Portfolio in the manner set forth above.

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(b)Upon credit to the Collateral Account of Treasury Securities or security entitlements with respect thereto delivered by a Holder of Corporate Units and receipt of the related instruction from the Collateral Agent, the Securities Intermediary shall release such Pledged Senior Notes or Applicable Ownership Interest in the Treasury Portfolio, as the case may be, from the Pledge and shall promptly Transfer the same to the Purchase Contract Agent for distribution to such Holder, free and clear of the Pledge created hereby.

Section 5.03Recreation of Corporate Units.

(a)Unless the Treasury Portfolio has replaced the Senior Notes as a component of the Corporate Units, at any time on or prior to 5:00 p.m. (New York City time) on the fifth Business Day immediately preceding the Purchase Contract Settlement Date, a Holder of Treasury Units shall have the right to recreate Corporate Units by substitution of Senior Notes or security entitlements with respect thereto for Pledged Treasury Securities in integral multiples of 40 Treasury Units by:

(i)transferring to the Securities Intermediary, for credit to the Collateral Account, Senior Notes or security entitlements with respect thereto having a principal amount equal to the Value of the Pledged Treasury Securities to be released, accompanied by a notice, substantially in the form of Exhibit C to the Purchase Contract Agreement, whereupon the Purchase Contract Agent shall deliver to the Collateral Agent a notice, substantially in the form of Exhibit C hereto, stating that such Holder has Transferred the Senior Notes or security entitlements with respect thereto to the Collateral Account for credit to the Collateral Account and requesting that the Collateral Agent release from the Pledge the Pledged Treasury Securities related to such Treasury Units; and

(ii)delivering the related Treasury Units to the Purchase Contract Agent.

Upon receipt of such notice and confirmation that Senior Notes or security entitlements with respect thereto have been credited to the Collateral Account as described in such notice, the Collateral Agent shall instruct the Securities Intermediary by a notice substantially in the form of Exhibit D hereto to release such Pledged Treasury Securities from the Pledge by Transfer to the Purchase Contract Agent for distribution to such Holder, free and clear of the Pledge created hereby.

If the Treasury Portfolio has replaced the Senior Notes as a component of the Corporate Units, a Holder of Treasury Units may, at any time on or prior to the second Business Day immediately preceding the Purchase Contract Settlement Date, substitute the Applicable Ownership Interests in the Treasury Portfolio for the Pledged Treasury Securities with respect to such Treasury Units, but only in multiples of 4,000 Treasury Units. In such an event, the Holder shall Transfer the required Applicable Ownership Interests in the Treasury Portfolio to the Securities Intermediary, for credit to the Collateral Account, and the Purchase Contract Agent shall request the Collateral Agent to instruct the Securities Intermediary to release and Transfer to the Holder the Pledged Treasury Securities in the manner set forth above.

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(b)Upon credit to the Collateral Account of Senior Notes or security entitlements with respect thereto or Applicable Ownership Interests in the Treasury Portfolio delivered by a Holder of Treasury Units and receipt of the related instruction from the Collateral Agent, the Securities Intermediary shall release such Pledged Treasury Securities from the Pledge and shall promptly Transfer the same to the Purchase Contract Agent for distribution to such Holder, free and clear of the Pledge created hereby.

Section 5.04Termination Event.

(a)Upon receipt by the Collateral Agent of written notice from the Company or the Purchase Contract Agent that a Termination Event has occurred, the Collateral Agent shall release all Collateral from the Pledge and shall promptly instruct the Securities Intermediary to Transfer:

(i)any Pledged Senior Notes or security entitlements with respect thereto or Pledged Applicable Ownership Interests;

(ii)any Pledged Treasury Securities; and

(iii)any payments by Holders (or the Permitted Investments of such payments) pursuant to Section 5.05 hereof,

to the Purchase Contract Agent for the benefit of the Holders for distribution to such Holders, in accordance with their respective interests, free and clear of the Pledge created hereby; provided, however, if any Holder shall be entitled to receive less than $1,000 with respect to its interest in the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio, the Purchase Contract Agent shall dispose of such interest for cash and deliver to such Holder cash in lieu of delivering the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio.

(b)If such Termination Event shall result from the Company’s becoming a debtor under the Bankruptcy Code, and if the Collateral Agent shall for any reason fail promptly to effectuate the release and Transfer of all Pledged Senior Notes, Pledged Applicable Ownership Interests, Pledged Treasury Securities and payments by Holders (or the Permitted Investments of such payments) pursuant to Section 5.05 and Proceeds of any of the foregoing, as the case may be, as provided by this Section 5.04, the Purchase Contract Agent shall:

(i)use its best efforts to obtain an opinion of a nationally recognized law firm to the effect that, notwithstanding the Company being the debtor in such a bankruptcy case, the Collateral Agent will not be prohibited from releasing or Transferring the Collateral as provided in this Section 5.04 and shall deliver or cause to be delivered such opinion to the Collateral Agent within ten days after the occurrence of such Termination Event, and if (A) the Purchase Contract Agent shall be unable to obtain such opinion within ten days after the occurrence of such Termination Event or (B) the Collateral Agent shall continue, after delivery of such opinion, to refuse to effectuate the release and Transfer of all Pledged Senior Notes, Pledged Applicable Ownership Interests, Pledged Treasury Securities and the payments by Holders (or the Permitted Investments of such payments) pursuant to Section 5.05 hereof and Proceeds of any of

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the foregoing, as the case may be, as provided in this Section 5.04, then the Purchase Contract Agent shall within fifteen days after the occurrence of such Termination Event commence an action or proceeding in the court having jurisdiction of the Company’s case under the Bankruptcy Code seeking an order requiring the Collateral Agent to effectuate the release and transfer of all Pledged Senior Notes, Pledged Applicable Ownership Interests, Pledged Treasury Securities and the payments by Holders (or the Permitted Investments of such payments) pursuant to Section 5.05 hereof and Proceeds of any of the foregoing, or as the case may be, as provided by this Section 5.04; or

(ii)commence an action or proceeding like that described in Section 5.04(b)(i) hereof within ten days after the occurrence of such Termination Event.

Section 5.05Cash Settlement.

(a)Upon receipt by the Collateral Agent of (1) a notice from the Purchase Contract Agent promptly after the receipt by the Purchase Contract Agent of a notice from a Holder of Corporate Units or Treasury Units that such Holder has elected, in accordance with the procedures specified in Section 5.02(b)(i) of the Purchase Contract Agreement, to effect a Cash Settlement and (2) payment by such Holder by deposit in the Collateral Account on or prior to 5:00 p.m. (New York City time) on the fourth Business Day immediately preceding the Purchase Contract Settlement Date of the Purchase Price in lawful money of the United States by certified or cashier’s check or wire transfer of immediately available funds payable to or upon the order of the Securities Intermediary, then the Collateral Agent shall:

(i)instruct the Securities Intermediary promptly to invest any such Cash in Permitted Investments;

(ii)instruct the Securities Intermediary to release from the Pledge such Holder’s related Pledged Senior Notes or Pledged Applicable Ownership Interests, as applicable, as to which such Holder has effected a Cash Settlement pursuant to this Section 5.05(a); and

(iii)instruct the Securities Intermediary to Transfer all such Pledged Senior Notes, Pledged Applicable Ownership Interests or the Pledged Treasury Securities, as the case may be, to the Purchase Contract Agent for distribution to such Holder, in each case free and clear of the Pledge created hereby.

The Company shall instruct the Collateral Agent in writing as to the type of Permitted Investments in which any such Cash shall be invested; provided, however, that if the Company fails to deliver such written instructions by 10:30 a.m. (New York City time) on the day such Cash is received by the Collateral Agent or to be reinvested by the Securities Intermediary, the Collateral Agent shall instruct the Securities Intermediary to invest such Cash in the Permitted Investments described in clause (6) of the definition of Permitted Investments. In no event shall the Collateral Agent or Securities Intermediary be liable for the selection of Permitted Investments or for investment losses incurred thereon. The Collateral Agent and Securities Intermediary shall have no liability with respect to losses incurred as a result of the failure of the Company to provide timely written investment direction.

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Upon receipt of Proceeds upon the maturity of the Permitted Investments on the Purchase Contract Settlement Date, the Collateral Agent shall (A) instruct the Securities Intermediary to pay the portion of such Proceeds and deliver any certified or cashier’s checks received, in an aggregate amount equal to the Purchase Price, to the Company on the Purchase Contract Settlement Date, and (B) release any amounts in excess of the Purchase Price earned from such Permitted Investments to the Purchase Contract Agent for distribution to such Holder in accordance with the Purchase Contract Agreement.

(b)If a Holder of Corporate Units (unless the Treasury Portfolio has replaced the Senior Notes as a component of such Corporate Units) (i) fails to notify the Purchase Contract Agent of its intention to make a Cash Settlement as provided in Section 5.02(b)(i) of the Purchase Contract Agreement or (ii) does notify the Purchase Contract Agent of its intention to pay the Purchase Price in cash, but fails to make such payment as required by Section 5.02(b)(ii) of the Purchase Contract Agreement, such Holder shall be deemed to have consented to the disposition of such Holder’s Pledged Senior Notes in accordance with Section 5.02(b)(iii) of the Purchase Contract Agreement.

(c)As soon as practicable after 5:00 p.m. (New York City time) on the fourth Business Day immediately preceding the Purchase Contract Settlement Date, the Collateral Agent shall deliver to the Purchase Contract Agent a notice, substantially in the form of Exhibit E hereto, stating (i) the amount of Cash that it has received with respect to the Cash Settlement of Corporate Units, (ii) the amount of Cash that it has received with respect to the Cash Settlement of Treasury Units and (iii) the amount of Pledged Senior Notes to be remarketed in the Final Remarketing pursuant to Section 5.02(c) of the Purchase Contract Agreement.

(d)If there has been a Failed Final Remarketing, as soon as practicable after 5:00 p.m. (New York City time) on the Business Day immediately preceding the Purchase Contract Settlement Date, the Collateral Agent shall deliver to the Purchase Contract Agent a notice, stating (i) the amount of Cash that it has received with respect to the Cash Settlement of Corporate Units, (ii) the amount of Cash that it has received with respect to the Cash Settlement of Treasury Units and (iii) the amount of Pledged Senior Notes with respect to which an automatic deemed exercise of the Put Right has occurred pursuant to Section 5.02(c) of the Purchase Contract Agreement.

Section 5.06Early Settlement and Cash Merger Early Settlement. Upon receipt by the Collateral Agent of a notice from the Purchase Contract Agent that a Holder of Units has elected to effect either (i) Early Settlement of its obligations under the Purchase Contracts forming a part of such Units in accordance with the terms of the Purchase Contracts and Section 5.07 of the Purchase Contract Agreement or (ii) Cash Merger Early Settlement of its obligations under the Purchase Contracts forming a part of such Units in accordance with the terms of the Purchase Contracts and Section 5.04(b)(ii) of the Purchase Contract Agreement (which notice shall set forth the number of such Purchase Contracts as to which such Holder has elected to effect Early Settlement or Cash Merger Early Settlement), and that the Purchase Contract Agent has received from such Holder, and paid to the Company as confirmed in writing by the Company, the related Purchase Price pursuant to the terms of the Purchase Contracts and the Purchase Contract Agreement and that all conditions to such Early Settlement or Cash Merger Early Settlement, as the case may be, have been satisfied, then the Collateral Agent shall release from the Pledge, (1)

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Pledged Senior Notes or the Pledged Applicable Ownership Interests in the case of a Holder of Corporate Units or (2) Pledged Treasury Securities, in the case of a Holder of Treasury Units, in each case with a Value equal to the product of (x) the Stated Amount times (y) the number of Purchase Contracts as to which such Holder has elected to effect Early Settlement or Cash Merger Early Settlement, and shall instruct the Securities Intermediary to Transfer all such Pledged Applicable Ownership Interests or Pledged Senior Notes or Pledged Treasury Securities, as the case may be, to the Purchase Contract Agent for distribution to such Holder, in each case free and clear of the Pledge created hereby. A holder of Treasury Units may settle early only in integral multiples of 40 Treasury Units, and a Holder of Corporate Units, if the Treasury Portfolio has replaced the Senior Notes as a component of such Corporate Units, may settle early only in integral multiples of 4,000 Corporate Units.

Section 5.07Application of Proceeds in Settlement of Purchase Contracts.

(a)If a Holder of Corporate Units (unless the Treasury Portfolio has replaced the Senior Notes as a component of such Corporate Units) has not elected to make an effective Cash Settlement by notifying the Purchase Contract Agent in the manner provided for in Section 5.02(b)(i) of the Purchase Contract Agreement or does notify the Purchase Contract Agent as provided in Section 5.02(b)(i) of the Purchase Contract Agreement of its intention to pay the Purchase Price in cash, but fails to make such payment as required by Section 5.02(b)(ii) of the Purchase Contract Agreement, such Holder shall be deemed to have elected to pay for the shares of Common Stock or Preferred Stock, as applicable, to be issued under such Purchase Contracts from the Proceeds of the Final Remarketing of the related Pledged Senior Notes. In the event of a Successful Final Remarketing, the Collateral Agent shall instruct the Securities Intermediary to Transfer the related Pledged Senior Notes to the Remarketing Agent, upon confirmation of deposit by the Remarketing Agent of the Proceeds of such Final Remarketing (less, to the extent permitted by the Remarketing Agreement, the Remarketing Fee) in the Collateral Account. The Collateral Agent shall instruct the Securities Intermediary to invest the Proceeds of the Final Remarketing in Permitted Investments set forth in clause (6) of the definition of Permitted Investments. On the Purchase Contract Settlement Date, the Collateral Agent shall, in consultation with the Purchase Contract Agent, instruct the Securities Intermediary to remit a portion of the Proceeds from such Final Remarketing equal to the aggregate principal amount of such Pledged Senior Notes to satisfy in full such Holder’s obligations to pay the Purchase Price to purchase the shares of Common Stock or Preferred Stock, as applicable, under the related Purchase Contracts and to remit the balance of the Proceeds from the Final Remarketing, if any, to the Purchase Contract Agent for distribution to such Holder.

Upon a Failed Final Remarketing, each Holder of Corporate Units (unless the Treasury Portfolio has replaced the Senior Notes represented by such Corporate Units) that has not elected to make an effective Cash Settlement by notifying the Purchase Contract Agent in the manner provided for in Section 5.02(e)(i) of the Purchase Contract Agreement or does notify the Purchase Contract Agent as provided in Section 5.02(e)(i) of the Purchase Contract Agreement of its intention to pay the Purchase Price in cash, but fails to make such payment as required by Section 5.02(e)(ii) of the Purchase Contract Agreement, shall be deemed to have exercised such Holder’s Put Right with respect to the Senior Notes that are a component of Corporate Units have elected to have a portion of the Proceeds of the Put Right set-off against such Holder’s obligation to pay the aggregate Price for the shares of Common Stock or Preferred Stock, as applicable, to be issued under the Purchase Contracts underlying such Corporate Units in full satisfaction of such Holders’ obligations under the Purchase Contracts. Following such set-off, the Holder’s obligations to pay the Purchase Price for the shares of Common Stock or Preferred Stock, as

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applicable, will be deemed to be satisfied in full, and the Collateral Agent shall cause the Securities Intermediary to release the Pledged Senior Notes from the Collateral Account and shall promptly transfer the Pledged Senior Notes to the Company. Thereafter, the Collateral Agent shall promptly remit the remaining Proceeds of the Holder’s exercise of the Put Right in excess of the aggregate Purchase Price for the shares of Common Stock or Preferred Stock, as applicable, to be issued under such Purchase Contracts to the Purchase Contract Agent for payment to the Holder of the Corporate Units to which such Senior Notes relate.

(b)A Holder of a Treasury Unit or a Corporate Unit (if the Treasury Portfolio has replaced the Senior Notes as a component of such Corporate Unit) shall be deemed to have elected to pay for the shares of Common Stock or Preferred Stock, as applicable, to be issued under such Purchase Contracts from the Proceeds of the related Pledged Treasury Securities or Pledged Applicable Ownership Interests, as the case may be. Promptly, after 11:00 a.m. (New York City time) on the Business Day immediately prior to the Purchase Contract Settlement Date, the Collateral Agent shall invest the Proceeds in the Permitted Investments set forth in Clause (6) of the definition of Permitted Investments, unless prior to 10:30 a.m. on such date the Company shall otherwise instruct the Collateral Agent in writing as to the type of Permitted Investments in which any Proceeds shall be invested. In no event shall the Collateral Agent be liable for the selection of Permitted Investments or for investment losses incurred thereon. The Collateral Agent shall have no liability in respect of losses incurred as a result of the failure of the Company to provide timely written investment direction. Without receiving any instruction from any Holder, the Collateral Agent shall instruct the Securities Intermediary to remit the Proceeds of the related Pledged Treasury Securities or Pledged Applicable Ownership Interests, as the case may be, to the Company in settlement of such Purchase Contracts on the Purchase Contract Settlement Date. In the event the sum of the Proceeds from the related Pledged Treasury Securities or Pledged Applicable Ownership Interests, as the case may be, and the investment earnings from the investment in Permitted Investments exceeds the aggregate Purchase Price of the Purchase Contracts being settled thereby, the Collateral Agent shall instruct the Securities Intermediary to transfer such excess, when received, to the Purchase Contract Agent for distribution to Holders.

(c)On or prior to 5:00 p.m. (New York City time) on the fifth Business Day immediately preceding the applicable Remarketing Date, but no earlier than the Payment Date immediately preceding such date, Holders of Separate Senior Notes may elect to have their Separate Senior Notes remarketed under the Remarketing Agreement, by delivering their Separate Senior Notes along with a notice of such election, substantially in the form of Exhibit F hereto, to the Collateral Agent. The Collateral Agent, acting as Custodial Agent, shall hold Separate Senior Notes in an account separate from the Collateral Account in which the Pledged Securities shall be held. Holders of Separate Senior Notes electing to have their Separate Senior Notes remarketed will also have the right to withdraw that election by written notice to the Collateral Agent, substantially in the form of Exhibit G hereto, on or prior to 5:00 p.m. (New York City time) on the fifth Business Day immediately preceding the applicable Remarketing Date, upon which notice the Custodial Agent shall return such Separate Senior Notes to such Holder. After such time, such election shall become an irrevocable election to have such Separate Senior Notes remarketed in such Remarketing.

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By 11:00 a.m. (New York City time) on the Business Day immediately preceding the applicable Remarketing Date, the Custodial Agent shall notify the Remarketing Agent of the aggregate principal amount of the Separate Senior Notes to be remarketed and deliver to the Remarketing Agent for remarketing all Separate Senior Notes delivered to the Custodial Agent pursuant to this Section 5.07(c) and not validly withdrawn prior to such date. In the event of a Successful Remarketing, after deducting the Remarketing Fee, the Remarketing Agent will remit to the Custodial Agent the remaining portion of the proceeds of such Remarketing for payment to the Holders of the remarketed Separate Senior Notes, in accordance with their respective interests. In the event of a Failed Remarketing, the Remarketing Agent will promptly return such Separate Senior Notes to the Custodial Agent for distribution to the appropriate Holders.

Section 5.08Special Event Redemption. If the Collateral Agent receives written notice that a Special Event Redemption has occurred while Senior Notes are still credited to the Collateral Account, the Collateral Agent shall apply the Redemption Amount to purchase the Treasury Portfolio, and the Collateral Agent shall credit the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio to the Collateral Account and shall transfer the Applicable Ownership Interests (as specified in clause (ii) of the definition of such term) in the Treasury Portfolio to the Purchase Contract Agent for distribution to the Holders of the Corporate Units. Upon credit to the Collateral Account of the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio having a Value equal to the aggregate principal amount of the Pledged Senior Notes, the Collateral Agent shall cause the Securities Intermediary to release the Pledged Senior Notes from the Collateral Account and shall promptly transfer the Pledged Senior Notes to the Company.

ARTICLE 6

VOTING RIGHTS - PLEDGED SENIOR NOTES

Section 6.01Voting Rights. Subject to the terms of Section 4.02 of the Purchase Contract Agreement, the Purchase Contract Agent may exercise, or refrain from exercising, any and all voting and other consensual rights pertaining to the Pledged Senior Notes or any part thereof for any purpose not inconsistent with the terms of this Agreement and in accordance with the terms of the Purchase Contract Agreement; provided, that the Purchase Contract Agent shall not exercise or shall not refrain from exercising such right, as the case may be, if, in the reasonable judgment of the Purchase Contract Agent, such action would impair or otherwise have a material adverse effect on the value of all or any of the Pledged Senior Notes; and provided, further, that the Purchase Contract Agent shall give the Company and the Collateral Agent at least five Business Days’ prior written notice of the manner in which it intends to exercise, or its reasons for refraining from exercising, any such right. Upon receipt of any notices and other communications in respect of any Pledged Senior Notes, including notice of any meeting at which holders of the Senior Notes are entitled to vote or solicitation of consents, waivers or proxies of holders of the Senior Notes, the Collateral Agent shall use reasonable efforts to send promptly to the Purchase Contract Agent such notice or communication, and as

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soon as reasonably practicable after receipt of a written request therefor from the Purchase Contract Agent, execute and deliver to the Purchase Contract Agent such proxies and other instruments in respect of such Pledged Senior Notes (in form and substance satisfactory to the Collateral Agent) as are prepared by the Company and delivered to the Purchase Contract Agent with respect to the Pledged Senior Notes.

ARTICLE 7

RIGHTS AND REMEDIES

Section 7.01Rights and Remedies of the Collateral Agent.

(a)In addition to the rights and remedies specified in Section 5.07 hereof or otherwise available at law or in equity, after an event of default (as specified in Section 7.01(b) below) hereunder, the Collateral Agent shall have all of the rights and remedies with respect to the Collateral of a secured party under the UCC (whether or not the UCC is in effect in the jurisdiction where the rights and remedies are asserted) and the TRADES Regulations and such additional rights and remedies to which a secured party is entitled under the laws in effect in any jurisdiction where any rights and remedies hereunder may be asserted. Without limiting the generality of the foregoing, such remedies may include, to the extent permitted by applicable law, (1) retention of the Pledged Senior Notes, Pledged Treasury Securities or the applicable Pledged Applicable Ownership Interests in full satisfaction of the Holders’ obligations under the Purchase Contracts and the Purchase Contract Agreement or (2) sale of the Pledged Senior Notes, Pledged Treasury Securities or the applicable Pledged Applicable Ownership Interests in one or more public or private sales.

(b)Without limiting any rights or powers otherwise granted by this Agreement to the Collateral Agent, in the event the Collateral Agent is unable to make payments to the Company on account of the applicable Pledged Applicable Ownership Interests, or on account of principal payments of any Pledged Treasury Securities as provided in Article 3 hereof, in satisfaction of the Obligations of the Holder of the Units of which such applicable Pledged Applicable Ownership Interests or such Pledged Treasury Securities, as applicable, are a part under the related Purchase Contracts, the inability to make such payments shall constitute an event of default hereunder and the Collateral Agent shall have and may exercise, with reference to such Pledged Treasury Securities or Pledged Applicable Ownership Interests, as applicable, any and all of the rights and remedies available to a secured party under the UCC and the TRADES Regulations after default by a debtor, and as otherwise granted herein or under any other law.

(c)Without limiting any rights or powers otherwise granted by this Agreement to the Collateral Agent, the Collateral Agent is hereby irrevocably authorized to receive and collect all payments of (i) the principal amount of the Pledged Senior Notes, (ii) the principal amount of the Pledged Treasury Securities and (iii) the principal amount of the Pledged Applicable Ownership Interests, subject, in each case, to the provisions of Article 3 hereof, and as otherwise granted herein.

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(d)The Purchase Contract Agent and each Holder of Units agrees that, from time to time, upon the written request of the Collateral Agent or the Purchase Contract Agent, such Holder shall execute and deliver such further documents and do such other acts and things as the Collateral Agent may reasonably request in order to maintain the Pledge, and the perfection and priority thereof, and to confirm the rights of the Collateral Agent hereunder. The Purchase Contract Agent shall have no liability to any Holder for executing any documents or taking any such acts requested by the Collateral Agent hereunder, except for liability for its own grossly negligent acts, its own grossly negligent failure to act or its own willful misconduct.

Section 7.02Special Event Redemption. Upon the occurrence of a Special Event Redemption while Senior Notes are still credited to the Collateral Account, the Collateral Agent is hereby authorized to present the Pledged Senior Notes for payment as may be required by their respective terms and to direct the Indenture Trustee to remit the Redemption Price to the Securities Intermediary for credit to the Collateral Account on or prior to 12:30 p.m., New York City time on such Special Event Redemption Date, by federal funds check or wire transfer of immediately available funds. Upon receipt of such funds, the Pledged Senior Notes shall be released from the Collateral Account and promptly transferred to the Company. Upon the crediting of such funds to the Collateral Account, the Collateral Agent, at the written direction of the Company, shall instruct the Securities Intermediary to (a) apply an amount of such funds equal to the Redemption Amount to purchase the Treasury Portfolio from the Quotation Agent, (b) credit to the Collateral Account the Applicable Ownership Interests (specified in clause (i) of the definition of such term) in the Treasury Portfolio and (c) promptly remit the remaining portion of such funds, if any, to the Purchase Contract Agent for payment to the Holders of Corporate Units, in accordance with their respective interests and the Purchase Contract Agreement.

Section 7.03Initial Remarketing. Unless a Special Event Redemptions has occurred prior to the Initial Remarketing Date, the Collateral Agent shall, by 11:00 a.m., New York City time, on the Business Day immediately preceding the Initial Remarketing Date, without any instruction from any Holder of Corporate Units, present the related Pledged Senior Notes to the Remarketing Agent for Initial Remarketing. In the event of a Failed Initial Remarketing, the Senior Notes presented to the Remarketing Agent pursuant to this Section 7.03 for Remarketing shall be redeposited into the Collateral Account.

Section 7.04Final Remarketing. Unless a Special Event Redemption has occurred prior to the Final Remarketing Date, if a Failed Initial Remarketing has occurred, the Collateral Agent shall, by 11:00 a.m., New York City time, on the Business Day immediately preceding the Final Remarketing Date, without any instruction from any Holder of Corporate Units, present the related Pledged Senior Notes to the Remarketing Agent for Final Remarketing. In the event of a Failed Final Remarketing, the Senior Notes presented to the Remarketing Agent pursuant to this Section 7.04 for Remarketing shall be redeposited into the Collateral Account.

Section 7.05Successful Initial Remarketing. In the event of a Successful Initial Remarketing prior to the Final Remarketing Date, the Collateral Agent shall, at the direction of the Company, instruct the Securities Intermediary to (i) Transfer the Pledged Senior Notes to the Remarketing Agent upon confirmation of deposit by the Remarketing Agent of the Proceeds of such Successful Initial Remarketing (after deducting any Remarketing Fee in accordance with

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the Remarketing Agreement) in the Collateral Account, (ii) apply an amount equal to the Treasury Portfolio Purchase Price to purchase from the Quotation Agent the Treasury Portfolio, (iii) credit the Applicable Ownership Interests (specified in clause (i) of the definition of such term) in the Treasury Portfolio to the Collateral Account, and (iv) promptly remit the remaining portion of such Proceeds to the Purchase Contract Agent for payment to the Holders of Corporate Units, in accordance with their respective interests and the Purchase Contract Agreement. With respect to Separate Senior Notes, any Proceeds of such Initial Remarketing (after deducting any Remarketing Fee in accordance with the Remarketing Agreement) attributable to the Separate Senior Notes will be remitted to the Custodial Agent for payment to the holders of Separate Senior Notes. The Pledged Applicable Ownership Interests thus credited to the Collateral Account will secure the obligation of all Holders of Corporate Units to purchase Common Stock of the Company under the Purchase Contracts constituting a part of such Corporate Units, in substitution for the Pledged Senior Notes, which shall be released from the Collateral Account. In the event of a Failed Final Remarketing, the Pledged Senior Notes shall remain credited to the Collateral Account and Section 5.07 shall apply.

Section 7.06Substitutions. Whenever a Holder has the right to substitute Treasury Securities, Senior Notes or security entitlements for any of them or the appropriate Applicable Ownership Interest (as defined in clause (i) of the definition of such term) in the Treasury Portfolio, as the case may be, for financial assets held in the Collateral Account, such substitution shall not constitute a novation of the security interest created hereby.

ARTICLE 8

REPRESENTATIONS AND WARRANTIES; COVENANTS

Section 8.01Representations and Warranties. Each Holder from time to time, acting through the Purchase Contract Agent as attorney-in-fact (it being understood that the Purchase Contract Agent shall not be liable for any representation or warranty made by or on behalf of a Holder), hereby represents and warrants to the Collateral Agent (with respect to such Holder’s interest in the Collateral), which representations and warranties shall be deemed repeated on each day a Holder Transfers Collateral, that:

(a)such Holder has the power to grant a security interest in and lien on the Collateral;

(b)such Holder is the sole beneficial owner of the Collateral and, in the case of Collateral delivered in physical form, is the sole holder of such Collateral and is the sole beneficial owner of, or has the right to Transfer, the Collateral it Transfers to the Collateral Agent for credit to the Collateral Account, free and clear of any security interest, lien, encumbrance, call, liability to pay money or other restriction other than the security interest and lien granted under Article 2 hereof;

(c)upon the Transfer of the Collateral to the Collateral Agent for credit to the Collateral Account, the Collateral Agent, for the benefit of the Company, will have a valid and perfected first priority security interest therein (assuming that any central clearing operation or any securities intermediary or other entity not within the control of the Holder involved in the

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Transfer of the Collateral, including the Collateral Agent and the Securities Intermediary, gives the notices and takes the action required of it hereunder and under applicable law for perfection of that interest and assuming the establishment and exercise of control pursuant to Article 4 hereof); and

(d)the execution and performance by the Holder of its obligations under this Agreement will not result in the creation of any security interest, lien or other encumbrance on the Collateral other than the security interest and lien granted under Article 2 hereof or violate any provision of any existing law or regulation applicable to it or of any mortgage, charge, pledge, indenture, contract or undertaking to which it is a party or which is binding on it or any of its assets.

Section 8.02Covenants. The Holders from time to time, acting through the Purchase Contract Agent as their attorney-in-fact (it being understood that the Purchase Contract Agent shall not be liable for any covenant made by or on behalf of a Holder), hereby covenant to the Collateral Agent that for so long as the Collateral remains subject to the Pledge:

(a)neither the Purchase Contract Agent nor such Holders will create or purport to create or allow to subsist any mortgage, charge, lien, pledge or any other security interest whatsoever over the Collateral or any part of it other than pursuant to this Agreement; and

(b)neither the Purchase Contract Agent nor such Holders will sell or otherwise dispose (or attempt to dispose) of the Collateral or any part of it except for the beneficial interest therein, subject to the Pledge hereunder, transferred in connection with the Transfer of the Units.

ARTICLE 9

THE COLLATERAL AGENT, THE CUSTODIAL AGENT AND THE SECURITIES INTERMEDIARY

It is hereby agreed as follows:

Section 9.01Appointment, Powers and Immunities. The Collateral Agent, the Custodial Agent or the Securities Intermediary shall act as agent for the Company hereunder with such powers as are specifically vested in the Collateral Agent, the Custodial Agent or the Securities Intermediary, as the case may be, by the terms of this Agreement. The Collateral Agent, the Custodial Agent and Securities Intermediary shall:

(a)have no duties or responsibilities except those expressly set forth in this Agreement and no implied covenants or obligations shall be inferred from this Agreement against the Collateral Agent, the Custodial Agent and the Securities Intermediary, nor shall the Collateral Agent, the Custodial Agent and the Securities Intermediary be bound by the provisions of any agreement by any party hereto beyond the specific terms hereof;

(b)not be responsible for any recitals contained in this Agreement, or in any certificate or other document referred to or provided for in, or received by it under, this Agreement, the Units or the Purchase Contract Agreement, or for the value, validity,

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effectiveness, genuineness, enforceability or sufficiency of this Agreement (other than as against the Collateral Agent, the Custodial Agent or the Securities Intermediary, as the case may be), the Units, any Collateral or the Purchase Contract Agreement or any other document referred to or provided for herein or therein or for any failure by the Company or any other Person (except the Collateral Agent, the Custodial Agent or the Securities Intermediary, as the case may be) to perform any of its obligations hereunder or thereunder or for the perfection, priority or, except as expressly required hereby, maintenance of any security interest created hereunder;

(c)not be required to initiate or conduct any litigation or collection proceedings hereunder (except pursuant to directions furnished under Section 9.02 hereof, subject to Section 9.08 hereof);

(d)not be responsible for any action taken or omitted to be taken by it hereunder or under any other document or instrument referred to or provided for herein or in connection herewith or therewith, except for its own gross negligence or willful misconduct; and

(e)not be required to advise any party as to selling or retaining, or taking or refraining from taking any action with respect to, any securities or other property deposited hereunder.

Subject to the foregoing, during the term of this Agreement, the Collateral Agent, the Custodial Agent and the Securities Intermediary shall take all reasonable action in connection with the safekeeping and preservation of the Collateral hereunder as determined by industry standards.

No provision of this Agreement shall require the Collateral Agent, Custodial Agent or the Securities Intermediary to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder. In no event shall the Collateral Agent, Custodial Agent or the Securities Intermediary be liable for any amount in excess of the Value of the Collateral.

Section 9.02Instructions of the Company. The Company shall have the right, by one or more written instruments executed and delivered to the Collateral Agent, to direct the time, method and place of conducting any proceeding for the realization of any right or remedy available to the Collateral Agent, or of exercising any power conferred on the Collateral Agent, or to direct the taking or refraining from taking of any action authorized by this Agreement; provided, however, that (i) such direction shall not conflict with the provisions of any law or of this Agreement or involve the Collateral Agent in personal liability and (ii) the Collateral Agent shall be indemnified to its satisfaction as provided herein. Nothing contained in this Section 9.02 shall impair the right of the Collateral Agent in its discretion to take any action or omit to take any action which it deems proper and which is not inconsistent with such direction. None of the Collateral Agent, the Custodial Agent or the Securities Intermediary has any obligation or responsibility to file UCC financing statements.

Section 9.03Reliance by Collateral Agent, Custodial Agent and Securities Intermediary. Each of the Collateral Agent, the Custodial Agent and the Securities Intermediary shall be entitled, in the absence of bad faith, to rely conclusively upon any certification, order,

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judgment, opinion, notice or other written communication (including, without limitation, any thereof by e-mail or similar electronic means, telecopy, telex or facsimile) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons (without being required to determine the correctness of any fact stated therein) and consult with and conclusively rely upon advice, opinions and statements of legal counsel and other experts selected by the Collateral Agent, the Custodial Agent or the Securities Intermediary, as the case may be. As to any matters not expressly provided for by this Agreement, the Collateral Agent, the Custodial Agent and the Securities Intermediary shall in all cases be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions given by the Company in accordance with this Agreement.

Section 9.04Certain Rights.

(a)Whenever in the administration of the provisions of this Agreement the Collateral Agent, the Custodial Agent or the Securities Intermediary shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action to be taken hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of gross negligence or bad faith on the part of the Collateral Agent, the Custodial Agent or the Securities Intermediary, be deemed to be conclusively proved and established by a certificate signed by one of the Company’s officers, and delivered to the Collateral Agent, the Custodial Agent or the Securities Intermediary and such certificate, in the absence of gross negligence or bad faith on the part of the Collateral Agent, the Custodial Agent or the Securities Intermediary, shall be full warrant to the Collateral Agent, the Custodial Agent or the Securities Intermediary for any action taken, suffered or omitted by it under the provisions of this Agreement upon the faith thereof.

(b)The Collateral Agent, the Custodial Agent or the Securities Intermediary shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, entitlement order, approval or other paper or document.

Section 9.05Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Collateral Agent, the Custodial Agent or the Securities Intermediary may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Collateral Agent, the Custodial Agent or the Securities Intermediary shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Collateral Agent, the Custodial Agent or the Securities Intermediary shall be the successor of the Collateral Agent, the Custodial Agent or the Securities Intermediary hereunder without the execution or filing of any paper with any party hereto or any further act on the part of any of the parties hereto except where an instrument of transfer or assignment is required by law to effect such succession, anything herein to the contrary notwithstanding.

Section 9.06Rights in Other Capacities. The Collateral Agent, the Custodial Agent and the Securities Intermediary and their affiliates may (without having to account therefor to the Company) accept deposits from, lend money to, make their investments in and generally engage in any kind of banking, trust or other business with the Purchase Contract Agent, any other

23

Person interested herein and any Holder of Units (and any of their respective subsidiaries or affiliates) as if it were not acting as the Collateral Agent, the Custodial Agent or the Securities Intermediary, as the case may be, and the Collateral Agent, the Custodial Agent, the Securities Intermediary and their affiliates may accept fees and other consideration from the Purchase Contract Agent and any Holder of Units without having to account for the same to the Company; provided that each of the Securities Intermediary, the Custodial Agent and the Collateral Agent covenants and agrees with the Company that it shall not accept, receive or permit there to be created in favor of itself and shall take no affirmative action to permit there to be created in favor of any other Person, any security interest, lien or other encumbrance of any kind in or upon the Collateral other than the lien created by the Pledge.

Section 9.07Non-reliance on Collateral Agent, the Custodial Agent and Securities Intermediary. None of the Securities Intermediary, the Custodial Agent or the Collateral Agent shall be required to keep itself informed as to the performance or observance by the Purchase Contract Agent or any Holder of Units of this Agreement, the Purchase Contract Agreement, the Units or any other document referred to or provided for herein or therein or to inspect the properties or books of the Purchase Contract Agent or any Holder of Units. None of the Collateral Agent, the Custodial Agent or the Securities Intermediary shall have any duty or responsibility to provide the Company with any credit or other information concerning the affairs, financial condition or business of the Purchase Contract Agent or any Holder of Units (or any of their respective affiliates) that may come into the possession of the Collateral Agent, the Custodial Agent or the Securities Intermediary or any of their respective affiliates.

Section 9.08Compensation and Indemnity. The Company agrees to:

(a)pay the Collateral Agent, the Custodial Agent and the Securities Intermediary from time to time such compensation as shall be agreed in writing between the Company and the Collateral Agent, the Custodial Agent or the Securities Intermediary, as the case may be, for all services rendered by them hereunder;

(b)indemnify and hold harmless the Collateral Agent, the Custodial Agent, the Securities Intermediary and each of their respective directors, officers, agents and employees (collectively, the “Indemnitees”), from and against any and all claims, liabilities, losses, damages, fines, penalties and expenses (including reasonable fees and expenses of counsel) and taxes (other than those based upon, determined by or measured by the income of the Collateral Agent, the Custodial Agent and Securities Intermediary) (collectively, “Losses” and individually, a “Loss”) that may be imposed on, incurred by, or asserted against, the Indemnitees or any of them for following any instructions or other directions upon which either the Collateral Agent, the Custodial Agent or the Securities Intermediary is entitled to rely pursuant to the terms of this Agreement, provided that the Collateral Agent, the Custodial Agent or the Securities Intermediary has not acted with gross negligence or engaged in willful misconduct or bad faith with respect to the specific Loss against which indemnification is sought; and

(c)in addition to and not in limitation of paragraph (b) immediately above, indemnify and hold the Indemnitees and each of them harmless from and against any and all Losses that may be imposed on, incurred by or asserted against, the Indemnitees or any of them in connection with or arising out of the Collateral Agent’s, the Custodial Agent’s or the

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Securities Intermediary’s acceptance or performance of its powers and duties under this Agreement, provided that the Collateral Agent, the Custodial Agent or the Securities Intermediary has not acted with gross negligence or engaged in willful misconduct or bad faith with respect to the specific Loss against which indemnification is sought.

The provisions of this Section 9.08 and Section 11.07 shall survive the resignation or removal of the Collateral Agent, Custodial Agent or Securities Intermediary and the termination of this Agreement.

Section 9.09Failure to Act. In the event of any ambiguity in the provisions of this Agreement or any dispute between or conflicting claims by or among the parties hereto or any other Person with respect to any funds or property deposited hereunder, then at its sole option, each of the Collateral Agent, the Custodial Agent and the Securities Intermediary shall be entitled, after prompt notice to the Company and the Purchase Contract Agent, to refuse to comply with any and all claims, demands or instructions with respect to such property or funds so long as such dispute or conflict shall continue, and the Collateral Agent, the Custodial Agent and the Securities Intermediary shall not be or become liable in any way to any of the parties hereto for its failure or refusal to comply with such conflicting claims, demands or instructions. The Collateral Agent, the Custodial Agent and the Securities Intermediary shall be entitled to refuse to act until either:

(a)such conflicting or adverse claims or demands shall have been finally determined by a court of competent jurisdiction or settled by agreement between the conflicting parties as evidenced in a writing satisfactory to the Collateral Agent, the Custodial Agent or the Securities Intermediary; or

(b)the Collateral Agent, the Custodial Agent or the Securities Intermediary shall have received security or an indemnity satisfactory to it sufficient to save it harmless from and against any and all loss, liability or reasonable out-of-pocket expense which it may incur by reason of its acting.

The Collateral Agent, the Custodial Agent and the Securities Intermediary may in addition elect to commence an interpleader action or seek other judicial relief or orders as the Collateral Agent, the Custodial Agent or the Securities Intermediary may deem necessary. Notwithstanding anything contained herein to the contrary, none of the Collateral Agent, the Custodial Agent or the Securities Intermediary shall be required to take any action that is in its opinion contrary to law or to the terms of this Agreement, or which would in its opinion subject it or any of its officers, employees or directors to liability.

Section 9.10Resignation of Collateral Agent, the Custodial Agent and Securities Intermediary.

(a)Subject to the appointment and acceptance of a successor Collateral Agent, Custodial Agent or Securities Intermediary as provided below:

(i)the Collateral Agent, the Custodial Agent and the Securities Intermediary may resign at any time by giving notice thereof to the Company and the Purchase Contract Agent as attorney-in-fact for the Holders of Units;

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(ii)the Collateral Agent, the Custodial Agent and the Securities Intermediary may be removed at any time by the Company; and

(iii)if the Collateral Agent, the Custodial Agent or the Securities Intermediary fails to perform any of its material obligations hereunder in any material respect for a period of not less than 20 days after receiving written notice of such failure by the Purchase Contract Agent and such failure shall be continuing, the Collateral Agent, the Custodial Agent and the Securities Intermediary may be removed by the Purchase Contract Agent, acting at the direction of the Holders of Units.

The Purchase Contract Agent shall promptly notify the Company of any removal of the Collateral Agent, the Custodial Agent or the Securities Intermediary pursuant to clause (iii) of this Section 9.10. Upon any such resignation or removal, the Company shall have the right to appoint a successor Collateral Agent, Custodial Agent or Securities Intermediary, as the case may be, which shall not be an Affiliate of the Purchase Contract Agent. If no successor Collateral Agent, Custodial Agent or Securities Intermediary shall have been so appointed and shall have accepted such appointment within 30 days after the retiring Collateral Agent’s, Custodial Agent’s or Securities Intermediary’s giving of notice of resignation or the Company’s or the Purchase Contract Agent’s giving notice of such removal, then the retiring or removed Collateral Agent, Custodial Agent or Securities Intermediary may petition any court of competent jurisdiction, at the expense of the Company, for the appointment of a successor Collateral Agent, Custodial Agent or Securities Intermediary. The Collateral Agent, the Custodial Agent and the Securities Intermediary shall each be a bank or a national banking association which has an office (or an agency office) in New York City with a combined capital and surplus of at least $50,000,000. Upon the acceptance of any appointment as Collateral Agent, Custodial Agent or Securities Intermediary hereunder by a successor Collateral Agent, Custodial Agent or Securities Intermediary, as the case may be, such successor Collateral Agent, Custodial Agent or Securities Intermediary, as the case may be, shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent, Custodial Agent or Securities Intermediary, as the case may be, and the retiring Collateral Agent, Custodial Agent or Securities Intermediary, as the case may be, shall take all appropriate action, subject to payment of any amounts then due and payable to it hereunder, to transfer any money and property held by it hereunder (including the Collateral) to such successor. The retiring Collateral Agent, Custodial Agent or Securities Intermediary shall, upon such succession, be discharged from its duties and obligations as Collateral Agent, Custodial Agent or Securities Intermediary hereunder. After any retiring Collateral Agent’s, Custodial Agent’s or Securities Intermediary’s resignation hereunder as Collateral Agent, Custodial Agent or Securities Intermediary, the provisions of this Article 9 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Collateral Agent, Custodial Agent or Securities Intermediary. Any resignation or removal of the Collateral Agent, Custodial Agent or Securities Intermediary hereunder, at a time when such Person is acting as the Collateral Agent, Custodial Agent or Securities Intermediary, shall be deemed for all purposes of this Agreement as the simultaneous resignation or removal of the Collateral Agent, Securities Intermediary or Custodial Agent, as the case may be.

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(b)Because U.S. Bank National Association is serving as the Collateral Agent hereunder and the Purchase Contract Agent under the Purchase Contract Agreement, if an event of default (other than an event of default occurring as a result of a Failed Final Remarketing) occurs hereunder or under the Purchase Contract Agreement, U.S. Bank National Association will resign as the Collateral Agent, but continue to act as the Purchase Contract Agent. A successor Collateral Agent will be appointed in accordance with the terms hereof. If any such event of default is cured or waived prior to the appointment of a successor Collateral Agent, the duty of U.S. Bank National Association to resign in respect of such event of default shall cease.

Section 9.11Right to Appoint Agent or Advisor. The Collateral Agent shall have the right to appoint agents or advisors in connection with any of its duties hereunder, and the Collateral Agent shall not be liable for any action taken or omitted by, or in reliance upon the advice of, such agents or advisors selected in good faith. The appointment of agents pursuant to this Section 9.11 shall be subject to prior written consent of the Company, which consent shall not be unreasonably withheld.

Section 9.12Survival. The provisions of this Article 9 shall survive termination of this Agreement and the resignation or removal of the Collateral Agent, the Custodial Agent or the Securities Intermediary.

Section 9.13Exculpation. Anything contained in this Agreement to the contrary notwithstanding, in no event shall the Collateral Agent, the Custodial Agent or the Securities Intermediary or their officers, directors, employees or agents be liable under this Agreement to any third party for indirect, special, punitive, or consequential loss or damage of any kind whatsoever, including, but not limited to, lost profits, whether or not the likelihood of such loss or damage was known to the Collateral Agent, the Custodial Agent or the Securities Intermediary, or any of them and regardless of the form of action.

ARTICLE 10

AMENDMENT

Section 10.01Amendment Without Consent of Holders. Without the consent of any Holders, the Company, when duly authorized, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Purchase Contract Agent, at any time and from time to time, may amend this Agreement, in form satisfactory to the Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Purchase Contract Agent, to:

(a)evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company;

(b)evidence and provide for the acceptance of appointment hereunder by a successor Collateral Agent, Custodial Agent, Securities Intermediary or Purchase Contract Agent;

(c)add to the covenants of the Company for the benefit of the Holders, or surrender any right or power herein conferred upon the Company, provided that such covenants or such surrender do not adversely affect the validity, perfection or priority of the Pledge created hereunder;

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(d)cure any ambiguity (or formal defect), correct or supplement any provisions herein which may be inconsistent with any other such provisions herein; or

(e)make any other provisions with respect to such matters or questions arising under this Agreement, provided that such action shall not adversely affect the interests of the Holders in any material respect.

Section 10.02Amendment with Consent of Holders. With the consent of the Holders of not less than a majority of the Purchase Contracts at the time outstanding, including without limitation the consent of the Holders obtained in connection with a tender or an exchange offer, by Act of such Holders delivered to the Company, the Purchase Contract Agent, the Custodial Agent, the Securities Intermediary and the Collateral Agent, as the case may be, the Company, when duly authorized by a Board Resolution, the Purchase Contract Agent, the Collateral Agent, the Securities Intermediary and the Collateral Agent may amend this Agreement for the purpose of modifying in any manner the provisions of this Agreement or the rights of the Holders in respect of the Units; provided, however, that no such supplemental agreement shall, without the unanimous consent of the Holders of each Outstanding Unit adversely affected thereby in any material respect:

(a)change the amount or type of Collateral underlying a Unit (except for the rights of holders of Corporate Units to substitute the Treasury Securities for the Pledged Senior Notes or the Pledged Applicable Ownership Interests, as the case may be, or the rights of Holders of Treasury Units to substitute Senior Notes or the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio, as applicable, for the Pledged Treasury Securities), unless such change is not adverse to the Holders, impair the right of the Holder of any Unit to receive distributions on the underlying Collateral or otherwise adversely affect the Holder’s rights in or to such Collateral; or

(b)otherwise effect any action that would require the consent of the Holder of each Outstanding Unit affected thereby pursuant to the Purchase Contract Agreement if such action were effected by a modification or amendment of the provisions of the Purchase Contract Agreement; or

(c)reduce the percentage of Purchase Contracts the consent of whose Holders is required for the modification or amendment of the provisions of this Agreement;

provided that if any amendment or proposal referred to above would adversely affect only the Corporate Units or only the Treasury Units, then only the affected class of Holders as of the record date for the Holders entitled to vote thereon will be entitled to vote on such amendment or proposal, and such amendment or proposal shall not be effective except with the consent of Holders of not less than a majority of such class; provided, further, that the unanimous consent of the Holders of each outstanding Purchase Contract of such class affected thereby shall be required to approve any amendment or proposal specified in clauses (a) through (c) above.

It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed amendment, but it shall be sufficient if such Act shall approve the substance thereof.

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Section 10.03Execution of Amendments. In executing any amendment permitted by this Article, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Purchase Contract Agent shall be entitled to receive and (subject to Section 7.01 of the Purchase Contract Agreement with respect to the Purchase Contract Agent) shall be fully authorized and protected in relying upon, an Opinion of Counsel and an officers’ certificate stating that the execution of such amendment is authorized or permitted by this Agreement and that all conditions precedent, if any, to the execution and delivery of such amendment have been satisfied. The Collateral Agent, Custodial Agent, Securities Intermediary and Purchase Contract Agent may, but shall not be obligated to, enter into any such amendment which affects their own respective rights, duties or immunities under this Agreement or otherwise.

Section 10.04Effect of Amendments. Upon the execution of any amendment under this Article, this Agreement shall be modified in accordance therewith, and such amendment shall form a part of this Agreement for all purposes; and every Holder of Certificates theretofore or thereafter authenticated, executed on behalf of the Holders and delivered under the Purchase Contract Agreement shall be bound thereby.

Section 10.05Reference of Amendments. Certificates authenticated, executed on behalf of the Holders and delivered after the execution of any amendment pursuant to this Section may, and shall if required by the Collateral Agent or the Purchase Contract Agent, bear a notation in form approved by the Purchase Contract Agent and the Collateral Agent as to any matter provided for in such amendment. If the Company shall so determine, new Certificates so modified as to conform, in the opinion of the Collateral Agent, the Purchase Contract Agent and the Company, to any such amendment may be prepared and executed by the Company and authenticated, executed on behalf of the Holders and delivered by the Purchase Contract Agent in accordance with the Purchase Contract Agreement in exchange for Certificates representing Outstanding Units.

ARTICLE 11

MISCELLANEOUS

Section 11.01No Waiver. No failure on the part of the Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary or any of their respective agents to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary or any of their respective agents of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law.

Section 11.02Governing Law; Submission to Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. The Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Holders from time to time of the Units, acting through the Purchase Contract Agent as their attorney-in-fact, hereby submit to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York

29

state court sitting in New York City for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Holders from time to time of the Units, acting through the Purchase Contract Agent as their attorney-in-fact, irrevocably waive, to the fullest extent permitted by applicable law, any objection that they may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

Section 11.03Notices. All notices, requests, consents and other communications provided for herein (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made in writing (including, without limitation, by telecopy) delivered to the intended recipient at the “Address for Notices” specified below its name on the signature pages hereof or, as to any party, at such other address as shall be designated by such party in a notice to the other parties. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopier or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid.

Section 11.04Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Purchase Contract Agent, and the Holders from time to time of the Units, by their acceptance of the same, shall be deemed to have agreed to be bound by the provisions hereof and to have ratified the agreements of, and the grant of the Pledge hereunder by, the Purchase Contract Agent.

Section 11.05Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart.

Section 11.06Severability. If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction.

Section 11.07Expenses, Etc. The Company agrees to reimburse the Collateral Agent, the Custodial Agent and the Securities Intermediary for:

(a)all reasonable costs and expenses of the Collateral Agent, the Custodial Agent and the Securities Intermediary (including, without limitation, the reasonable fees and expenses of counsel to the Collateral Agent, the Custodial Agent and the Securities Intermediary), in connection with (i) the negotiation, preparation, execution and delivery or performance of this Agreement and (ii) any modification, supplement or waiver of any of the terms of this Agreement;

30

(b)all reasonable costs and expenses of the Collateral Agent, the Custodial Agent and the Securities Intermediary (including, without limitation, reasonable fees and expenses of counsel) in connection with (i) any enforcement or proceedings resulting or incurred in connection with causing any Holder of Units to satisfy its obligations under the Purchase Contracts forming a part of the Units and (ii) the enforcement of this Section 11.07;

(c)all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Agreement or any other document referred to herein and all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest contemplated hereby;

(d)all reasonable fees and expenses of any agent or advisor appointed by the Collateral Agent and consented to by the Company under Section 9.11 of this Agreement; and

(e)any other out-of-pocket costs and expenses reasonably incurred by the Collateral Agent, the Custodial Agent and the Securities Intermediary in connection with the performance of their duties hereunder.

Section 11.08Security Interest Absolute. All rights of the Collateral Agent and security interests hereunder, and all obligations of the Holders from time to time hereunder, shall be absolute and unconditional irrespective of:

(a)any lack of validity or enforceability of any provision of the Purchase Contracts or the Units or any other agreement or instrument relating thereto;

(b)any change in the time, manner or place of payment of, or any other term of, or any increase in the amount of, all or any of the obligations of Holders of the Units under the related Purchase Contracts, or any other amendment or waiver of any term of, or any consent to any departure from any requirement of, the Purchase Contract Agreement or any Purchase Contract or any other agreement or instrument relating thereto; or

(c)any other circumstance which might otherwise constitute a defense available to, or discharge of, a borrower, a guarantor or a pledgor.

Section 11.09Notice of Special Event, Special Event Redemption and Termination Event. Upon the occurrence of a Special Event, a Special Event Redemption or a Termination Event, the Company shall deliver written notice to the Purchase Contract Agent, the Collateral Agent and the Securities Intermediary. Upon the written request of the Collateral Agent or the Securities Intermediary, the Company shall inform such party whether or not a Special Event, a Special Event Redemption or a Termination Event has occurred.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]

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[SIGNATURE PAGE TO PLEDGE AGREEMENT]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.

PNM RESOURCES, INC.	U.S. BANK NATIONAL ASSOCIATION as Purchase Contract Agent and as attorney-in-fact of the Holders from time to time of the Units
By:/s/ Terry R. Horn Terry R. Horn Vice President, Corporate Secretary, and Acting Chief Financial Officer	By:/s/ Marlene J. Fahey Name: Marlene J. Fahey Title: Vice President
Address for Notices:	Address for Notices:
PNM Resources, Inc. Alvarado Square MS-2704 Albuquerque, New Mexico 87158 Telephone No.: (505) 241-2700 Telecopier No.: (505) 241-2369 Attention: Treasurer	U.S. Bank National Association 100 Wall Street, Suite 1600 New York, New York 10005 Telephone No.: (212) 361-2505 Telecopier No.: (212) 509-3384 Attention: Corporate Trust Administration
U.S. Bank National Association, as Collateral Agent, Custodial Agent and Securities Intermediary
By: /s/ Marlene J. Fahey Name: Marlene J. Fahey Title: Vice President
Address for Notices:
U.S. Bank National Association 100 Wall Street, Suite 1600 New York, New York 10005 Telephone No.: (212) 361-2505 Telecopier No.: (212) 509-3384 Attention: Corporate Trust Administration

EXHIBIT A

INSTRUCTION

FROM PURCHASE CONTRACT AGENT

TO COLLATERAL AGENT

(Creation of Treasury Units)

U.S. Bank National Association

as Purchase Contract Agent

100 Wall Street, Suite 1600

New York, New York 10005

Telephone No.: (212) 361-2505

Telecopier No.: (212) 509-3384

Attention: Corporate Trust Administration

Re: ___________ Corporate Units of PNM Resources, Inc. (the “Company”)

The securities account of U.S. Bank National Association, as Collateral Agent, maintained by the Securities Intermediary and designated “U.S. Bank National Association, as Collateral Agent of PNM Resources, Inc., as pledgee of U.S. Bank National Association, as the Purchase Contract Agent on behalf of and as attorney-in-fact for the Holders” (the “Collateral Account”)

Please refer to the Pledge Agreement, dated as of October 7, 2005 (the “Pledge Agreement”), among the Company, you, as Collateral Agent, as Securities Intermediary and as Custodial Agent and the undersigned, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units from time to time. Capitalized terms used herein but not defined shall have the meaning set forth in the Pledge Agreement.

We hereby notify you in accordance with Section 5.02 of the Pledge Agreement that the holder of securities named below (the “Holder”) has elected to substitute $___ Value of Treasury Securities or security entitlements with respect thereto in exchange for an equal Value of Pledged Senior Notes relating to _____ Corporate Units and has delivered to the undersigned a notice stating that the Holder has Transferred such Treasury Securities or security entitlements with respect thereto to the Securities Intermediary, for credit to the Collateral Account.

A-1

We hereby request that you instruct the Securities Intermediary, upon confirmation that such Treasury Securities or security entitlements thereto have been credited to the Collateral Account, to release to the undersigned an equal Value of Pledged Senior Notes in accordance with Section 5.02 of the Pledge Agreement.

Date: ____________________

U.S. Bank National Association, as Purchase Contract Agent and as attorney-in-fact of the Holders from time to time of the Units

By: _____________________

      Name:

Title:

Please print name and address of Holder electing to substitute Treasury Securities or security entitlements with respect thereto for the Pledged Senior Notes:

Name	Social Security or other Taxpayer
	Identification Number, if any
Address

A-2

EXHIBIT B

INSTRUCTION

FROM COLLATERAL AGENT

TO SECURITIES INTERMEDIARY

(Creation of Treasury Units)

U.S. Bank National Association

as Securities Intermediary

100 Wall Street, Suite 1600

New York, New York 10005

Telephone No.: (212) 361-2505

Telecopier No.: (212) 509-3384

Attention: Corporate Trust Administration

Re: __________ Corporate Units of PNM Resources, Inc. (the “Company”)

The securities account of U.S. Bank National Association, as Collateral Agent, maintained by the Securities Intermediary and designated “U.S. Bank National Association, as Collateral Agent of PNM Resources, Inc. as pledgee of U.S. Bank National Association, as the Purchase Contract Agent on behalf of and as attorney-in-fact for the Holders” (the “Collateral Account”)

Please refer to the Pledge Agreement, dated as of October 7, 2005 (the “Pledge Agreement”), among the Company, you, as Collateral Agent, as Securities Intermediary and as Custodial Agent and the undersigned, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units from time to time. Capitalized terms used herein but not defined shall have the meanings set forth in the Pledge Agreement.

B-1

When you have confirmed that $ Value of Treasury Securities or security entitlements thereto has been credited to the Collateral Account by or for the benefit of _________, as Holder of Corporate Units (the “Holder”), you are hereby instructed to release from the Collateral Account an equal Value of Pledged Senior Notes or security entitlements with respect thereto relating to Corporate Units of the Holder by Transfer to the Purchase Contract Agent.

Dated:______________________

U.S. Bank National Association,

as Collateral Agent

By: ______________________

Name:

Title:

Please print name and address of Holder:

Name	Social Security or other Taxpayer
	Identification Number, if any
Address

B-2

EXHIBIT C

INSTRUCTION

FROM PURCHASE CONTRACT AGENT

TO COLLATERAL AGENT

(Recreation of Corporate Units)

U.S. Bank National Association

as Purchase Contract Agent

100 Wall Street, Suite 1600

New York, New York 10005

Telephone No.: (212) 361-2505

Telecopier No.: (212) 509-3384

Attention: Corporate Trust Administration

Re: __________ Treasury Units of PNM Resources, Inc. (the “Company”)

Please refer to the Pledge Agreement dated as of October 7, 2005 (the “Pledge Agreement”), among the Company, you, as Collateral Agent, as Securities Intermediary, as Custodial Agent and the undersigned, as Purchase Contract Agent and as attorney-in-fact for the holders of Treasury Units from time to time. Capitalized terms used herein but not defined shall have the meaning set forth in the Pledge Agreement.

We hereby notify you in accordance with Section 5.03 of the Pledge Agreement that the holder of securities named below (the “Holder”) has elected to substitute $__________ Value of Senior Notes or security entitlements with respect thereto in exchange for $__________ an equal Value of Pledged Treasury Securities with respect to _______ Treasury Units and has delivered to the undersigned a notice stating that the holder has Transferred such Senior Notes or security entitlements with respect thereto to the Securities Intermediary, for credit to the Collateral Account.

C-1

We hereby request that you instruct the Securities Intermediary, upon confirmation that such Senior Notes or security entitlements with respect thereto have been credited to the Collateral Account, to release to the undersigned $__________ an equal Value of Treasury Securities in accordance with Section 5.03 of the Pledge Agreement.

Dated:______________________

U.S. Bank National Association,

as Collateral Agent

By: ______________________

Name:

Title:

Please print name and address of Holder electing to substitute Senior Notes or security entitlements with respect thereto for Pledged Treasury Securities:

Name	Social Security or other Taxpayer
	Identification Number, if any
Address

C-2

EXHIBIT D

INSTRUCTION

FROM COLLATERAL AGENT

TO SECURITIES INTERMEDIARY

(Recreation of Corporate Units)

U.S. Bank National Association

as Securities Intermediary

100 Wall Street, Suite 1600

New York, New York 10005

Telephone No.: (212) 361-2505

Telecopier No.: (212) 509-3384

Attention: Corporate Trust Administration

Re: ____ Treasury Units of PNM Resources, Inc. (the “Company”)

The securities account of U.S. Bank National Association, as Collateral Agent, maintained by the Securities Intermediary and designated “U.S. Bank National Association, as Collateral Agent of PNM Resources, Inc., as pledgee of U.S. Bank National Association, as the Purchase Contract Agent on behalf of and as attorney-in-fact for the Holders” (the “Collateral Account”)

Please refer to the Pledge Agreement dated as of October 7, 2005 (the “Pledge Agreement”), among the Company, you, as Securities Intermediary, Custodial Agent and Collateral Agent and U.S. Bank National Association, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units from time to time. Capitalized terms used herein but not defined shall have the meanings set forth in the Pledge Agreement.

D-1

When you have confirmed that $___________ Value of Senior Notes or security entitlements with respect thereto has been credited to the Collateral Account by or for the benefit of _______________, as Holder of Treasury Units (the “Holder”), you are hereby instructed to release from the Collateral Account an equal Value of Treasury Securities or security entitlements with respect thereto relating to ____ treasury Units of the Holder by Transfer to the Purchase Contract Agent.

Dated:______________________

U.S. Bank National Association,

as Collateral Agent

By: ______________________

Name:

Title:

Please print name and address of Holder:

Name	Social Security or other Taxpayer
	Identification Number, if any
Address

D-2

EXHIBIT E

NOTICE OF CASH SETTLEMENT

FROM COLLATERAL AGENT

TO PURCHASE CONTRACT AGENT

(Cash Settlement Amounts)

U.S. Bank National Association

as Purchase Contract Agent

100 Wall Street, Suite 1600

New York, New York 10005

Telephone No.: (212) 361-2505

Telecopier No.: (212) 509-3384

Attention: Corporate Trust Administration

Re:__________ Corporate Units of PNM Resources, Inc. (the “Company”)

       __________ Treasury Units of the Company

Please refer to the Pledge Agreement dated as of October 7, 2005 (the “Pledge Agreement”), by and among you, the Company, and U.S. Bank National Association, as Collateral Agent, Custodial Agent and Securities Intermediary. Unless otherwise defined herein, terms defined in the Pledge Agreement are used herein as defined therein.

In accordance with Section 5.05(c) of the Pledge Agreement, we hereby notify you that as of 5:00 p.m. (New York City time) on the fourth Business Day immediately preceding __________ (the “Purchase Contract Settlement Date”), we have received (i) $___________ in immediately available funds paid in an aggregate amount equal to the Purchase Price due to the Company on the Purchase Contract Settlement Date with respect to ___________ Corporate Units, and (ii) based on the funds received set forth in clause (i) above, an aggregate principal amount of $___________ of Pledged Senior Notes are to be tendered for purchase in the Final Remarketing.

Dated:______________________

U.S. Bank National Association,

as Collateral Agent

By: ______________________

Name:

Title:

E-1

EXHIBIT F

INSTRUCTION TO CUSTODIAL AGENT

REGARDING REMARKETING

U.S. Bank National Association

as Custodial Agent

100 Wall Street, Suite 1600

New York, New York 10005

Telephone No.: (212) 361-2505

Telecopier No.: (212) 509-3384

Attention: Corporate Trust Administration

Re: Senior Notes Due 2010 of PNM Resources, Inc. (the “Company”)

The undersigned hereby notifies you in accordance with Section 5.07(c) of the Pledge Agreement, dated as of October 7, 2005 (the “Pledge Agreement”), among the Company, you, as Collateral Agent, Custodial Agent and Securities Intermediary and U.S. Bank National Association, as the Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units from time to time, that the undersigned elects to deliver $__________ aggregate principal amount of Separate Senior Notes for delivery to the Remarketing Agent on or prior to 5:00 p.m. (New York City time) on the fifth Business Day immediately preceding the Initial Remarketing Date for remarketing pursuant to Section 5.07(c) of the Pledge Agreement. The undersigned will, upon request of the Remarketing Agent, execute and deliver any additional documents deemed by the Remarketing Agent or by the Company to be necessary or desirable to complete the sale, assignment and transfer of the Separate Senior Notes tendered hereby. Capitalized terms used herein but not defined shall have the meaning set forth in the Pledge Agreement.

The undersigned hereby instructs you, upon receipt of the Proceeds of such remarketing from the Remarketing Agent, to deliver such Proceeds to the undersigned in accordance with the instructions indicated herein under “A. Payment Instructions.” The undersigned hereby instructs you, in the event of a Failed Final Remarketing, upon receipt of the Separate Senior Notes tendered herewith from the Remarketing Agent, to deliver such Separate Senior Notes to the person(s) and the address(es) indicated herein under “B. Delivery Instructions.”

F-1

With this notice, the undersigned hereby (i) represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Separate Senior Notes tendered hereby and that the undersigned is the record owner of any Senior Notes tendered herewith in physical form, (ii) agrees to be bound by the terms and conditions of Section 5.07(c) of the Pledge Agreement and (iii) acknowledges and agrees that after 5:00 p.m. (New York City time) on the fifth Business Day immediately preceding the Remarketing Date, such election shall become an irrevocable election to have such Separate Senior Notes remarketed in the Remarketing. In the case of a Failed Remarketing, such Separate Senior Notes shall be returned to the undersigned.

Dated:	By:
		Name:
		Title:

	Signature Guarantee:
Name	Social Security or other Taxpayer
	Identification Number, if any
Address

F-2

A. PAYMENT INSTRUCTIONS

Proceeds of the remarketing should be paid by check in the name of the person(s) set forth below and mailed to the address set forth below.

Name(s)

(Please Print)

Address

(Please Print)

(Zip Code)

(Taxpayer Identification or Social Security Number)

B. DELIVERY INSTRUCTIONS

In the event of a Failed Final Remarketing, Senior Notes that are in physical form should be delivered to the person(s) set forth below and mailed to the address set forth below.

Name(s)

(Please Print)

Address

(Please Print)

(Zip Code)

(Tax Identification or Social Security Number)

F-3

EXHIBIT G

INSTRUCTION TO CUSTODIAL AGENT

REGARDING WITHDRAWAL FROM REMARKETING

U.S. Bank National Association

as Custodial Agent

100 Wall Street, Suite 1600

New York, New York 10005

Telephone No.: (212) 361-2505

Telecopier No.: (212) 509-3384

Attention: Corporate Trust Administration

Re: Senior Notes due 2010 of PNM Resources, Inc. (the “Company”)

The undersigned hereby notifies you in accordance with Section 5.07(c) of the Pledge Agreement, dated as of October 7, 2005 (the “Pledge Agreement”), among the Company and you, as Collateral Agent, Custodial Agent and Securities Intermediary, and U.S. Bank National Association, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units from time to time, that the undersigned elects to withdraw the $__________ aggregate principal amount of Separate Senior Notes delivered to the Collateral Agent on __________, 2010 for remarketing pursuant to Section 5.07(c) of the Pledge Agreement. The undersigned hereby instructs you to return such Senior Notes to the undersigned in accordance with the undersigned’s instructions. With this notice, the undersigned hereby agrees to be bound by the terms and conditions of Section 5.07(c) of the Pledge Agreement. Capitalized terms used herein but not defined shall have the meaning set forth in the Pledge Agreement.

Dated:	By:
		Name:
		Title:

	Signature Guarantee:
Name	Social Security or other Taxpayer
	Identification Number, if any
Address

G-1

EX-4.9

Exhibit 4.9

EXECUTION COPY

REMARKETING AGREEMENT

October 7, 2005

Banc of America Securities LLC

9 West 57th Street

New York, NY 10019

U.S. Bank National Association

100 Wall Street, Suite 1600

New York, NY 10005

Ladies and Gentlemen:

This Remarketing Agreement is dated as of October 7, 2005 (the “Agreement”) among PNM Resources, Inc., a New Mexico corporation (the “Company”), Banc of America Securities LLC, as the Remarketing Agent (the “Remarketing Agent”), and U.S. Bank National Association, a national banking association, not individually but solely as Purchase Contract Agent (the “Purchase Contract Agent”) and as attorney-in-fact of the holders of Purchase Contracts (as defined in the Purchase Contract Agreement referred to below).

Section 1.Definitions.

(a)Capitalized terms used and not defined in this Agreement shall have the respective meanings set forth in the Purchase Contract Agreement, dated as of October 7, 2005, between the Company and U.S. Bank National Association, as Purchase Contract Agent, as amended from time to time (the “Purchase Contract Agreement”).

(b)As used in this Agreement, the following terms have the following meanings:

“Agreement” has the meaning set forth in the first paragraph of this agreement.

“Company” has the meaning set forth in the first paragraph of this Agreement.

“Depositary” means a clearing agency registered under Section 17A of the Exchange Act that is designated by the Company to act as Depositary for the Units.

“Depositary Participant” means a broker, dealer, bank, other financial institution or other Person for whom from time to time the Depositary effects book-entry transfers and pledges of securities deposited with the Depositary.

“Most Recent Agreement” means the underwriting agreement to which the Company or Public Service Company of New Mexico (“PNM”) is a party with respect to the issuance and sale by the Company or PNM, as the case may be, of its senior unsecured notes or securities comprised in part of its senior unsecured notes, which agreement was entered into most recently prior to the Remarketing Date.

“Preliminary Prospectus” means any preliminary prospectus relating to the Remarketed Senior Notes included in the Registration Statement or supplementing such Registration Statement pursuant to Rule 424(b) under the Securities Act, including the documents incorporated by reference therein as of the date of such Preliminary Prospectus; and any reference to any amendment or supplement to such Preliminary Prospectus shall be deemed to refer to and include any documents filed after the date of such Preliminary Prospectus under the Exchange Act, and incorporated by reference in such Preliminary Prospectus.

“Prospectus” means the prospectus relating to the Remarketed Senior Notes included in the Registration Statement, in the form in which it was first used by the Remarketing Agent to confirm sales of the Remarketed Senior Notes in the Remarketing, including the documents incorporated by reference therein as of the date of such Prospectus; and any reference to any amendment or supplement to such Prospectus shall be deemed to refer to and include any documents filed after the date of such Prospectus under the Exchange Act, and incorporated by reference in such Prospectus.

“Purchase Contract Agent” has the meaning set forth in the first paragraph of this Agreement.

“Registration Statement” means a registration statement under the Securities Act of 1933, as amended (the “Securities Act”) prepared by the Company pursuant to Section 5 hereunder covering, inter alia, the Remarketing of the Remarketed Senior Notes, including all exhibits thereto and the documents incorporated by reference in the prospectus contained in such registration statement, and any post-effective amendments thereto.

“Remarketed Senior Notes” means the Pledged Senior Notes and the Separate Senior Notes, if any, subject to Remarketing as identified to the Remarketing Agent by the Purchase Contract Agent and the Custodial Agent, respectively, after 11:00 a.m., New York City time, on the Business Day immediately preceding the applicable Remarketing Date, and shall include: (a) (i) in the case of the Initial Remarketing, the Pledged Senior Notes and (ii) in the case of the Final Remarketing, the Senior Notes of the Holders of Corporate Units who have not notified the Purchase Contract Agent on or prior to 5:00 p.m., New York Time, on the fifth Business Day immediately preceding the Purchase Contract Settlement Date of their intention to effect a Cash Settlement of the related Purchase Contracts pursuant to the terms of the Purchase Contract Agreement or who have so notified the Purchase Contract Agent but failed to make the required cash payment on the fourth Business Day immediately preceding the Purchase Contract Settlement Date pursuant to the terms of the Purchase Contract Agreement, and (b) the Separate Senior Notes of the holders of Separate Senior Notes, if any, who have elected to have their Separate Senior Notes be remarketed in such Remarketing pursuant to the terms of the Purchase Contract Agreement.

“Remarketing” means the remarketing of the Remarketed Senior Notes pursuant to this Agreement.

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“Remarketing Agent” means Banc of America Securities LLC or any successor remarketing agent appointed by the Company pursuant to Section 10 hereof.

“Remarketing Date” means either the Initial Remarketing Date (as defined herein) or the Final Remarketing Date (as defined herein), as context requires.

“Remarketing Materials” means the Preliminary Prospectus, the Prospectus or any other information furnished by the Company to the Remarketing Agent for distribution to investors in connection with the Remarketing.

“Senior Notes” means the senior notes due 2010 of the Company.

“Transaction Documents” means this Agreement, the Purchase Contract Agreement, the Pledge Agreement and the Indenture, in each case as amended or supplemented from time to time.

Section 2.Appointment and Obligations of the Remarketing Agent.

(a)The Company hereby appoints Banc of America Securities LLC as the exclusive Remarketing Agent, and, subject to the terms and conditions set forth herein, Banc of America Securities LLC hereby accepts appointment as Remarketing Agent, for the purpose of (i) Remarketing the Remarketed Senior Notes on behalf of the holders thereof, (ii) determining, in consultation with the Company, in the manner provided for herein and in the Purchase Contract Agreement and the Indenture, the Reset Rate for the Senior Notes, and (iii) performing such other duties as are assigned to the Remarketing Agent in the Transaction Documents.

(b)Unless a Special Event Redemption has occurred prior to such date, on the third Business Day immediately preceding August 16, 2008 (the “Initial Remarketing Date”), the Remarketing Agent shall use commercially reasonable efforts to remarket (based on the Reset Rate) (the “Initial Remarketing”) the Remarketed Senior Notes, at a price (the “Remarketing Price”) equal to approximately 100.25% (or, if the Remarketing Agent is unable to remarket the Remarketed Senior Notes at such a rate, at a rate below 100.25% in the discretion of the Remarketing Agent, but in no event less than 100.00%) of the sum of the Treasury Portfolio Purchase Price and the Separate Senior Notes Purchase Price.

(c)In the case of a Failed Initial Remarketing and unless a Special Event Redemption has occurred prior to such date, on the third Business Day immediately preceding the Purchase Contract Settlement Date (the “Final Remarketing Date”), the Remarketing Agent shall use its commercially reasonable efforts to remarket (based on the Reset Rate) (the “Final Remarketing”) the Remarketed Senior Notes at a price (the “Final Remarketing Price”) equal to approximately 100.25% (or, if the Remarketing Agent is unable to remarket the Remarketed Senior Notes at such a rate, at a rate below 100.25% in the discretion of the Remarketing Agent, but in no event less than 100.00%) of the aggregate principal amount of the Remarketed Senior Notes being remarketed in such Final Remarketing. It is understood and agreed that the Remarketing on any Remarketing Date will be considered successful and no further attempts will be made if the resulting proceeds are at least 100% of the sum of the Treasury Portfolio Purchase Price and the Separate Senior Notes Purchase Price, in the case of the Initial Remarketing, and at least 100% of the aggregate principal amount of the Remarketed Senior Notes, in the case of the Final Remarketing.

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(d)In connection with each Remarketing, the Remarketing Agent shall determine, in consultation with the Company, the rate per annum, rounded to the nearest one-thousandth (0.001) of one percent per annum, that the Senior Notes should bear (the “Reset Rate”) in order for the Remarketed Senior Notes to have an aggregate market value equal to the Remarketing Price or the Final Remarketing Price, as the case may be, and that in the sole reasonable discretion of the Remarketing Agent will enable it to remarket all of the Remarketed Senior Notes at the Remarketing Price or Final Remarketing Price, as the case may be, in such Remarketing.

(e)In the event of a Failed Remarketing or if no Senior Notes are included in Corporate Units, and if none of the holders of the Separate Senior Notes elect to have Senior Notes be remarketed in such Remarketing, the applicable interest rate on the Senior Notes will not be reset and will continue to be the Coupon Rate set forth in the Indenture as supplemented from time to time.

(f)If, by 4:00 p.m. (New York City time) on the applicable Remarketing Date, (i) the Remarketing Agent is unable to remarket all of the Remarketed Senior Notes at the Remarketing Price or the Final Remarketing Price, as the case may be, pursuant to the terms and conditions hereof or (ii) the Remarketing did not occur on such Remarketing Date because one of the conditions set forth in Section 7 hereof was not satisfied, a Failed Remarketing shall be deemed to have occurred, and the Remarketing Agent shall so advise, by telephone, the Depositary, the Purchase Contract Agent and the Company. Whether or not there has been a Failed Remarketing will be determined in the sole reasonable discretion of the Remarketing Agent. Promptly following any Failed Remarketing, the Remarketing Agent shall return Separate Senior Notes submitted for remarketing, if any, to the Custodial Agent for distribution to the appropriate Holders.

(g)In the event of a Successful Remarketing, by approximately 4:30 p.m. (New York City time) on the applicable Remarketing Date, the Remarketing Agent shall advise, by telephone:

(i)the Depositary, the Purchase Contract Agent and the Company of the Reset Rate determined by the Remarketing Agent in such Remarketing and the number of Remarketed Senior Notes sold in such Remarketing; and

(ii)each purchaser (or the Depositary Participant thereof) of Remarketed Senior Notes of the Reset Rate and the number of Remarketed Senior Notes such purchaser is to purchase; and

(iii)each such purchaser to give instructions to its Depositary Participant to pay the purchase price on the third Business Day immediately following the date of such Successful Remarketing in same-day funds against delivery of the Remarketed Senior Notes purchased through the facilities of the Depositary.

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The Remarketing Agent shall also, if required by the Securities Act or the rules and regulations promulgated thereunder, deliver to each purchaser a Prospectus in connection with the Remarketing.

(h)After deducting any fees specified in Section 4 below, the proceeds from a Successful Remarketing (i) with respect to the Senior Notes that are components of the Corporate Units, shall be paid to the Collateral Agent in accordance with Sections 5.07 and 7.05 of the Pledge Agreement, as the case may be, and Section 5.02 of the Purchase Contract Agreement and (ii) with respect to the Separate Senior Notes, shall be paid to the Custodial Agent for payment to the holders of such Separate Senior Notes in accordance with Section 5.02 of the Purchase Contract Agreement and Sections 5.07 and 7.05 of the Pledge Agreement.

(i)The right of each holder of Separate Senior Notes or Corporate Units to have Remarketed Senior Notes remarketed and sold on any Remarketing Date shall be subject to the conditions that (i) the Remarketing Agent conducts a Remarketing pursuant to the terms of this Agreement, (ii) a Special Event Redemption has not occurred prior to such Remarketing Date, (iii) the Remarketing Agent is able to find a purchaser or purchasers for Remarketed Senior Notes at the Remarketing Price or the Final Remarketing Price, as the case may be, based on the Reset Rate, and (iv) such purchaser or purchasers deliver the purchase price therefor to the Remarketing Agent as and when required.

(j)It is understood and agreed that the Remarketing Agent shall not have any obligation whatsoever to purchase any Remarketed Senior Notes, whether in the Remarketing or otherwise, and shall in no way be obligated to provide funds to make payment upon tender of Senior Notes for Remarketing or to otherwise expend or risk its own funds or incur or to be exposed to financial liability in the performance of its duties under this Agreement, and without limitation of the foregoing, the Remarketing Agent shall not be deemed an underwriter of the Remarketed Senior Notes. The Company shall similarly not be obligated in any case to provide funds to make payment upon tender of the Senior Notes for Remarketing.

Section 3.Representations and Warranties of the Company. The Company represents and warrants (i) on and as of the date any Remarketing Materials are first distributed in connection with the Remarketing (the “Commencement Date”) and (ii) on and as of the applicable Remarketing Date that:

(a)Each of the representations and warranties of the Company or PNM, as the case may be, in the Most Recent Agreement are, as to the Company mutatismutandis (with respect to the Remarketed Senior Notes and the circumstances of their remarketing), true and correct (with such representations and warranties, as so modified, being set forth at length in a certificate by the Company as to the Company to be delivered pursuant to Section 7(a) hereof).

(b)The Registration Statement, if any, in the form delivered prior to the applicable date set forth in the first paragraph of this Section 3 or to be delivered to the Remarketing Agent, has been declared effective by the Securities and Exchange Commission (the “Commission”) under the Securities Act and no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been initiated or, to the best knowledge of the Company, threatened by the Commission.

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(c)The documents incorporated by reference in the Prospectus, if any, at the time when they were filed with the Commission, complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder, and, when read together with the other information in the Prospectus, if any, at the time the Registration Statement and any amendments thereto became effective, and at the Commencement Date, applicable Remarketing Date and applicable settlement date, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information relating to the Remarketing Agent furnished in writing to the Company by the Remarketing Agent or its counsel expressly for use in the Prospectus.

(d)The Registration Statement, if any, complies, and any post-effective amendment thereto, any Rule 462(b) Registration Statement and any Remarketing Materials (and any amendment or supplement thereto) will comply in all material respects with the requirements of the Securities Act and the rules and regulations promulgated thereunder, and the Trust Indenture Act, and the Registration Statement as amended and supplemented by the Prospectus, any post-effective amendment thereto and any Rule 462(b) Registration Statement do not and will not, as of the applicable effective date thereof, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus, if any, as amended or supplemented, as of its date, and any further supplements to the Prospectus, as of the applicable filing date as to any such supplement and any Remarketing Materials (and any amendment or supplement thereto), as of the date of such Remarketing Materials and the Remarketing Date, do not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. No representation and warranty is made as to any statement of eligibility on Form T-1 filed or incorporated by reference as part of the Registration Statement, the Prospectus or the Remarketing Materials, or as to statements in or omissions from the Registration Statement, the Prospectus or the Remarketing Materials made in reliance upon and in conformity with written information furnished to the Company by the Remarketing Agent.

(e)This Agreement has been duly authorized, executed and delivered by the Company.

Section 4.Fees.

(a)In the event of a Successful Initial Remarketing of the Remarketed Senior Notes, the Remarketing Agent will retain from any proceeds of the Successful Remarketing as a remarketing fee an amount equal to the lesser of (i) 25 basis points (.25%) of the sum of the Treasury Portfolio Purchase Price and the Separate Senior Note Purchase Price and (ii) the amount of the proceeds of such Successful Remarketing in excess of the Treasury Portfolio Purchase Price plus the Separate Senior Notes Purchase Price; provided, however, that to the extent that such amount is less than 25 basis points of the Treasury Portfolio Price plus the Separate Senior Notes Purchase Price, the Company shall pay an amount, as an additional remarketing fee, to the Remarketing Agent equal to such shortfall (such amount, together with the amount in the previous sentence, the “Remarketing Fee”).

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(b)In the event of a Successful Final Remarketing of the Remarketed Senior Notes, the Remarketing Agent will retain from any proceeds of the Successful Final Remarketing as a remarketing fee an amount equal to the lesser of (i) 25 basis points (.25%) of the aggregate principal amount of the Remarketed Senior Notes and (ii) the amount of the proceeds of such Successful Final Remarketing in excess of the aggregate principal amount of the Remarketed Senior Notes; provided, however, that to the extent that such amount is less than 25 basis points of the aggregate principal amount of the remarketed Pledged Senior Notes and Separate Senior Notes, the Company shall pay an amount, as an additional remarketing fee, to the Remarketing Agent equal to such shortfall (such amount, together with the amount in the previous sentence, the “Final Remarketing Fee”).

Section 5.Covenants of the Company. If and to the extent the Remarketed Senior Notes are required, in connection with the Remarketing (in the view of counsel, which need not be in the form of a written opinion, for either the Remarketing Agent or the Company), to be registered under the Securities Act as in effect at the time of the Remarketing, the Company covenants and agrees as follows:

(a)The Company shall prepare the Registration Statement and the Prospectus, in a form approved by the Remarketing Agent, which approval shall not be unreasonably withheld, shall file any such Prospectus pursuant to the Securities Act within the period required by the Securities Act and the rules and regulations thereunder and shall use reasonable best efforts to cause the Registration Statement to be declared effective by the Commission prior to the second Business Day immediately preceding the applicable Remarketing Date.

(b)The Company shall file promptly with the Commission any amendment to the Registration Statement or the Prospectus or any supplement to the Prospectus that may, in the reasonable judgment of the Company or the Remarketing Agent, be required by the Securities Act or requested by the Commission.

(c)The Company shall advise the Remarketing Agent, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed and to furnish the Remarketing Agent with copies thereof.

(d)The Company shall file promptly all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of the Prospectus and for so long as the delivery of a Prospectus is required in connection with the offering or sale of the Remarketed Senior Notes.

(e)The Company shall advise the Remarketing Agent, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of the Prospectus, of the suspension of the qualification of any of the Remarketed Senior Notes for offering or sale in any jurisdiction, of the initiation or

7

threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or the Prospectus or for additional information, and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Prospectus or suspending any such qualification, to use promptly reasonable best efforts to obtain its withdrawal.

(f)The Company shall furnish promptly to the Remarketing Agent such copies of the following documents as the Remarketing Agent shall reasonably request: (A) conformed copies of the Registration Statement as originally filed with the Commission and each amendment thereto (in each case excluding exhibits); (B) the Preliminary Prospectus and any amended or supplemented Preliminary Prospectus; (C) the Prospectus and any amended or supplemented Prospectus; and (D) any document incorporated by reference in the Prospectus (excluding exhibits thereto); and, if at any time when delivery of a prospectus is required in connection with the Remarketing, (i) any event shall have occurred as a result of which the Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or (ii) for any other reason it shall otherwise be necessary during such same period to amend or supplement the Prospectus or to file under the Exchange Act any document incorporated by reference in the Prospectus in order to comply with the Securities Act or the Exchange Act, to notify the Remarketing Agent and, upon its request, to file such document and to prepare and furnish without charge to the Remarketing Agent and to any dealer in securities as many copies as the Remarketing Agent may from time to time reasonably request of an amended or supplemented Prospectus that will correct such statement or omission or effect such compliance.

(g)Prior to filing with the Commission (A) any amendment to the Registration Statement or supplement to the Prospectus (other than any amendment or supplement resulting solely from the incorporation by reference of any report under the Exchange Act) or (B) any Prospectus pursuant to Rule 424 under the Securities Act, the Company shall furnish a copy thereof to the Remarketing Agent and counsel to the Remarketing Agent; and shall not file any such amendment or supplement that shall be reasonably disapproved by the Remarketing Agent.

(h)As soon as practicable, but in any event not later than eighteen months, after the effective date of the Registration Statement, the Company shall make “generally available to its security holders” an “earnings statement” of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Securities Act and the rules and regulations thereunder (including, at the option of the Company, Rule 158 under the Securities Act). The terms “generally available to its security holders” and “earnings statement” shall have the meanings set forth in Rule 158 under the Securities Act.

(i)The Company shall take such action as the Remarketing Agent may reasonably request in order to qualify the Remarketed Senior Notes for offer and sale under the securities or “blue sky” laws of such jurisdictions as the Remarketing Agent may reasonably request; provided that in no event shall the Company be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction or to subject itself to taxation or any other obligation in any jurisdiction in which it is not otherwise subject.

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(j)The Company shall furnish the Remarketing Agent with such information and documents as the Remarketing Agent may reasonably request in connection with the transactions contemplated hereby, and to make reasonably available to the Remarketing Agent and any accountant, attorney or other advisor retained by the Remarketing Agent such information that parties would customarily require in connection with a due diligence investigation conducted in accordance with applicable securities laws and to cause the Company’s officers, directors, employees and accountants to participate in all such discussions and to supply all such information reasonably requested by any such Person in connection with such investigation.

Section 6.Payment of Expenses. The Company agrees to pay (a) all costs incident to the preparation and printing of the Registration Statement, if any, any Prospectus and any other Remarketing Materials and any amendments or supplements thereto, (b) all costs of distributing the Registration Statement, if any, any Prospectus and any other Remarketing Materials and any amendments or supplements thereto, (c) any fees and expenses of qualifying the Remarketed Senior Notes under the securities laws of the several jurisdictions as provided in Section 5(i) and of preparing, printing and distributing a Blue Sky Memorandum, if any (including the reasonable fees and expenses of counsel to the Remarketing Agent), (d) all other costs and expenses incident to the performance of the obligations of the Company hereunder and the Remarketing Agent hereunder and (e) the reasonable fees and expenses of counsel to the Remarketing Agent in connection with its duties hereunder.

Section 7.Conditions to the Remarketing Agent’s Obligations. The obligations of the Remarketing Agent hereunder shall be subject to the following conditions:

(a)The representations and warranties of the Company contained herein shall be true and correct in all material respects on and as of the applicable Remarketing Date, and the Company, the Purchase Contract Agent and the Collateral Agent shall have performed in all material respects all covenants and agreements contained herein or in the Purchase Contract Agreement or Pledge Agreement to be performed on their part at or prior to such date.

(b)There shall not have occurred any of the following: (i) Trading generally shall have been suspended or materially limited on the New York Stock Exchange, (ii) trading of any securities of the Company shall have been materially suspended or limited on the New York Stock Exchange, (iii) a banking moratorium shall have been declared by either Federal or New York State authorities, or (iv) there shall have occurred a material adverse change in the financial markets, any escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war, if the effect of any such event specified in this clause (b) in the judgment of the Remarketing Agent makes it impracticable or inadvisable to proceed with the Remarketing or the delivery of the Remarketed Senior Notes on the terms and in the manner contemplated in the Transaction Documents.

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(c)The Prospectus, if any, shall have been filed with the Commission pursuant to Rule 424(b) in the manner and within the time period required by Rule 424(b) under the Securities Act; no stop order suspending the effectiveness of the Registration Statement, any Rule 462(b) Registration Statement, or any post-effective amendment to the Registration Statement shall be in effect and no proceedings for such purpose shall have been instituted or threatened by the Commission and any request of the Commission for inclusion of additional information in the Registration Statement or the Prospectus or otherwise shall have been complied with.

(d)The Company shall have furnished to the Remarketing Agent a certificate, dated the applicable Remarketing Date, of the Chief Financial Officer satisfactory to the Remarketing Agent stating that: (1) no order suspending the effectiveness of the Registration Statement, if any, or prohibiting the sale of the Remarketed Senior Notes is in effect, and no proceedings for such purpose are pending before or, to the best knowledge of such officer, threatened by the Commission; (2) the representations and warranties of the Company in Section 3 are true and correct on and as of the applicable Remarketing Date, and the Company has performed in all material respects all covenants and agreements contained herein to be performed on its part at or prior to such Remarketing Date; and (3) the Registration Statement, if any, as of its effective date, did not contain any untrue statement of a material fact and did not omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and the Prospectus or any other Remarketing Material did not, as of the date of such Prospectus or such Remarketing Material, if any, contain any untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

(e)On the applicable Remarketing Date, the Remarketing Agent shall have received a letter addressed to the Remarketing Agent and dated such date, in form and substance satisfactory to the Remarketing Agent, from the Company’s independent accountants reasonably acceptable to the Remarketing Agent, containing statements and information of the type ordinarily included in accountants’ “comfort letters” with respect to the financial statements and certain financial information of the Company and its consolidated subsidiaries contained in the Remarketing Materials, if any.

(f)Bracewell & Giuliani LLP, or such other counsel reasonably acceptable to the Remarketing Agent, shall have furnished to the Remarketing Agent its opinion, as counsel to the Company, addressed to the Remarketing Agent and dated the applicable Remarketing Date, in form and substance reasonably satisfactory to the Remarketing Agent addressing such matters as are set forth in such counsel’s opinion furnished pursuant to the Most Recent Agreement, adapted as necessary to relate to the securities being remarketed hereunder and to the Remarketing Materials, if any, or to any changed circumstances or events occurring subsequent to the date of this Agreement, such adaptations being reasonably acceptable to counsel to the Remarketing Agent.

(g)Troutman Sanders LLP, or such other counsel reasonably acceptable to the Remarketing Agent, shall have furnished to the Remarketing Agent its written opinion, as special counsel to the Company, addressed to the Remarketing Agent and dated the applicable Remarketing Date, in form and substance satisfactory to the Remarketing Agent addressing such matters as are set forth in such counsel’s opinion furnished pursuant to the Most Recent Agreement.

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(h)Counsel for the Remarketing Agent shall have furnished to the Remarketing Agent its opinion, addressed to the Remarketing Agent and dated the applicable Remarketing Date, in form and substance reasonably satisfactory to the Remarketing Agent.

(i)There shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate an improvement, in the rating accorded any of the Company’s securities by any “nationally recognized statistical rating organization,” as such term is defined for purposes of Rule 436(g)(2) under the Securities Act.

(j)The Senior Notes shall not have been called for redemption following the occurrence of a Special Event.

If any condition specified in this Section 7 is not satisfied when and as required to be satisfied, this Agreement may be terminated by the Remarketing Agent by notice to the Company at any time on or prior to the applicable Remarketing Date, which termination shall be without liability on the part of any party to any other party, except that Sections 6, 8 and 9 shall at all times be effective and shall survive such termination.

Section 8.Indemnification.

(a) The Company agrees to indemnify and hold harmless the Remarketing Agent, its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls the Remarketing Agent within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any loss, claim, damage, liability, joint or several, or any action in respect thereof to which the Remarketing Agent or any such affiliate officer, employee, representative, agent or controlling person may become subject, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus or the Prospectus, or in any amendment or supplement thereto, or (ii) the omission or alleged omission to state in the Registration Statement, any Preliminary Prospectus, or the Prospectus or in any amendment or supplement thereto, in any Remarketing Materials or any amendment or supplement thereto, or in any Blue Sky Application, any material fact necessary to make the statements therein not misleading; and shall reimburse the Remarketing Agent and each such affiliate, officer, employee, representative, agent or controlling person promptly upon demand for any legal or other expenses reasonably incurred by the Remarketing Agent or any such affiliate, officer, employee, representative agent or controlling person in damage, liability or action as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus or the Prospectus, or in any such amendment or supplement, or any other Remarketing Materials (or any amendment or supplement thereto), in reliance upon and in conformity with the written information furnished to the Company by or on behalf of the

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Remarketing Agent concerning the Remarketing Agent specifically for inclusion therein; and provided, further, that the Company shall not be liable to the Remarketing Agent under the indemnity agreement in this subsection with respect to any Preliminary Prospectus to the extent that such loss, claim, damaged, liability or action of the Remarketing Agent results from the fact that the Remarketing Agent sold the Remarketed Senior Notes to a person as to whom it shall be established that such sale was an initial resale by the Remarketing Agent and there was not sent or given to such person, if required by law to have been so sent or given, at or prior to the written confirmation of the sale to such person, a copy of the Prospectus, if the Company had previously furnished copies thereof pursuant to Section 5(f) and the loss, claim, damage or liability of the Remarketing Agent results from an untrue statement or omission of a material fact contained in the Preliminary Prospectus which was (i) identified to the Remarketing Agent prior to the furnishing to the Remarketing Agent of the corrected Prospectus and (ii) corrected in the Prospectus. The foregoing indemnity agreement is in addition to any liability which the Company may otherwise have to the Remarketing Agent or to any affiliate, officer, employee, representative, agent or controlling person of the Remarketing Agent.

(b)The Remarketing Agent shall indemnify and hold harmless the Company, its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act from and against any loss, claim, damage, liability or any action in respect thereof, to which the Company, or any such affiliate, director, officer, employee, representative, agent or controlling person may become subject, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, or the Prospectus (or any amendment or supplement thereto), or (ii) the omission or alleged omission to state in the Registration Statement, any Preliminary Prospectus, or the Prospectus (or any amendment or supplement thereto), or any material fact necessary to make the statements therein not misleading, but in each case only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by the Remarketing Agent specifically for inclusion therein; and shall reimburse the Company and any such director, officer or controlling person promptly upon demand for any legal and other expenses reasonably incurred by the Company or any such affiliate, director, officer, employee, representative, agent or controlling person in connection with investigating, defending, or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred. The Company hereby acknowledges that the only information that the Remarketing Agent has furnished to the Company expressly for use in the Registration Statement, any Preliminary Prospectus, or the Prospectus is the information set forth in a certificate to be provided by the Remarketing Agent on or prior to the Remarketing Date.

(c)Promptly after receipt by an indemnified party under this Section 8 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the claim or commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have had under this Section 8 except to the extent it has been materially prejudiced by such failure and, provided, further, that the failure to notify the indemnifying party shall not relieve it

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from any liability which it may have to an indemnified party otherwise than under this Section 8. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 8 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, (1) if the defendants in any such action include both the indemnified party and the indemnifying party, (2) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action, or (3) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel at the expense of the indemnifying party then and the indemnified party shall have reasonably concluded that a conflict may arise between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, then the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of such indemnifying party’s election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party in connection with the defense thereof unless the indemnified party shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel (together with local counsel), approved by the indemnifying party (the Remarketing Agent in the case of Section 8(b), representing the indemnified parties who are parties to such action). No indemnifying party shall, (i) without the prior written consent of the indemnified parties settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding, and contains no statement as to fault, or (ii) be liable for any settlement of any such action effected without its written consent, but if settled with its written consent or if there be a final judgment of the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss of liability by reason of such settlement or judgment.

Section 9.Contribution. If the indemnification provided for in Section 8 is for any reason held to be unavailable or insufficient to hold harmless an indemnified party under Section 8(a) or 8(b) in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be

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appropriate to reflect the relative benefits received by the Company, on the one hand, and the Remarketing Agent, on the other hand, from the Remarketing of the Remarketed Senior Notes pursuant to this Agreement or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and the Remarketing Agent, on the other hand, with respect to the statements or omissions or alleged statements or alleged omissions that resulted in such loss, claim, damage, or liability (or action in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Remarketing Agent, on the other hand, with respect to the Remarketing of the Remarketed Senior Notes pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the Remarketing of the Remarketed Senior Notes pursuant to this Agreement received by holders of the Remarketed Senior Notes on the one hand, and the total Remarketing Fee received by the Remarketing Agent, on the other hand, bear to the aggregate Remarketing Price plus an additional Remarketing Fee paid by the Company which is not included in the Remarketing Price of the Remarketed Senior Notes. The relative fault of the Company, on the one hand, and the Remarketing Agent, on the other hand, shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or the Remarketing Agent, on the other hand, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission.

The Company and the Remarketing Agent agree that it would not be just and equitable if the amount of contributions pursuant to this Section 9 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to herein.

The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to in this Section 9 shall be deemed to include, for purposes of this Section 9, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim.

Notwithstanding the provisions of this Section 9, the Remarketing Agent shall not be required to contribute any amount in excess of the amount by which the fees received by it under Section 4 exceeds the amount of any damages which the Remarketing Agent has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 9, each officer and employee of the Remarketing Agent and each person, if any, who controls the Remarketing Agent within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Remarketing Agent, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Company.

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Section 10.Resignation and Removal of the Remarketing Agent. The Remarketing Agent may resign and be discharged from its duties and obligations hereunder, and the Company may remove the Remarketing Agent, by giving 30 days’ prior written notice, in the case of a resignation, to the Company, the Purchase Contract Agent and the Depositary and, in the case of a removal, to the removed Remarketing Agent, the Purchase Contract Agent and the Depositary; provided, however, that no such resignation nor any such removal shall become effective until the Company shall have appointed at least one nationally recognized broker-dealer as successor Remarketing Agent and such successor Remarketing Agent shall have entered into a remarketing agreement with the Company and the Purchase Contract Agent, in which it shall have agreed to conduct the Remarketing in accordance with the Transaction Documents in all material respects.

In any such case, the Company will use commercially reasonable efforts to appoint a successor Remarketing Agent and enter into such a remarketing agreement with such person as soon as reasonably practicable.

Section 11.Dealing in Securities. The Remarketing Agent, when acting as a Remarketing Agent or in its individual or any other capacity, may, to the extent permitted by law, buy, sell, hold and deal in any of the Remarketed Senior Notes, Corporate Units, Treasury Units or any of the securities of the Company (together, the “Securities”). The Remarketing Agent may exercise any vote or join in any action which any beneficial owner of such Securities may be entitled to exercise or take pursuant to the Indenture with like effect as if it did not act in any capacity hereunder. The Remarketing Agent, in its individual capacity, either as principal or agent, may also engage in or have an interest in any financial or other transaction with the Company as freely as if it did not act in any capacity hereunder.

Section 12.Remarketing Agent’s Performance; Duty of Care. The duties and obligations of the Remarketing Agent shall be determined solely by the express provisions of this Agreement and the Transaction Documents. No implied covenants or obligations of or against the Remarketing Agent shall be read into this Agreement or any of the Transaction Documents. In the absence of bad faith on the part of the Remarketing Agent, the Remarketing Agent may conclusively rely upon any document furnished to it, as to the truth of the statements expressed in any of such documents. The Remarketing Agent shall be protected in acting upon any document or communication reasonably believed by it to have been signed, presented or made by the proper party or parties except as otherwise set forth herein. The Remarketing Agent, acting under this Agreement, shall incur no liability to the Company or to any holder of Remarketed Senior Notes in its individual capacity or as Remarketing Agent for any action or failure to act, on its part in connection with a Remarketing or otherwise, except if such liability is judicially determined to have resulted from its failure to comply with the material terms of this Agreement or the gross negligence or willful misconduct on its part. The provisions of this Section 12 shall survive the termination of this Agreement and shall survive the resignation or removal of any Remarketing Agent pursuant to this Agreement.

Section 13.Termination. This Agreement shall automatically terminate (i) as to the Remarketing Agent on the effective date of the resignation or removal of the Remarketing Agent pursuant to Section 10 and (ii) on the earlier of (x) any Special Event Redemption Date and (y) the Purchase Contract Settlement Date. If this Agreement is terminated pursuant to any of the

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other provisions hereof, except as otherwise provided herein, the Company shall not be under any liability to the Remarketing Agent and the Remarketing Agent shall not be under any liability to the Company, except that if this Agreement is terminated by the Remarketing Agent because of any failure or refusal on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, the Company will reimburse the Remarketing Agent for all of its out-of-pocket expenses (including the fees and disbursements of its counsel) reasonably incurred by it. Sections 8, 9 and 12 hereof shall survive the termination of this Agreement or the resignation or removal of the Remarketing Agent.

Section 14.Notices. All statements, requests, notices and agreements hereunder shall be in writing, and:

(a)if to the Remarketing Agent, shall be delivered or sent by mail, telex or facsimile transmission to:

Banc of America Securities LLC

9 West 57th Street

New York, New York 10019

Telecopier No.: (212) 933-2217

Attention: Derek Dillon

(b)if to the Company, shall be delivered or sent by mail, telex or facsimile transmission to PNM Resources, Inc., Alvarado Square MS-2704, Albuquerque, New Mexico 87158, Telephone No.: (505) 241-2700, Telecopier No.: (505) 241-2369; Attention: Treasurer; and

(c)if to the Purchase Contract Agent, shall be delivered or sent by mail, telex or facsimile transmission to U.S. Bank National Association, 100 Wall Street, Suite 1600, New York, New York 10005, Telephone No.: (212) 361-2505, Telecopier No.: (212) 509-3384; Attention: Corporate Trust Administration.

Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof.

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Section 15.Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon each party hereto and its respective successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that (x) the representations, warranties, indemnities and agreements of the Company contained in this Agreement shall also be deemed to be for the benefit of the Remarketing Agent and the person or persons, if any, who control the Remarketing Agent within the meaning of Section 15 of the Securities Act and (y) the indemnity agreement of the Remarketing Agent contained in Section 8 of this Agreement shall be deemed to be for the benefit of the Company’s directors and officers who sign the Registration Statement, if any, and any person controlling the Company within the meaning of Section 15 of the Securities Act. Nothing contained in this Agreement is intended or shall be construed to give any person, other than the persons referred to herein, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein.

Section 16.Survival. Notwithstanding Section 13, the respective indemnities, representations, warranties and agreements of the Company and the Remarketing Agent contained in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall survive any Remarketing and shall remain in full force and effect, regardless of any investigation made by or on behalf of any of them or any person controlling any of them.

Section 17.Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of New York.

Section 18.Counterparts. This Agreement may be executed in one or more counterparts and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original but all such counterparts shall together constitute one and the same instrument.

Section 19.Headings. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement.

Section 20.Severability. If any provision of this Agreement shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any or all jurisdictions because it conflicts with any provisions of any constitution, statute, rule or public policy or for any other reason, then, to the extent permitted by law, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or unenforceable in any other case, circumstance or jurisdiction, or of rendering any other provision or provisions of this Agreement invalid, inoperative or unenforceable to any extent whatsoever.

Section 21.Amendments. This Agreement may be amended by an instrument in writing signed by the parties hereto. The Company agrees that it will not enter into, cause or permit any amendment or modification of the Transaction Documents or any other instruments or agreements relating to the Senior Notes or the Corporate Units that would in any way adversely affect the rights, duties or obligations of the Remarketing Agent, without the prior written consent of the Remarketing Agent.

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Section 22.Successors and Assigns. The rights and obligations of the Company hereunder may not be assigned or delegated to any other Person without the prior written consent of Banc of America. The rights and obligations of the Remarketing Agent hereunder may not be assigned or delegated to any other Person (other than an affiliate of the Remarketing Agent) without the prior written consent of the Company.

Section 23.No Advisory or Fiduciary Responsibility. The Company acknowledges and agrees that: (i) the Remarketing pursuant to this Agreement, including the determination of the Remarketing Price and the Remarketing Fee, is an arm’s-length commercial transaction between the Company, on the one hand, and the Remarketing Agent, on the other hand, and the Company is capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the transactions contemplated by this Agreement; (ii) in connection with each transaction contemplated hereby and the process leading to such transaction the Remarketing Agent is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary of the Company, or its affiliates, stockholders, creditors or employees or any other party; (iii) the Remarketing Agent has not assumed or will assume an advisory, agency or fiduciary responsibility in favor of the with respect to any of the transactions contemplated hereby or the process leading thereto (irrespective of whether the Remarketing Agent has advised or is currently advising the Company on other matters) and the Remarketing Agent does not have any obligation to the Company with respect to the offering contemplated hereby except the obligations expressly set forth in this Agreement; (iv) the Remarketing Agent and its affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Company and that the Remarketing Agent has no obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship; and (v) the Remarketing Agent has not provided any legal, accounting, regulatory or tax advice with respect to the offering contemplated hereby and the Company has consulted its own legal, accounting, regulatory and tax advisors to the extent it deemed appropriate.

This Agreement supersedes all prior agreements and understandings (whether written or oral) between the Company and the Remarketing Agent with respect to the subject matter hereof. The Company hereby waives and releases, to the fullest extent permitted by law, any claims that the Company may have against the Remarketing Agent with respect to any breach or alleged breach of agency or fiduciary duty.

If the foregoing correctly sets forth the agreement by and between the Company, the Remarketing Agent and the Purchase Contract Agent, please indicate your acceptance in the space provided for that purpose below

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;

SIGNATURE PAGE FOLLOWS]

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[SIGNATURE PAGE TO REMARKETING AGREEMENT]

Very truly yours,

PNM RESOURCES, INC.

By: _/s/ Terry R. Horn_________________

Terry R. Horn,

Vice President, Corporate Secretary, and

Acting Chief Financial Officer

CONFIRMED AND ACCEPTED:

BANC OF AMERICA SECURITIES LLC,

not individually, but solely as Remarketing Agent

By: __/s/ Lily Chang_____

Name: Lily Chang

Title: Principal

U.S. BANK NATIONAL ASSOCIATION,

not individually but solely as Purchase Contract Agent and as attorney-in-fact for the Holders of the Purchase Contracts

By: ____/s/ Marlene J. Fahey_____

Name: Marlene J. Fahey

Title: Vice President

                    19

EX-4.10

Exhibit 4.10

EXECUTION COPY

REGISTRATION RIGHTS AGREEMENT

between

PNM RESOURCES, INC.,

as Issuer

and

CASCADE INVESTMENT, L.L.C.,

as Initial Holder

Dated as of October 7, 2005

TABLE OF CONTENTS

		Page
SECTION 1.	Definitions	1
SECTION 2.	Shelf Registration; Demand Registration	5
SECTION 3.	Piggyback Registration Rights	8
SECTION 4.	Registration Procedures	10
SECTION 5.	Holder’s Obligations	15
SECTION 6.	Registration Expenses	15
SECTION 7.	Indemnification and Contribution	16
	(a)Indemnification by the Company	16
	(b)Indemnification by Holders	17
	(c)Conduct of Indemnification Proceedings	18
	(d)Contribution	19
SECTION 8.	Information Requirements	19
SECTION 9.	Purchase Right in Certain Instances	19
SECTION 10.	Miscellaneous	20
	(a)No Conflicting Agreements	20
	(b)Amendments and Waivers	20
	(c)Notices	20
	(d)Approval of Holders	21
	(e)Successors and Assigns	21
	(f)Counterparts; Facsimile Execution	22
	(g)Headings	22
	(h)Governing Law	22
	(i)Severability	22
	(j)Entire Agreement	22
	(k)Termination	22

Exhibit ANotice of Registration Statement and Selling Securityholder Questionnaire

Exhibit BNotice of Transfer Pursuant to Registration Statement

Exhibit CLock up Letter

This REGISTRATION RIGHTS AGREEMENT dated as of October 7, 2005 (this “Agreement”) is between PNM Resources, Inc., a New Mexico corporation (the “Company”), and Cascade Investment, L.L.C., a Washington limited liability company (the “Initial Holder”).

The Company agrees with the Initial Holder, (i) for its benefit as Initial Holder and (ii) for the benefit of the beneficial owners (including the Initial Holder) from time to time of the Registrable Securities (as defined herein) (each of the foregoing a “Holder” and together the “Holders”), as follows:

SECTION 1.Definitions. As used in this Agreement, the following terms shall have the following meanings:

“Affiliate” means with respect to any specified person, an “affiliate,” as defined in Rule 144, of such person.

“Agreement” has the meaning set forth in the first paragraph of this agreement.

“Amendment Effectiveness Deadline Date” has the meaning set forth in Section 2(d)(i) hereof.

“Business Day” means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in The City of New York are authorized or obligated by law or executive order to close.

“Closing Prices” has the meaning set forth in Section 9 hereof.

“Common Stock” means the shares of common stock, no par value, of the Company.

“Company” has the meaning set forth in the first paragraph of this Agreement.

“Current Market Price Per Share” has the meaning set forth in Section 9 hereof.

“Company Registration” has the meaning set forth in Section 3(a) hereof.

“Deferral Notice” has the meaning set forth in Section 4(h) hereof.

“Deferral Period” has the meaning set forth in Section 4(h) hereof.

“Demand Effectiveness Deadline Date” means the date that is 90 days after the Demand Filing Date.

“Demand Filing Date” means forty-five (45) days after receipt by the Company of the Demand Registration Request.

“Demand Registration” means a registration of Registrable Common Stock pursuant to the Demand Registration Statement.

“Demand Registration Request” has the meaning set forth in Section 2(e) hereof.

“Demand Registration Statement” has the meaning set forth in Section 2(e) hereof.

“Effective Time” means the time at which the SEC declares the Registration Statement effective or at which the Registration Statement otherwise becomes effective.

“Effectiveness Deadline Date” has the meaning set forth in Section 2(a) hereof.

“Effectiveness Period” means the period commencing on the date hereof and ending on the date that all Registrable Securities have ceased to be Registrable Securities.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor Federal statute, and the rules and regulations thereunder, all as the same shall be in effect at the time. Reference to a particular section of, or rule or regulation under, the Exchange Act shall include a reference to the comparable section, rule or regulation, if any, and as the case may be, of or under the successor Federal statute.

“Filing Deadline Date” means the date sixty (60) days after the Shelf Registration Request is received by the Company.

“Holder” has the meaning set forth in the second paragraph of this Agreement.

“indemnified party” is defined in Section 7(c).

“indemnifying party” is defined in Section 7(c).

“Indenture” means the Indenture, dated as of October 7, 2005, between the Company and U.S. Bank National Association, as trustee, as amended and supplemented from time to time in accordance with its terms.

“Initial Holder” has the meaning set forth in the first paragraph of this Agreement.

“Initial Shelf Registration Statement” has the meaning set forth in Section 2(a) hereof.

“Material Event” has the meaning set forth in Section 4(h) hereof.

“Notice and Questionnaire” means a written notice delivered to the Company containing substantially the information called for by the Notice of Registration Statement and Selling Securityholder Questionnaire attached as Exhibit A hereto.

“Notice Holder” means, on any date, any Holder that has delivered a Notice and Questionnaire to the Company on or prior to such date.

“Offered Common Stock” has the meaning set forth in Section 9 hereof.

“Piggyback Registration” has the meaning set forth in Section 3(a) hereof.

“Preferred Shares” means the Preferred Shares of the Company created by the Statement of Resolutions, convertible into shares of Common Stock as provided in the Statement of Resolutions.

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“Prospectus” means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any amendment or prospectus supplement, including post-effective amendments, and all materials incorporated by reference or explicitly deemed to be incorporated by reference in such Prospectus.

“Purchase Contract Agreement” means the purchase contract agreement dated as of October 7, 2005 between the Company and U.S. Bank National Association, as purchase contract agent.

“Purchase Contract” shall have the meaning specified in the Purchase Contract Agreement.

“Purchase Date” has the meaning set forth in Section 9 hereof.

“Purchase Notice” has the meaning set forth in Section 9 hereof.

“Registrable Common Stock” means shares of Common Stock that are Registrable Securities.

“Registrable Securities” means (i) the Units, (ii) the Senior Notes, (iii) the Underlying Common Stock, (iv) any other securities of the Company currently held by the Initial Holder and (v) any shares of Common Stock or other securities convertible into Common Stock issued with respect to the securities listed in (iii) and (iv) above upon any stock dividend, split or similar event, so long as such securities remain Registrable Securities, provided, however, that a security ceases to be a Registrable Security when it is no longer a Restricted Security.

“Registration Statement” means any registration statement of the Company that covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits and all materials incorporated by reference or explicitly deemed to be incorporated by reference in such registration statement.

“Restricted Security” means (i) the Units, (ii) the Senior Notes, (iii) the Preferred Stock, (iv) the Underlying Common Stock and any shares of Common Stock or other securities convertible into Common Stock issued with respect to the Underlying Common Stock upon any stock dividend, split or similar event, so long as such securities remain Registrable Securities, except any security that (x) has been effectively registered under the Securities Act and sold in a manner contemplated by the Registration Statement, or (y) has been transferred in compliance with Rule 144 under the Securities Act (or any successor provision thereto), is transferable within the volume limitations of paragraph (e) of such Rule 144 (or any successor provision) even if aggregated with all other Registrable Securities held by the Holder thereof, or is transferable pursuant to paragraph (k) of such Rule 144 (or any successor provision thereto).

“Rule 144” means Rule 144 under the Securities Act, as such Rule 144 may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.

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“Rule 144A” means Rule 144A under the Securities Act, as such Rule 144A may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.

“Sales Notice” has the meaning set forth in Section 5 hereof.

“SEC” means the Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended, or any successor Federal statute, and the rules and regulations thereunder, all as the same shall be in effect at the time. Reference to a particular section of, or rule or regulation under, the Securities Act shall include a reference to the comparable section, rule or regulation, if any, and as the case may be, of or under the successor Federal statute.

“Senior Notes” means the 5.1% Senior Notes due 2010 issued pursuant to the Indenture and initially forming a component of the Units.

“Shelf Registration Request” has the meaning set forth in Section 2(a) hereof.

“Shelf Registration Statement” has the meaning set forth in Section 2(b) hereof.

“Special Counsel” means Thelen Reid & Priest LLP or one such other successor counsel as shall be specified by the Holders of a majority of the Registrable Securities, but which may, with the written consent of the Initial Holder (which shall not be unreasonably withheld), be another nationally recognized law firm experienced in securities law matters designated by the Company, the reasonable fees and expenses of which will be paid by the Company pursuant to Section 6 hereof. For purposes of determining the holders of a majority of the Registrable Securities in this definition, Holders of Units shall be deemed to be the Holders of the number of shares of Underlying Common Stock which the Purchase Contracts that are a component of such Units obligate such Holders to purchase as of the date the consent is requested.

“Statement of Resolutions” means the Statement of Resolutions Establishing a Series of Preferred Stock of PNM Resources, Inc. adopted by the Board of Directors of the Company on September 28, 2004, to be filed by the Company with the New Mexico Public Regulation Commission prior to the Purchase Contract Settlement Date (as defined in the Purchase Contract Agreement).

“Subsequent Shelf Registration Statement” has the meaning set forth in Section 2(b) hereof.

“Trading Days” has the meaning set forth in Section 9 hereof.

“Triggering Notice” has the meaning set forth in Section 9 hereof.

“Trust Indenture Act” means the Trust Indenture Act of 1939, as amended, or any successor Federal statute, and the rules and regulations thereunder, all as the same shall be in effect at the time. Reference to a particular section of, or rule or regulation under, the Trust Indenture Act shall include a reference to the comparable section, rule or regulation, if any, and as the case may be, of or under the successor Federal statute.

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“Underlying Common Stock” means (i) the Common Stock that Holders of Units are obligated to purchase pursuant to the Purchase Contracts that are a component of such Units and (ii) to the extent that, as provided in Section 8.8 of the Unit Purchase Agreement, Preferred Shares shall have been issued, the Common Stock issuable upon conversion of such Preferred Shares.

“Unit Purchase Agreement” means the Unit Purchase Agreement dated August 13, 2004, between the Company and the Initial Holder, as modified by the First Supplement to Unit Purchase Agreement dated June 4, 2005, the Second Supplement to the Unit Purchase Agreement dated July 1, 2005, the Third Supplement to the Unit Purchase Agreement dated August 12, 2005 and the Fourth Supplement to the Unit Purchase Agreement dated September 30, 2005.

“Units” means the 6.625% Hybrid Income Term Security Units of the Company issued to the Initial Holder pursuant to the Unit Purchase Agreement.

SECTION 2.Shelf Registration; Demand Registration. (a) Upon receipt of a written request from the Initial Holder (a “Shelf Registration Request”) made not less than 180 days after the date hereof, the Company shall prepare and file or cause to be prepared and filed with the SEC, not later than the Filing Deadline Date, a Registration Statement for an offering to be made on a delayed or continuous basis pursuant to Rule 415 of the Securities Act relating to (i) the offer and sale of the Registrable Securities (other than Underlying Common Stock issuable upon exercise of the Purchase Contracts) by the Holders from time to time in accordance with the methods of distribution elected by such Holders and set forth in such Shelf Registration Statement and (ii) the offer and sale by the Company from time to time to the Holders of Purchase Contracts of the Underlying Common Stock issuable upon exercise of Purchase Contracts, (the“Initial Shelf Registration Statement”). The Initial Shelf Registration Statement shall be on Form S-3 or another appropriate form permitting registration of such Registrable Securities for sale in accordance with the methods of distribution set forth in the Initial Shelf Registration Statement. The Company shall use its reasonable best efforts to cause the Initial Shelf Registration Statement to be declared effective under the Securities Act by the date that is 90 days after the Filing Deadline Date (the “Effectiveness Deadline Date”), and to keep the Initial Shelf Registration Statement (or any Subsequent Shelf Registration Statement) continuously effective under the Securities Act until the expiration of the Effectiveness Period. At the time the Initial Shelf Registration Statement is declared effective, each Holder that became a Notice Holder on or prior to the date ten (10) Business Days prior to such time of effectiveness shall be named as a selling securityholder in the Initial Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of Registrable Securities in accordance with applicable law. None of the Company’s security holders (other than the Holders of Registrable Securities) shall have the right to include any of the Company’s securities in the Shelf Registration Statement.

(b)If the Initial Shelf Registration Statement or any Subsequent Shelf Registration Statement ceases to be effective for any reason at any time during the Effectiveness Period (other than because all Registrable Securities registered thereunder shall have been resold pursuant thereto or shall have otherwise ceased to be Registrable Securities), the Company shall use its reasonable best efforts to obtain the prompt withdrawal of any order suspending the

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effectiveness thereof, and in any event shall within thirty (30) days of such cessation of effectiveness amend the Shelf Registration Statement in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional Shelf Registration Statement covering all of the securities that as of the date of such filing are Registrable Securities (a “Subsequent Shelf Registration Statement”). If a Subsequent Shelf Registration Statement is filed, the Company shall use its reasonable best efforts to cause the Subsequent Shelf Registration Statement to become effective as promptly as is reasonably practicable, but in any event by the date that is forty-five (45) days after such filing and to keep such Subsequent Shelf Registration Statement continuously effective until the expiration of the Effectiveness Period. As used herein, “Shelf Registration Statement” means the Initial Shelf Registration Statement and any Subsequent Shelf Registration Statement.

(c)The Company shall supplement and amend the Shelf Registration Statement if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement, if required by the Securities Act or as necessary to name a Notice Holder as a selling securityholder pursuant to Section 2(d) below.

(d)Each Holder agrees that if such Holder wishes to sell Registrable Securities pursuant to a Shelf Registration Statement and related Prospectus, it will do so only in accordance with this Section 2(d) and Sections 4(h) and 5 of this Agreement. Following the date that the Initial Shelf Registration Statement is declared effective, each Holder wishing to sell Registrable Securities pursuant to a Shelf Registration Statement and related Prospectus agrees to deliver a Notice and Questionnaire to the Company at least ten (10) Business Days prior to any intended distribution of Registrable Securities under the Shelf Registration Statement. From and after the date the Initial Shelf Registration Statement is declared effective, the Company shall, as promptly as practicable after the date a Notice and Questionnaire is delivered pursuant to Section 10(c), and in any event upon the later of (x) fifteen (15) Business Days after such date or (y) fifteen (15) Business Days after the expiration of any Deferral Period in effect when the Notice and Questionnaire is delivered or put into effect within five (5) Business Days of such delivery date:

(i)if required by applicable law or policy of the SEC staff, file with the SEC a post-effective amendment to the Shelf Registration Statement or file a Subsequent Shelf Registration Statement or prepare and, if required by applicable law, file a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required report or document so that the Holder delivering such Notice and Questionnaire is named as a selling securityholder in a Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of the Registrable Securities in accordance with applicable law and, if the Company shall file a post-effective amendment to the Shelf Registration Statement or file a Subsequent Shelf Registration Statement, use its reasonable best efforts to cause such post-effective amendment or Subsequent Shelf Registration Statement to be declared effective under the Securities Act as promptly as is reasonably practicable, but in any event by the date (the “Amendment Effectiveness Deadline Date”) that is forty-five (45) days after the date such post-effective amendment or Subsequent Shelf Registration Statement is required by this clause to be filed;

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(ii)provide such Holder copies of any documents filed pursuant to Section 2(d)(i); and

(iii)notify such Holder as promptly as practicable after the effectiveness under the Securities Act of any post-effective amendment or subsequent Shelf Registration Statement filed pursuant to Section 2(d)(i);

provided, that if such Notice and Questionnaire is delivered during a Deferral Period, the Company shall so inform the Holder delivering such Notice and Questionnaire and shall, to the extent required, take the actions set forth in clauses (i), (ii) and (iii) above upon expiration of the Deferral Period in accordance with Section 4(h). Notwithstanding anything contained herein to the contrary, (x) the Company shall be under no obligation to name any Holder that is not a Notice Holder as a selling securityholder in any Registration Statement or related Prospectus and (y) the Amendment Effectiveness Deadline Date shall be extended by up to ten (10) Business Days from the expiration of a Deferral Period if such Deferral Period shall be in effect on the Amendment Effectiveness Deadline Date.

(e)In the event that the Company shall become ineligible to use Form S-3, such that preparation of a Shelf Registration Statement would be impracticable, at any time between the Filing Deadline Date and the expiration of the Effectiveness Period, then:

(i)From and after the later of (A) the Filing Deadline Date and (B) 270 days after the date hereof, upon receipt of a written request from the Initial Holder (a “Demand Registration Request”) to register under the Securities Act for purposes of a public offering all of the Registrable Securities held by all Holders, the Company shall as expeditiously as reasonably possible (but in any event not later than the Demand Filing Date prepare and file, and use its best efforts to cause to become effective as soon thereafter as practicable (but in no event later than the Demand Effectiveness Filing Date), a Registration Statement (a “Demand Registration Statement”) under the Securities Act to effect the offering of such Registrable Common Stock in the manner specified in such request.

(ii)Holders shall be entitled to select and retain one or more investment bankers or managers reasonably acceptable to the Company in connection with any underwritten offerings made pursuant to this Section 2(e).

(iii)Notwithstanding anything to the contrary contained elsewhere herein, the registration rights granted to the Holders in this Section 2(e) are expressly subject to the following terms and conditions:

(A)The Holders, collectively, shall only be entitled to one (1) request to register Registrable Securities under the terms of this Section 2(e). A “request” as it is used in this Section 2(e)(iii) shall be deemed to have occurred only upon completion of a requested registration and the subsequent sale of Registrable Common Stock.

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(B)The Company shall be entitled to defer for a reasonable period of time, but not in excess of ninety (90) days, the filing of any Demand Registration Statement otherwise required to be prepared and filed by it under this Section 2(e) if the Company notifies the Holders, within five (5) business days after the Holders requested the registration under this Section 2(e) that the Company (i) is at such time conducting or about to conduct an underwritten public offering of its securities for its own account and the Board of Directors of the Company determines in good faith that such offering would be materially adversely affected by such registration requested by the Holders or (ii) would, in the opinion of its counsel, be required to disclose in such registration statement information not otherwise then required by law to be publicly disclosed and, in the good faith judgment of the Board of Directors of the Company, such disclosure might materially adversely affect any material business transaction or negotiation in which the Company is then engaged; provided, however, that the Company shall not be permitted to so defer the filing of a Registration Statement pursuant to this Section 2(e)(iii)(B) more than once. If the Company elects to defer the filing of a registration statement pursuant to this Section 2(e)(iii)(B), the Holder may withdraw its request, in writing, during the time of such deferral and such request shall not be counted toward the limit set forth in Section 2(e)(iii)(A).

(C)The Holders shall not exercise their rights pursuant to this Section 2(e) during the shorter of (1) the 30-day period immediately following the effective date of any registration statement filed by the Company under the Securities Act (other than on Form S-8 or another similar form) in respect of an offering or sale of Common Stock (or securities convertible into, or otherwise linked to, Common Stock) of the Company by or on behalf of the Company if in the written opinion of a nationally recognized investment banking firm selected by the Company to act as an underwriter for such Company offering, the registration of the Registrable Securities at such time would significantly impede the success of the Company’s offering or (ii) 90 days following the request of the Holders to file a Registration Statement pursuant to this Section 2(e); provided, however, that the Company shall not be permitted to so delay the filing of a Registration Statement pursuant to this Subsection (C) on more than one occasion in any period of 365 consecutive days.

SECTION 3.Piggyback Registration Rights. (a) If at any time or from time to time between the Filing Deadline Date and the expiration of the Effectiveness Period the Company shall propose to register any Common Stock for public sale under the Securities Act (a “Company Registration”), the Company shall give the Holders prompt written notice of the proposed registration and shall include in such registration on the same terms and conditions as the other securities included in such registration such number of shares of Registrable Common Stock as the Holders shall request within five (5) business days after the giving of such notice (a “Piggyback Registration”); provided, however, that the Company may at any time prior to the effectiveness of any such registration statement, in its sole discretion and without the consent of the Holders, abandon the proposed offering in which the Holders had requested to participate (provided that the Company gives the Holders prompt notice of such decision); and providedfurther that the Holders shall be entitled to withdraw any or all of its shares of Registrable Common Stock to be included in a registration statement under this Section 3(a) at any time prior to the date on which the registration statement with respect to such shares of Underlying

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Common Stock is declared effective by the SEC. The Company shall be entitled to select the investment bankers and/or managers, if any, to be retained in connection with any registration referred to in this Section 3(a), provided such investment bankers and/or managers are reasonably acceptable to the Holders.

(b)Notwithstanding anything to the contrary contained elsewhere herein, the registration rights granted to Stockholder in Section 3(a) are expressly subject to the following terms and conditions:

(i)The Company shall not be obligated to include shares of Registrable Common Stock in an offering as contemplated by Section 3(a) if the Company is advised in writing by the managing underwriter or underwriters of such offering (with a copy to the Initial Holder), that the success of such offering would in its or their good faith judgment be jeopardized by such inclusion (after consideration of all relevant factors, including without limitation, the impact of any delay caused by including such shares); provided, however, that the Company shall in any case be obligated to include such number of shares of Registrable Common Stock in such offering, if any, as such underwriter or underwriters shall determine will not jeopardize the success of such offering.

(ii)The Company shall not be obligated to include any shares of Underlying Common Stock in any registration by the Company of any Common Stock in connection with any merger, acquisition, exchange offer, or any other business combination, including any transaction within the scope of Rule 145 promulgated pursuant to the Securities Act, subscription offer, dividend reinvestment plan or stock option or other director or employee incentive or benefit plan.

(iii)The Company shall use all commercially reasonable efforts to cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Registrable Common Stock requested to be included in a registration of Common Stock pursuant to this Section 3 to be included on the same terms and conditions as any similar securities included therein. Notwithstanding the foregoing, the Company shall not be required to include the Holders’ Registrable Common Stock in such offering unless the Holders accept the terms of the underwriting agreement between the Company and the managing underwriter or underwriters and otherwise complies with the provisions of Section 7 hereof. If the managing underwriter or underwriters of a proposed underwritten offering advise the Company in writing that in its or their good faith judgment the total amount of securities, including securities requested to be included in a registration of Common Stock pursuant to this Section 3 and other similar securities, to be included in such offering is sufficiently large to jeopardize the success of such offering, then in such event the securities to be included in such offering shall be allocated first to the Company and then, to the extent that any additional securities can, in the good faith judgment of such managing underwriter or underwriters, be sold without creating any such jeopardy to the success of such offering, to the Holders based upon the number of shares of Registrable Common Stock requested to be included in such registration.

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(iv)In the event that some but less than all of the Holders’ shares of Underlying Common Stock are included in an offering contemplated by a registration statement pursuant to this Section 3, the Holders shall execute one or more “lockup” letters in the form attached hereto as Exhibit C, setting forth an agreement by the Holders not to offer for sale, sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any shares of Common Stock, or any securities convertible into or exchangeable into or exercisable for any shares of Common Stock, for a period of 90 days from the date such offering commences; provided, however, that if the period of any such “lockup” applicable to the Company or any director, officer or affiliate of the Company with respect to any such registration statement shall be less than ninety (90) days, then the period of time applicable to the Holders shall be such lesser period of time.

SECTION 4.Registration Procedures. In connection with the registration obligations of the Company under Sections 2 and 3 hereof, during the Effectiveness Period, the Company shall:

(a)Prepare and file with the SEC a Registration Statement or Registration Statements on Form S-3, S-4 or another appropriate form under the Securities Act available for the sale of the Registrable Securities by the Holders thereof in accordance with the intended method or methods of distribution thereof, and use its reasonable best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided that before filing any Registration Statement or Prospectus or any amendments or supplements thereto with the SEC, furnish to the Initial Holder and the Special Counsel of such offering, if any, copies of all such documents proposed to be filed prior to the filing of such Registration Statement or amendment thereto or Prospectus or supplement thereto so as to permit the Holder and such Special Counsel sufficient time to review and comment upon the same.

(b)Subject to Section 4(h), prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable period specified in Section 2(a) or Section 3(a); cause the related Prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and use its reasonable best efforts to comply with the provisions of the Securities Act applicable to it with respect to the disposition of all securities covered by such Registration Statement during the Effectiveness Period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or such Prospectus as so supplemented.

(c)As promptly as practicable give notice to the Notice Holders, the Initial Holder and the Special Counsel, (i) when any Prospectus, prospectus supplement, Registration Statement or post-effective amendment to a Registration Statement has been filed with the SEC and, with respect to a Registration Statement or any post-effective amendment, when the same has been declared effective, (ii) of any request, following the effectiveness of the Initial Shelf Registration Statement under the Securities Act, by the SEC or any other federal or state governmental authority for amendments or supplements to any Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of any Registration Statement or the initiation or threatening of any proceedings for that purpose, (iv) of the receipt

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by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (v) of the occurrence of, but not the nature of or details concerning, a Material Event and (vi) of the determination by the Company that a post-effective amendment to a Registration Statement will be filed with the SEC, which notice may, at the discretion of the Company (or as required pursuant to Section 4(h)), state that it constitutes a Deferral Notice, in which event the provisions of Section 4(h) shall apply.

(d)Use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction in which they have been qualified for sale, in either case at the earliest possible moment, and provide immediate notice to each Notice Holder and the Initial Holder of the withdrawal of any such order.

(e)As promptly as practicable furnish to each Notice Holder, the Special Counsel and the Initial Holder, upon request and without charge, at least one (1) conformed copy of the Registration Statement and any amendment thereto, including exhibits and all documents incorporated or deemed to be incorporated therein by reference.

(f)During the Effectiveness Period, deliver to each Notice Holder, the Special Counsel, if any, and the Initial Holder, in connection with any sale of Registrable Securities pursuant to a Registration Statement, without charge, as many copies of the Prospectus or Prospectuses relating to such Registrable Securities (including each preliminary prospectus) and any amendment or supplement thereto as such Notice Holder may reasonably request; and the Company hereby consents (except during such periods that a Deferral Notice is outstanding and has not been revoked) to the use of such Prospectus or each amendment or supplement thereto by each Notice Holder in connection with any offering and sale of the Registrable Securities covered by such Prospectus or any amendment or supplement thereto in the manner set forth therein.

(g)Prior to any public offering of the Registrable Securities pursuant to a Registration Statement, use its reasonable best efforts to register or qualify or cooperate with the Notice Holders and the Special Counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Notice Holder reasonably requests in writing (which request may be included in the Notice and Questionnaire); prior to any public offering of the Registrable Securities pursuant to the Shelf Registration Statement, use its reasonable best efforts to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period in connection with such Notice Holder’s offer and sale of Registrable Securities pursuant to such registration or qualification (or exemption therefrom) and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of such Registrable Securities in the manner set forth in the relevant Registration Statement and the related Prospectus; provided that the Company will not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Agreement or (ii) take any action that would subject it to general service of process in suits or to taxation in any such jurisdiction where it is not then so subject.

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(h)Upon (A) the issuance by the SEC of a stop order suspending the effectiveness of any Registration Statement or the initiation of proceedings with respect to any Registration Statement under Section 9(d) or 9(e) of the Securities Act, (B) the occurrence of any event or the existence of any fact (a “Material Event”) as a result of which any Registration Statement shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or any Prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (C) the occurrence or existence of any pending corporate development that, in the sole judgment of the Company, makes it appropriate to suspend the availability of any Registration Statement and the related Prospectus in order to avoid a violation of applicable securities laws:

(i)in the case of clause (B) above, subject to the next sentence, as promptly as reasonably practicable prepare and file, if necessary pursuant to applicable law, a post-effective amendment to such Registration Statement or a supplement to the related Prospectus or any document incorporated therein by reference or file any other required document or report that would be incorporated by reference into such Registration Statement and Prospectus so that such Registration Statement does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and such Prospectus does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, and, in the case of a post-effective amendment to a Registration Statement, subject to the next sentence, use its reasonable best efforts to cause it to be declared effective as promptly as is practicable, and

(ii)give notice to the Notice Holders, and the Special Counsel, if any, that the availability of any Registration Statement is suspended (a “Deferral Notice”) and, upon receipt of any Deferral Notice, each Notice Holder agrees not to sell any Registrable Securities pursuant to the Registration Statement until such Notice Holder’s receipt of copies of the supplemented or amended Prospectus provided for in clause (i) above, or until it is advised in writing by the Company that the Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus.

The Company will use its reasonable best efforts to ensure that the use of the Prospectus may be resumed (x) in the case of clause (A) above, as promptly as is reasonably practicable, (y) in the case of clause (B) above, as soon as, in the sole judgment of the Company, public disclosure of such Material Event would not be prejudicial to or contrary to the interests of the Company or, if necessary to avoid unreasonable burden or expense, as soon as reasonably practicable thereafter and (z) in the case of clause (C) above, as soon as in the good faith

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judgment of the Company (after consultation with the Company’s outside legal counsel), such suspension is no longer appropriate. The Company shall be entitled to exercise its right under this Section 4(h) to suspend the availability of any Registration Statement or any Prospectus, and any such period during which the availability of the Registration Statement and any Prospectus is suspended (the “Deferral Period”) shall not exceed 45 days; provided that the aggregate duration of any Deferral Periods shall not exceed 45 days in any 90-day period (or 75 days in any 90-day period in the event of a Material Event pursuant to which the Company has delivered a second notice as permitted below) or 90 days in any 360-day period; provided further that in the case of a Material Event relating to an acquisition or a probable acquisition or financing, recapitalization, business combination or other similar transaction, the Company may deliver to Notice Holders a second notice to the effect set forth above, which shall have the effect of extending the Deferral Period by up to an additional 30 days, or such shorter period of time as is specified in such second notice. Each Notice Holder agrees to hold any notice by the Company in respect of any Deferral Period or Material Event described in the last clause of the preceding sentence in confidence.

(i)Comply in all material respects with all applicable rules and regulations of the SEC and make generally available to its securityholders earning statements (which need not be audited) satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) for a 12-month period commencing on the first day of the first fiscal quarter of the Company commencing after the effective date of a Registration Statement, which statements shall be made available no later than 45 days after the end of the 12-month period or 90 days if the 12-month period coincides with the fiscal year of the Company.

(j)Cooperate with each Notice Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities sold or to be sold pursuant to a Registration Statement, which certificates shall not bear any restrictive legends, and cause such Registrable Securities to be in such denominations as are permitted by the Purchase Contract Agreement, Indenture or the Company’s certificate of incorporation and by-laws, as applicable, and registered in such names as such Notice Holder may request in writing at least one (1) Business Day prior to any sale of such Registrable Securities.

(k)Provide a CUSIP number for all Registrable Securities covered by each Registration Statement not later than the effective date of such Registration Statement and provide the transfer agent for the Company’s Common Stock with printed certificates for the Registrable Securities that are in a form eligible for deposit with The Depository Trust Company.

(l)Not later than the Effective Time of the Registration Statement, the Company shall cause the Indenture to be qualified under the Trust Indenture Act; in connection with such qualification, the Company shall cooperate with the Trustee under the Indenture and the Holders (as defined in the Indenture) to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the Trust Indenture Act; and the Company shall execute, and shall use all reasonable best efforts to cause the Trustee to execute, all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner. In the event that any such amendment or modification referred to in this Section 4(l) involves the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture.

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(m)The Company will use its best efforts to cause the Underlying Common Stock (and, if so requested by the Initial Holder, the Units) to be listed on the New York Stock Exchange or other stock exchange or trading system on which the Common Stock primarily trades on or prior to the Effective Time of the Shelf Registration Statement hereunder.

(n)Cooperate and assist in any filings required to be made with the National Association of Securities Dealers, Inc.

(o)Upon (i) the filing of the Initial Shelf Registration Statement and (ii) the effectiveness of the Initial Shelf Registration Statement, announce the same, in each case by release to Reuters Economic Services and Bloomberg Business News.

(p)Use commercially reasonable efforts to cause the Registrable Securities to be registered with or approved by such other governmental authorities as may be necessary to enable the Holder or Holders thereof to consummate the distribution of the Registrable Securities;

(q)Enter into such customary agreements (including an underwriting agreement in customary form), which may include indemnification provisions in favor of underwriters and other persons in addition to, or in substitution for the provisions of Section 7 hereof, and take such other actions as the Holders or the underwriters, if any, reasonably request in order to expedite or facilitate the distribution of such Registrable Securities;

(r)Obtain a “cold comfort” letter or letters from the Company’s independent public accountants in customary form and covering matters of the type customarily covered by “cold comfort” letters as the Holders of such Registrable Securities shall reasonably request;

(s)Make available for inspection by any Holder, by any underwriter participating in any distribution to be effected pursuant to the Registration Statement and by any attorney, accountant or other agent retained by any such Holder or any such underwriter all pertinent financial and other records, pertinent corporate documents and properties of the Company, and cause all of the Company’s officers, directors and employees to supply all information reasonably requested by any such Holder, underwriter, attorney, accountant or agent in connection with such Registration Statement;

(t)Use the Company’s best efforts to obtain for delivery to the Holders and to the managing underwriter or agent, if any, any opinion or opinions from counsel for the Company reasonably requested by any Holder and in customary form and in form, substance and scope reasonably satisfactory to such Holders, the managing underwriter or agent and their counsel;

(u)Use the Company’s best efforts to make available the executive officers of the Company to participate with the Holders of Registrable Securities and any underwriters in any “road shows” or other selling efforts that may be reasonably requested by the Holders in connection with the methods of distribution for the Registrable Securities;

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(v)Notwithstanding any other provisions of this Agreement, the Company shall not be obligated to participate in more than one underwritten offering during the period that any Registration Statement is required to be effective pursuant to this Agreement, and if an underwritten offering pursuant to a Registration Statement is withdrawn or abandoned at the request of any Holder after the Shelf Registration, Demand Registration or Piggyback Registration has been requested by the Holders, the Company shall not be obligated to participate in any further underwritten offerings during the period that any Registration Statement is required to be effective pursuant to this Agreement.

SECTION 5.Holder’s Obligations. Each Holder agrees, by acquisition of the Registrable Securities, that no Holder shall be entitled to sell any of such Registrable Securities pursuant to a Shelf Registration Statement or to receive a Prospectus relating thereto, unless such Holder has furnished the Company with a Notice and Questionnaire as required pursuant to Section 2(d) hereof (including the information required to be included in such Notice and Questionnaire and the information set forth in the next sentence and a sales notice (a “Sales Notice”) setting forth the amount of Registrable Securities to be sold and the proposed sales date not later than five (5) Business Days prior to the proposed sales date).

Each Notice Holder agrees promptly to furnish to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Notice Holder not misleading and any other information regarding such Notice Holder and the distribution of such Registrable Securities as the Company may from time to time reasonably request.

Each Holder acknowledges and agrees that a Sales Notice will only be valid for a period of five (5) Business Days commencing with the proposed sales date and that if any of the Registrable Securities to which such Sales Notice relates are not sold during such period, a new Sales Notice will need to be submitted to the Company not later than three (3) Business Days prior to the new proposed sales date. Notwithstanding the foregoing, no Sales Notice may be submitted, or if submitted will be of no force and effect, and no Registrable Securities may be sold pursuant to the Shelf Registration Statement if a Deferral Period is then in effect.

SECTION 6.Registration Expenses. The Company shall bear all fees and expenses incurred in connection with or that are otherwise incidental to the performance by the Company of its obligations under Sections 2, 3 and 4 of this Agreement whether or not any Registration Statement is declared effective. Such fees and expenses shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (x) with respect to filings required to be made with the National Association of Securities Dealers, Inc. and (y) of compliance with federal and state securities or Blue Sky laws (including, without limitation, reasonable and documented fees and disbursements of the Special Counsel in connection with Blue Sky qualifications of the Registrable Securities under the laws of such jurisdictions as Notice Holders may designate pursuant to Section 4(g) of this Agreement and any filings required to be made with the National Association of Securities Dealers, Inc.), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company), (iii) duplication expenses relating to copies of any Registration Statement or Prospectus delivered to any Holders hereunder, (iv) reasonable and documented fees and disbursements of counsel for the Company

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and of Special Counsel in connection with any Registration Statement, (v) reasonable and documented fees and disbursements of the registrar and transfer agent for the classes of the Company’s securities to which the Registrable Securities belong and (vi) any Securities Act liability insurance obtained by the Company in its sole discretion. In addition, the Company shall pay the internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing by the Company of the Registrable Securities on any securities exchange on which similar securities of the Company are then listed and the fees and expenses of any person, including special experts, retained by the Company. Notwithstanding the provisions of this Section 6, each seller of Registrable Securities shall pay selling expenses, including any underwriting discount and commissions, and all registration expenses to the extent required by applicable law.

SECTION 7.Indemnification and Contribution.

(a)Indemnification by the Company. The Company agrees to indemnify and hold harmless each Holder, each person, if any, who controls any Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and each affiliate of any Holder within the meaning of Rule 405 under the Securities Act from and against any and all losses, claims, damages and liabilities (including, without limitation, reasonable legal fees or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or any amendment thereof, any preliminary prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which they are made, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Holder furnished to the Company in writing by such Holder expressly for use therein; provided that the indemnification contained in this paragraph shall not inure to the benefit of any Holder (or to the benefit of any such affiliate of such Holder within the meaning of Rule 405 under the Securities Act) on account of any such losses, claims, damages or liabilities caused by any untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus if the Company has performed its obligations under Section 4 hereof and if (x) such Holder failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale by such Holder to the person asserting the claim from which such losses, claims, damages or liabilities arise and (y) the Prospectus would have corrected such untrue statement or alleged untrue statement or such omission or alleged omission.

(b)Indemnification by Holders. Each Holder agrees severally and not jointly to indemnify and hold harmless the Company and its directors, its officers and each person, if any, who controls the Company (within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act) and each affiliate of the Company within the meaning of Rule 405 under the Securities Act or any other Holder, to the same extent as the foregoing indemnity from the Company to such Holder, but only with reference to information relating to such Holder furnished to the Company in writing by such Holder expressly for use in such Registration

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Statement or Prospectus or amendment or supplement thereto. In no event shall the liability of any Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities pursuant to the Registration Statement giving rise to such indemnification obligation.

(c)Conduct of Indemnification Proceedings. In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section 7(a) or 7(b) hereof, such person (the “indemnified party”) shall promptly notify the person against whom such indemnity may be sought (the “indemnifying party”) in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the reasonable fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties and that all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by, in the case of parties indemnified pursuant to Section 7(a) hereof, the Holders of a majority (with Holders of Units deemed to be the Holders, for purposes of determining such majority, of the number of shares of Underlying Common Stock that such Holders are obligated to purchase pursuant to the Purchase Contracts that are a component of such Units) as of the date on which such designation is made) of the Registrable Securities covered by the Registration Statement held by Holders that are indemnified parties pursuant to Section 7(a) hereof and, in the case of parties indemnified pursuant to Section 7(b) hereof, the Company. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment.

Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of the first paragraph of this subsection, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding and does not include a statement as to, or an admission of, fault, culpability or a failure to act by or on behalf of any indemnified party.

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(d)Contribution. To the extent that the indemnification provided for in Section 7(a) or 7(b) hereof is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party or parties on the other hand or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Holders on the one hand and the Company on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Holders or by the Company, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Holders’ respective obligations to contribute pursuant to this Section 7 are several in proportion to the respective number of Registrable Securities they have sold pursuant to a Registration Statement, and not joint.

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding this Section 7, no indemnifying party that is a selling Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities sold by it and distributed to the public were offered to the public exceeds the amount of any damages that such indemnifying party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

(e)The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to an indemnified party at law or in equity, hereunder, under the Unit Purchase Agreement or otherwise.

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(f)The indemnity and contribution provisions contained in this Section 7 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Holder, any person controlling any Holder or any Affiliate of any Holder or by or on behalf of the Company, its officers or directors or any person controlling the Company and (iii) the sale of any Registrable Securities by any Holder.

SECTION 8.Information Requirements. The Company covenants that, if at any time before the end of the Effectiveness Period the Company is not subject to the reporting requirements of the Exchange Act, it will cooperate with any Holder and take such further commercially reasonable action as any Holder may reasonably request in writing (including, without limitation, making such reasonable representations as any such Holder may reasonably request), all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 and Rule 144A under the Securities Act and customarily taken in connection with sales pursuant to such exemptions. Upon the written request of any Holder, the Company shall deliver to such Holder a written statement as to whether it has complied with such filing requirements, unless such a statement has been included in the Company’s most recent report filed pursuant to Section 13 or Section 15(d) of Exchange Act. Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to require the Company to register any of its securities (other than the Common Stock) under any section of the Exchange Act.

SECTION 9.Purchase Right in Certain Instances. In the event that (i) (a) a Shelf Registration Statement or Demand Registration Statement is in effect and (b) the Initial Holder or any of its Affiliates desires to sell Common Stock under such Registration Statement, the Initial Holder shall give notice to the Company of the number of shares of Common Stock it and its Affiliates desire to sell at such time pursuant to the Registration Statement or (ii) the Initial Holder or any of its Affiliates shall have given notice of their request to participate in the sale of Common Stock in a Piggyback Registration pursuant to Section 3, specifying the number of shares of their Common Stock to be included in such Piggyback Registration (such Common Stock, or the shares of Common Stock specified in clause (i)(b), as the case may be, the “Offered Common Stock”, and either such notice, the “Triggering Notice”), the Company may at its option give notice (the “Purchase Notice”) to the Initial Holder and such Affiliates (such notice to be given within ten (10) days of the date the Triggering Notice was given) that the Company will purchase (on a purchase date to be specified in the Purchase Notice, the “Purchase Date”, to be within five (5) days of the date of the Purchase Notice) all, but not less than all, of the Offered Common Stock of the Initial Holder and such Affiliates at the Current Market Price Per Share (as defined below). On the Purchase Date, the Initial Holder shall sell, and shall cause each of its Affiliates to sell, all of the Offered Common Stock to the Company at the Current Market Price Per Share for each share of such Common Stock. Notwithstanding the foregoing, the Company’s right to purchase Offered Common Stock pursuant to this Section 9 shall not apply to, and neither the Initial Holder nor its Affiliates shall be obligated to provide a Triggering Notice to the Company prior to, any sales of Common Stock by the Initial Holder or any of its Affiliates pursuant to a Shelf Registration Statement or a Demand Registration Statement in an amount not to exceed two percent (2%) of the Company’s outstanding Common Stock in any calendar quarter. As used in this Section 9, “Current Market Price Per Share” means the average of the daily Closing Prices per share of Common Stock on the ten Trading Days ending on the Trading Day next preceding the date the Triggering Notice is given and “Closing Prices” and “Trading Days” have the respective meanings specified in the Purchase Contract Agreement.

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SECTION 10.Miscellaneous.

(a)No Conflicting Agreements. The Company is not, as of the date hereof, a party to, nor shall it, on or after the date of this Agreement, enter into, any agreement with respect to its securities that conflicts with the rights granted to the Holders in this Agreement. The Company represents and warrants that the rights granted to the Holders hereunder do not in any way conflict with the rights granted to the holders of the Company’s securities under any other agreements.

(b)Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of a majority of the then outstanding Underlying Common Stock constituting Registrable Securities (with Holders of Units deemed to be the Holders, for purposes of this Section, of the number of shares of Underlying Common Stock that such Holders are obligated to purchase pursuant to the Purchase Contracts that are a component of such Units as of the date on which such consent is requested). Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities being sold by such Holders pursuant to such Registration Statement; provided that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. Notwithstanding the foregoing sentence, this Agreement may be amended by written agreement signed by the Company and the Initial Holder, without the consent of the Holders of Registrable Securities, to cure any ambiguity or to correct or supplement any provision contained herein that may be defective or inconsistent with any other provision contained herein, or to make such other provisions in regard to matters or questions arising under this Agreement that shall not adversely affect the interests of the Holders of Registrable Securities. Each Holder of Registrable Securities outstanding at the time of any such amendment, modification, supplement, waiver or consent or thereafter shall be bound by any such amendment, modification, supplement, waiver or consent effected pursuant to this Section 10(b), whether or not any notice, writing or marking indicating such amendment, modification, supplement, waiver or consent appears on the Registrable Securities or is delivered to such Holder.

(c)Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, by telecopier, by courier guaranteeing overnight delivery or by first-class mail, return receipt requested, and shall be deemed given (i) when made, if made by hand delivery, (ii) upon confirmation, if made by telecopier, (iii) one (1) Business Day after being deposited with such courier, if made by overnight courier or (iv) on the date indicated on the notice of receipt, if made by first-class mail, to the parties as follows:

(i)if to a Holder, at the most current address given by such Holder to the Company in a Notice and Questionnaire or any amendment thereto;

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(ii)if to the Company, to:

PNM Resources, Inc.

Alvarado Square MS-2704

Albuquerque, New Mexico 87158

Facsimile No.: 505-241-4343

Attention: Treasurer

With a copy to:

Bracewell & Giuliani LLP

1177 Avenue of the Americas

19th Floor

New York, New York 10036-2714

Facsimile No: 212-508-6101

Attention:Timothy Michael Toy

(iii)if to the Initial Holder, to:

Cascade Investment, L.L.C.

2365 Carillon Point

Kirkland, Washington 98033

Attention: Robert Thomas and General Counsel

or to such other address as such person may have furnished to the other persons identified in this Section 10(c) in writing in accordance herewith.

(d)Approval of Holders. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) (other than the Initial Holder or subsequent Holders if such Initial Holder or subsequent Holders are deemed to be such affiliates solely by reason of their holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.

(e)Successors and Assigns. Any person who purchases any Registrable Securities from the Initial Holder shall be deemed, for purposes of this Agreement, to be an assignee of the Initial Holder. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties and shall inure to the benefit of and be binding upon each Holder of any Registrable Securities, provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Contract Agreement, Indenture or the Company’s certificate of incorporation and by-laws, as applicable. If any transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities, such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such person shall be entitled to receive the benefits hereof.

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(f)Counterparts; Facsimile Execution. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be original and all of which taken together shall constitute one and the same agreement. Facsimile execution and delivery of this Agreement is legal, valid and binding for all purposes.

(g)Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(h)Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.

(i)Severability. If any term, provision, covenant or restriction of this Agreement is held to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law.

(j)Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the registration rights granted by the Company with respect to the Registrable Securities. This Agreement supersedes all prior agreements and undertakings among the parties with respect to such registration rights. No party hereto shall have any rights, duties or obligations with respect to registration rights for the Registrable Securities other than those specifically set forth in this Agreement.

(k)Termination. This Agreement and the obligations of the parties hereunder shall terminate upon the end of the Effectiveness Period, except for any liabilities or obligations under Section 5, 6 or 7 hereof, each of which shall remain in effect in accordance with its terms.

[Remainder of page intentionally left blank; Signature page follows]

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[Signature page to Registration Rights Agreement]

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

PNM RESOURCES, INC.

By:/s/ Terry R. Horn

Name: Terry R. Horn

        Title: Vice President, Corporate Secretary and Acting Chief Financial Officer

Confirmed and accepted as of the

date first above written:

By: CASCADE INVESTMENT, L.L.C.

By:/s/ Michael Larson

Name: Michael Larson

  Title: Business Manager

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Exhibit A

PNM Resources, Inc.

Notice of Registration Statement

and

Selling Securityholder Questionnaire

(Date)

Reference is hereby made to the Registration Rights Agreement (the “Registration Rights Agreement”) between PNM Resources, Inc. (the “Company”) and Cascade Investment, L.L.C. Pursuant to the Registration Rights Agreement, the Company has filed with the Securities and Exchange Commission (the “Commission”) a registration statement on Form S-3 (the “Shelf Registration Statement”) for the registration and resale under Rule 415 of the Securities Act of 1933 (the “Securities Act”), of the Company’s Common Stock, Preferred Stock and Units (the “Securities”). A copy of the Registration Rights Agreement is attached hereto. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.

Each beneficial owner of Registrable Securities is entitled to have the Registrable Securities beneficially owned by it included in the Shelf Registration Statement. In order to have Registrable Securities included in the Shelf Registration Statement, this Notice of Registration Statement and Selling Securityholder Questionnaire (“Notice and Questionnaire”) must be completed, executed and delivered to the Company’s counsel at the address set forth herein for receipt ON OR BEFORE [Deadline for Response]. Beneficial owners of Registrable Securities who do not complete, execute and return this Notice and Questionnaire by such date (i) will not be named as selling securityholders in the Shelf Registration Statement and (ii) may not use the Prospectus forming a part thereof for resales of Registrable Securities.

Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement and related Prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Shelf Registration Statement and related Prospectus.

A-1

ELECTION

The undersigned holder (the “Selling Securityholder”) of Registrable Securities hereby elects to include in the Shelf Registration Statement the Registrable Securities beneficially owned by it and listed below in Item (3). The undersigned, by signing and returning this Notice and Questionnaire, agrees to be bound with respect to such Registrable Securities by the terms and conditions of this Notice and Questionnaire and the Registration Rights Agreement, including, without limitation, Section 7 of the Registration Rights Agreement, as if the undersigned Selling Securityholder were an original party thereto.

Upon any sale of Registrable Securities pursuant to the Shelf Registration Statement, the Selling Securityholder will be required to deliver to the Company and transfer agent for the Company’s Common Stock the Notice of Transfer set forth as Exhibit B to the Registration Rights Agreement.

The Selling Securityholder hereby provides the following information to the Company expressly for use in the Shelf Registration Statement and represents and warrants that such information is accurate and complete:

A-2

QUESTIONNAIRE

(1)(a)Full Legal Name of Selling Securityholder:

(b) Full Legal Name of Registered Holder (if not the same as in (a) above) of Registrable Securities Listed in Item (3) below:

(c) Full Legal Name of DTC Participant (if applicable and if not the same as (b) above) Through Which Registrable Securities Listed in Item (3) are Held:

(2)Address for Notices to Selling Securityholder:

 _________________________________________

 _________________________________________

 _________________________________________

Telephone:________________________________

Fax:______________________________________

Contact Person:_____________________________

(3)Beneficial Ownership of Securities:

Except as set forth below in this Item (3), the undersigned does not beneficially own any Securities.

(a) Principal amount of Registrable Securities beneficially owned:

CUSIP No(s). of such Registrable Securities:

(b) Principal amount of Securities other than Registrable Securities beneficially owned:

CUSIP No(s). of such other Securities:

(c) Principal amount of Registrable Securities which the undersigned wishes to be included in the Shelf Registration Statement:

CUSIP No(s). of such Registrable Securities to be included in the Shelf Registration Statement:

(4)Beneficial Ownership of Other Securities of the Company:

Except as set forth below in this Item (4), the undersigned Selling Securityholder is not the beneficial or registered owner of any other securities of the Company, other than the Securities listed above in Item (3).

State any exceptions here:

A-3

(5)Relationships with the Company:

Except as set forth below, neither the Selling Securityholder nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

State any exceptions here:

(6)Plan of Distribution:

Except as set forth below, the undersigned Selling Securityholder intends to distribute the Registrable Securities listed above in Item (3) only as follows (if at all): Such Registrable Securities may be sold from time to time directly by the undersigned Selling Securityholder or, alternatively, through underwriters, broker-dealers or agents. Such Registrable Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve crosses or block transactions) (i) on any national securities exchange or quotation service on which the Registered Securities may be listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii) in transactions otherwise than on such exchanges or services or in the over-the-counter market or (iv) through the writing of options. In connection with sales of the Registrable Securities or otherwise, the Selling Securityholder may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Registrable Securities in the course of hedging the positions they assume. The Selling Securityholder may also sell Registrable Securities short and deliver Registrable Securities to close out such short positions, or loan or pledge Registrable Securities to broker-dealers that in turn may sell such securities.

State any exceptions here:

By signing below, the Selling Securityholder acknowledges that it understands its obligation to comply, and agrees that it will comply, with the provisions of the Exchange Act and the rules and regulations thereunder, particularly Regulation M.

In the event that the Selling Securityholder transfers all or any portion of the Registrable Securities listed in Item (3) above after the date on which such information is provided to the Company, the Selling Securityholder agrees to notify the transferee(s) at the time of the transfer of its rights and obligations under this Notice and Questionnaire and the Registration Rights Agreement.

A-4

By signing below, the Selling Securityholder consents to the disclosure of the information contained herein in its answers to Items (1) through (6) above and the inclusion of such information in the Shelf Registration Statement and related Prospectus. The Selling Securityholder understands that such information will be relied upon by the Company in connection with the preparation of the Shelf Registration Statement and related Prospectus.

In accordance with the Selling Securityholder’s obligation under Section 5 of the Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the Selling Securityholder agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein which may occur subsequent to the date hereof at any time while the Shelf Registration Statement remains in effect. All notices hereunder and pursuant to the Registration Rights Agreement shall be made in writing, by hand-delivery, first-class mail, or air courier guaranteeing overnight delivery as follows:

(i)To the Company:

PNM Resources, Inc.

Alvarado Square SM-2704

Albuquerque, New Mexico 87158

Facsimile No.: 505-241-4343

Attention: Treasurer

(ii)With a copy to:

Bracewell & Giuliani LLP

1177 Avenue of the Americas

19th Floor

New York, New York 10036-2714

Facsimile No: 212-508-6101

Attention:Timothy Michael Toy

Once this Notice and Questionnaire is executed by the Selling Securityholder and received by the Company’s counsel, the terms of this Notice and Questionnaire, and the representations and warranties contained herein, shall be binding on, shall inure to the benefit of and shall be enforceable by the respective successors, heirs, personal representatives, and assigns of the Company and the Selling Securityholder (with respect to the Registrable Securities beneficially owned by such Selling Securityholder and listed in Item (3) above). This Agreement shall be governed in all respects by the laws of the State of New York without giving effect to the conflicts of laws principles thereof.

A-5

IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

Dated: _____________

Selling Securityholder

   (Print/type full legal name of beneficial owner of Registrable Securities)

By: __________________________________________________

Name:

Title:

PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR RECEIPT ON OR BEFORE [DEADLINE FOR RESPONSE] TO THE COMPANY’S COUNSEL AT:

Bracewell & Giuliani LLP

1177 Avenue of the Americas

19th Floor

New York, New York 10036-2714

Facsimile No: 212-508-6101

Attention:Timothy Michael Toy

A-6

Exhibit B

NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT

[Transfer Agent’s Name]

PNM Resources, Inc.

c/o [Transfer Agent’s Name]

[Transfer Agent’s Address]

Attention: Trust Officer

Re: PNM Resources, Inc. (the “Company”)

[Hybrid Income Term Security Units]

[Common Stock]

Ladies and Gentlemen:

Please be advised that __________ has transferred $__________ aggregate amount of the above-referenced [Hybrid Income Term Security Units] [Common Stock] pursuant to an effective Registration Statement on Form S-[ ] (File No. 333-) filed by the Company.

We hereby certify that the prospectus delivery requirements, if any, of the Securities Act of 1933, as amended, have been satisfied and that the above-named beneficial owner of the [Hybrid Income Term Security Units] [Common Stock] is named as a “Selling Holder” in the Prospectus dated [date] or in supplements thereto, and that the aggregate amount of the [Hybrid Income Term Security Units] [Common Stock] transferred are the [Hybrid Income Term Security Units] [Common Stock] listed in such Prospectus opposite such owner’s name.

Dated:

Very truly yours,

          ____________________________

(Name)

        By: ____________________________

         (Authorized Signature)

B-1

Exhibit C

LOCK UP LETTER

[Letterhead of PNM Resources, Inc.]

_________, 200_

Re: Lock Up Agreement

Ladies and Gentlemen:

Reference is made to that certain Registration Rights Agreement, dated October 7, 2005 (the “Registration Rights Agreement”), between PNM Resources, Inc. (the “Company”) and Cascade Investment, L.L.C. (the “Initial Holder”). Capitalized terms that are used, but not otherwise defined, herein have the meanings ascribed to those terms in the Registration Rights Agreement or as specified herein, as the case may be.

The Company has proposed to undertake a Company Registration and you have elected not to include your Registrable Common Stock in the related Piggyback Registration requested by other Holders. Pursuant to Section 3(b)(iv) of the Registration Rights Agreement, you are required to enter into this letter agreement (this “Agreement”) which will impose transfer limitations on any shares of Common Stock, or any securities convertible into or exchangeable into or exercisable for any shares of Common Stock held by you, which are not included in the Piggyback Registration (collectively, the “Securities”) during the Lock Up Period.

Accordingly, you and the Company agree as follows:

1.Lock Up

(a)Lock-up; Lock-up Period. Except for Transfers permitted by Section 2 hereof (each a “Permitted Transfer”), you agree that you will not, directly or indirectly, sell, offer to sell, assign, pledge, hypothecate, encumber or otherwise transfer, or enter into any contract, option or other arrangement or understanding with respect to the sale, assignment, pledge or other disposition of (collectively, "Transfer") any rights with respect to the Securities for a period commencing on the date that the Company Registration commences and ending on the ninetieth (90^th) day following the commencement of the Company Registration (such ninety day period being referred to herein as the “Lock Up Period”). Notwithstanding the foregoing, the Lock Up Period shall automatically terminate if (i) neither the Company (with respect to Securities other than those included in the Company Registration) nor any director, officer or affiliate of the Company holding more than 50,000 shares of Common Stock is subject to substantially similar Transfer restrictions on securities of the Company held by such persons at any time during the Lock Up Period, or (ii) any other Holder holding more than 50,000 shares of Common Stock that is not participating in the Piggyback Registration (a “Non-Participating Holder”) does not execute a lock-up agreement substantially similar to this Agreement or if any Non-Participating Holder is released from its obligations under its lock-up agreement.

C-1

(b)No Hedging or Similar Transactions. The Transfer restriction contained in Section 1(a) precludes you from engaging in any hedging or other transaction during the Lock-up Period that is designed to or reasonably expected to lead to or result in a Transfer of the Securities. Such prohibited hedging or other transaction would include, without limitation, any short sale (whether or not against the box) or any purchase, sale, or grant of any right (including, without limitation, any put or call option) with respect to the Securities or with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from the Common Stock.

(c)Stop Transfer Order. You also agree and consent to the entry of stop transfer instructions with the Company's transfer agent and registrar against the Transfer of the Securities except in compliance with the terms and conditions of this Agreement.

(d)Invalid Transfers. Any purported Transfer of Securities that is not in accordance with this Agreement shall be null and void, and shall not operate to Transfer any right, title or interest in such Securities to the purported transferee.

2.Permitted and Involuntary Transfers.

(a)Permitted Transfers. Notwithstanding the provisions of Section 1 hereof, you may Transfer the Securities to any Affiliate (as such term is defined in Rule 144 promulgated under the Securities Act of 1933) or to any other person as long as any such Transfer to such other person is effected in a private transaction and not over the exchange, quotation system or other market where securities of the Company are then traded or quoted; provided, however, that in each case the transferee first agrees in writing to be bound by the provisions of this Agreement applicable to you.

(b)Involuntary Transfers. If any Securities are subject to any involuntary Transfer during the Lock Up Period, such involuntary Transfer shall constitute a Permitted Transfer and the transferee of such Securities shall take such Securities subject to this Agreement.

3.Representations and Warranties of the Company. The Company hereby represents and warrants to you that the Company (with respect to Securities other than those included in the Company Registration) every Non-Participating Holder, and every director, officer and Affiliate of the Company, in each case holding more than 50,000 shares of Common Stock is subject to a “lock-up” agreement with respect to the Company Registration that is substantially similar to this Agreement.

4.Miscellaneous.

(a)Termination. This Agreement shall automatically terminate upon the expiration of the Lock-up Period.

(b)Governing Law. The internal law, without regard for conflicts of law principles, of the State of New York will govern all questions concerning the construction, validity and interpretation of this Agreement and the performance of the obligations imposed by this Agreement.

C-2

(c)Counterparts; Facsimile Execution. This Agreement may be executed in one or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same instrument. Facsimile execution and delivery of this Agreement is legal valid and binding for all purposes.

Please acknowledge your agreement to the foregoing by executing this Agreement in the space provided below.

Sincerely,

PNM RESOURCES, INC.

By:__________________________________

Name:

Title:

ACCEPTED AND AGREED TO

AS OF THE DATE FIRST ABOVE

WRITTEN:

HOLDER:

For Individuals:

_________________________________

Print Name Above

_________________________________

Sign Name Above

For Entities:

__________________________________

Print Name of Entity Above

By:_______________________________

Name:

Title:

C-3

EX-10.13

EXHIBIT 10.13

DIVIDEND, ASSIGNMENT AND ASSUMPTION AGREEMENT

DIVIDEND, ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of November 18, 2005 (the “Agreement”), by and among PNMR DEVELOPMENT AND MANAGEMENT CORPORATION, a New Mexico corporation (“PNMR Development”) and PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation (“PNM”). PNMR Development and PNM are sometimes hereinafter referred to as the “Parties” or individually as a “Party.”

RECITALS

1.On November 12, 2004, PNM Resources, Inc. (“PNMR”), Phelps Dodge Energy Services, LLC (“PDES”) and Tucson Electric Power Company (“TEP”) purchased from Duke Energy North America, LLC, all right, title and interest in and to Duke Energy Luna, LLC (the “Company”) which owned a partially constructed approximately 570 MW (nominal) combined cycle natural gas-fired electric generation facility located in Luna County, New Mexico (together with all contract rights, Permits, water rights and other related assets, the “Luna Energy Facility” or the “Project”). (As the result of a name change, the Company is now known as Luna Power Company, LLC.)

2.On the same date, PNMR, PDES and TEP entered into a Transaction Agreement setting out their mutual intent, as the purchasers of the Company, to, among other things, make one or more in-kind distributions to each of the PNMR, PDES and TEP (or, in the case of PNMR, to an affiliate) of the assets and properties of the Company so that each of PNMR (or its designee), PDES and TEP would own a thirty-three and one third percent (33 1/3%) undivided ownership interest in such assets and properties (such assets and properties being referred to in the Transaction Agreement as the “Distributed Assets”).

3.Pursuant to an Assignment Agreement, dated as of February 24, 2005, between PNMR and PNMR Development, PNMR assigned to PNMR Development PNMR’s right to receive the distribution of its interest in the Distributed Assets (including tangible personal property interests and other assets in one or more distributions). Thereafter, by Distribution, Assignment and Assumption Agreement, dated as of February 24, 2005, between the Company, TEP, PDES and PNMR Development (the “Distribution Agreement”), the Company made a distribution and assignment of a one-third (1/3) undivided interest in certain of the Distributed Assets to each of TEP, PDES and PNMR Development; and TEP, PDES and PNMR Development assumed and agreed to be bound by the terms and conditions of the permits and contracts that were the subject of the Distribution Agreement.

4.The Board of Directors of PNMR Development has, by resolution, determined to make a dividend to PNMR of all of PNMR Development’s interest in the Distributed Asserts acquired by PNMR Development pursuant to the Distribution Agreement, as well as all rights under contracts to which PNMR Development is a party that were entered into after February 24, 2005 (collectively, the “PNMR Development Assets”).

5.PNMR and PNM have entered into an Assignment Agreement, dated as of November 18, 2005 pursuant to which PNMR has assigned to PNM all of PNMR’s right to receive PNMR Development’s dividend of the PNMR Development Assets.

6.Capitalized terms used herein without definition shall have the meanings assigned to them for purposes of the Transaction Agreement.

NOW, THEREFORE, it is agreed as follows:

1. Assignment and Conveyance of PNMR Development Assets. PNMR Development hereby dividends, assigns, transfers and conveys to PNM the PNMR Development Assets, including, without limitation, PNMR Development’s interest in each of the following assets and properties associated therewith, and PNM hereby accepts such interest:

A. The real property identified as the “Power Plant Site” and the real property identified as the “Wellfield Sites” (including water rights associated therewith), all as more particularly described in Schedule 1A hereto;

B. The permits identified in Schedule 1B hereto, subject to appropriate regulatory notifications, filings, or other requirements, if any (it being understood that certain permits may be in the name of the Operating Agent);

C. The contracts set forth in Schedule 1C hereto; and

D. The personal property and equipment described in Schedule 1D hereto.

2. No Additional Consideration. No additional consideration shall be paid by PNM to PNMR Development in connection with the assignment and conveyance provided for herein.

3. Assumption of Obligations. PNM agrees to assume PNMR Development’s obligations and to be bound by and to perform all of the terms and conditions, covenants and undertakings of the permits and contracts that are the subject of this Agreement.

4. Proration of Taxes. Taxes that may be payable with respect to any of the assets being assigned and conveyed pursuant to this Agreement shall be prorated among PNM and PDES and TEP in accordance with their respective undivided ownership interests.

5. Further Assurances. PNM and PNMR Development shall at any time and from time to time and without additional consideration take such actions and deliver such documents as may be necessary to effectuate the purposes of this Agreement. In particular, they shall execute all deeds and other instruments that may be required to carry into the effect the purposes of this Agreement.

2

6. Governing Law. This Agreement is subject to New Mexico law, without regard to conflicts of law principles.

7. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of such counterparts shall together constitute one original. This Agreement may also be executed by facsimile signature and any such executed copies shall be deemed executed and delivered and fully enforceable.

IN WITNESS WHEREOF, the undersigned have executed this Dividend, Assignment and Assumption Agreement as of the date first set forth above.

PNMR DEVELOPMENT AND MANAGEMENT CORPORATION

By: /s/Terry P. Horn___________

Name: Terry P. Horn___________

Title: Vice President and Secretary

PUBLIC SERVICE COMPANY OF NEW MEXICO

By: /s/ John Myers______________

Name: John Myers______________

Title: Vice president, Power Production

3

Schedule 1A

Description of Power Plant Site

The Southwest ¼ of the Southwest ¼, the Northwest ¼ of the Southwest ¼, and the Southeast ¼ of the Southwest ¼ of Section 16, Township 23 South, Range 9 West, New Mexico Prime Meridian, Luna County, New Mexico, being more particularly described as follows:

BEGINNING at the Southwest Corner, a found 5/8" rebar, which is common with the Southwest corner of said Section 16, on the center line of Arrowhead Drive, a 60' wide roadway, THENCE N 02°35'21" E a distance of 1319.89 feet along the West line of the said Southwest ¼ of the Southwest ¼ to a found Culak Surv-Kap, THENCE N 02°36'05" E a distance of 1319.51 feet along the West line of the Northwest ¼ of the Southwest ¼ to a Culak Surv-Kap at the Northwest corner of the said Northwest ¼ of the Southwest ¼, THENCE S 88°34'28" E a distance of 1321.25 feet along the North line of the said Northwest ¼ of the Southwest ¼ to a found Culak Surv-Kap at the Northeast corner of the said Northwest ¼ of the Southwest ¼, THENCE S 02°36'30" W a distance of 1322.37 feet along the East line of the said Northwest ¼ of the Southwest ¼ to a found Culak Surv-Kap at the Southeast corner of the said Northwest ¼ of the Southwest ¼, THENCE S 88°29'34" E a distance of 1320.57 feet along the North line of the said Southeast ¼ of the Southwest ¼ to a found Culak Surv-Kap at the Northeast corner of the said Southeast ¼ of the Southwest ¼, THENCE S 02°35'23" W a distance of 1325.04 feet along the East line of the said Southeast ¼ of the Southwest ¼ to a found P/K nail in rock at the South ¼ of said Section 16 on the centerline of the said Arrowhead Drive, THENCE N 88°21'36" W a distance of 2641.50 feet along the South line of said Section 16 and the centerline of said Arrowhead Drive to the PLACE OF BEGINNING, containing 120.221 acres, more or less.

Description of Wellfield Sites

The real property and/or water rights described in the following deeds and other instruments of record:

1.      Warranty Deed from Steve and Lorraine Franzoy to Duke Energy Luna, LLC dated April 9, 2002, filed at Reception Number 2002-01826 in the Real Property Records of Luna County, New Mexico

2.      General Warranty Deed from Donald R. and Lila M. Gardner to Duke Energy Luna, LLC dated February 15, 2002 filed at Reception Number 2002-00897 in the Real Property Records of Luna County, New Mexico

3.      Special Warranty Deed from Forrest H. Hill to Duke Energy Luna, LLC dated October 17, 2001 filed in the State of New Mexico, County of Luna Reception Number 2001-05183

4

4.      Warranty Deed from Hurt Cattle Company, Inc. to Duke Energy Luna, LLC dated October 4, 2001 filed at Reception Number 2001-04909 in the Real Property Records of Luna County, New Mexico

5.      General Warranty Deed from James W. and Juanita H. Lang to Duke Energy Luna, LLC dated June 6, 2002 at Reception No. 2002-02852 in the Real Property Records of Luna County, New Mexico

6.      Warranty Deed from Bert W. Timmons to Duke Energy Luna, LLC dated January 23, 2002 filed at Reception No. 2002-00424 in the Real Property Records of Luna County, New Mexico

7.      Special Warranty Deed from Ward T. Bell to Duke Energy Luna, LLC dated March 12, 2002 field at Reception No. 2002-01440 in the Real Property Records of Luna County, New Mexico

8.      Warranty Deed from Owen W. and Elizabeth A. Barker to Duke Energy Luna, LLC dated October 5, 2001 filed at Reception No. 2001-04919 in the Real Property Records of Luna County, New Mexico

9.      Special Warranty Deed from Shelby C. Phillips, III to Duke Energy Luna, LLC dated October 30, 2001 filed in State of New Mexico, County of Luna Reception Number 2001-05532

10.     Warranty Deed from Kent and Vivian Nicoll to Duke Energy Luna, LLC dated January 7, 2002 filed at Reception No. 2002-00087 in the Real Property Records of Luna County, New Mexico

11.     General Warranty Deed from J. Arza Nicoll to Duke Energy Luna, LLC dated January 18, 2002 filed in the State of New Mexico, County of Luna Reception Number 2002-00319

12.     Correction Warranty Deed from Paul I. and Brenda L. Offutt to Duke Energy Luna, LLC dated May 31, 2002 filed at Reception Number 2002-02693 in the Real Property Records of Luna County, New Mexico

13.     Special Warranty Deed from Olin J. and Ruth J. Offutt as Trustees of the Olin J. Offutt and Ruth Offutt Revocable Trust dated November 1, 1995 to Duke Energy Luna, LLC dated November 16, 2001 filed at Reception No. 2002-00284 in the Real Property Records of Luna County, New Mexico

14.     General Warranty Deed from Edmund E. and Alice Ogaz to Duke Energy Luna, LLC dated April 24, 2002 filed at Reception No. 2002-02076 in the Real Property Records of Luna County, New Mexico

15.     General Warranty Deed from Gilbert J. and Catherine C. Cramer Revocable Trust to Duke Energy Luna, LLC dated January 17, 2002 filed at Reception No. 2002-00285 in the Real Property Records of Luna County, New Mexico

5

16.     Special Warranty Deed from Ruben V. and Antonia P. Diaz to Duke Energy Luna, LLC dated March 1, 2002 filed at Reception No. 2002-01169 in the Real Property Records of Luna County, New Mexico

 17.     General Warranty Deed from Louisa B. Valdespino to Duke Energy Luna, LLC dated January 24, 2002 filed at Reception No. 2002-00413 in the Real Property Records of Luna County, New Mexico

18.     Special Warranty Deed from Raymond and Carol L. Viramontes to Duke Energy Luna, LLC dated November 15, 2001 filed at Reception Number 2001-05740 in the Real Property Records of Luna County, New Mexico

19.     Special Warranty Deed from Bobby D. and Barbara June Waldrop to Duke Energy Luna, LLC dated May 29, 2002 filed at Reception No. 2002-02658 in the Real Property Records of Luna County, New Mexico

20.     Special Warranty Deed from Bobby D. and Barbara June Waldrop to Duke Energy, LLC dated October 29, 2001 filed in the State of New Mexico, County of Luna Reception Number 2001-05293

21.     Change of Ownership of Water Right of No. M-1730 from Steve and Lorraine Franzoy to Duke Energy Luna, LLC filed at Reception No. 2002-06403 in the Real Property Records of Luna County, New Mexico

22.     Change of Ownership of Water Right No. M-526-A from Forrest H. Hill to Duke Energy Luna, LLC filed at Reception No. 2002-06364 in the Real Property Records of Luna County, New Mexico

23.     Water Rights Warranty Deed from Hurt Cattle Company, Inc. to Duke Energy Luna, LLC dated July 12, 2002 filed at Reception number 2002-03584 in the Real Property Records of Luna County, New Mexico

24.     Change of Ownership of Water Right No. M-448 et al, from Hurt Cattle Company to Duke Energy Luna, LLC filed at Reception No. 2002-06500 in the Real Property Records of Luna County, New Mexico

25.     Change of Ownership of Water Right No. M-253 from James W. and Juanita H. Lang to Duke Energy Luna, LLC

26.     Change of Ownership of Water Right No. M-545 from Bert W. Timmons to Duke Energy Luna, LLC filed at Reception No. 2002-06352 in the Real Property Records of Luna County, New Mexico

27.     Change of Ownership of Water Right No. M-480 from Ward T. Bell and Linda M. Bell to Duke Energy Luna, LLC filed at Reception No. 2002-06501 in the Real Property Records of Luna County, New Mexico

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28.     Change of Ownership of Water Right No. M-460, et al. from Owen W. Barker and Elizabeth A. Barker to Duke Energy Luna, LLC filed at Reception No. 2002-06518 in the Real Property Records of Luna County, New Mexico

 29.     Change of Ownership of Water Right No. M-1715 from Shelby C. Phillips, III to Duke Energy Luna, LLC filed at Reception No. 2002-06505 in the Real Property Records of Luna County, New Mexico

 30.     Change of Ownership of Water Right No. M-456 from Shelby C. Phillips, III to Duke Energy Luna, LLC filed at Reception No. 2002-06504 in the Real Property Records of Luna County, New Mexico

31.     Change of Ownership of Water Right No. M-455 from Shelby C. Phillips, III to Duke Energy Luna, LLC filed at Reception No. 2002-06503 in the Real Property Records of Luna County, New Mexico

32.     Change of Ownership of Water Right No. M-454 from Shelby C. Phillips, III to Duke Energy Luna, LLC filed at Reception No. 2002-06502 in the Real Property Records of Luna County, New Mexico

33.     Change of Ownership of Water Right No. M-531 from Joseph K. Nicoll to Duke Energy Luna, LLC filed at Reception No. 2002-06354 in the Real Property Records of Luna County, New Mexico

34.     Change of Ownership of Water Right No. M-532 from Joseph K. Nicoll to Duke Energy Luna, LLC filed at Reception No. 2002-06353 in the Real Property Records of Luna County, New Mexico

35.     Change of Ownership of Water Right No. M-527 from J. Arza Nicoll to Duke Energy Luna, LLC filed at Reception No. 2002-06404 in the Real Property Records of Luna County, New Mexico

36.     Change of Ownership of Water Right No. M-483 from Olin J. Offutt to Duke Energy Luna, LLC filed at Reception No. 2002-06507 in the Real Property Records of Luna County, New Mexico

37.     Change of Ownership of Water Right No. M-493 from Edmund E. Ogaz to Duke Energy Luna, LLC filed at Reception No. 2002-06499 in the Real Property Records of Luna County, New Mexico

38.     Change of Ownership of Water Right No. M-526 from Gilbert T. Cramer to Duke Energy Luna, LLC filed at Reception No. 2002-06401 in the Real Property Records of Luna County, New Mexico

39.     Change of Ownership of Water Right No. M-442 et al. from Ruben V. and Antonia P. Diaz to Duke Energy Luna, LLC filed at Reception No. 2002-06399 in the Real Property Records of Luna County, New Mexico

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40.     Change of Ownership of Water Rights No. M-533 (M-534) from Louisa B. Valdespino to Duke Energy Luna, LLC filed at Reception No. 2002-06355 in the Real Property Records of Luna County, New Mexico

41.     Change of Ownership of Water Right No. M1649 from Raymond and Carol L. Viramontes to Duke Energy Luna, LLC filed at Reception No. 2002-06517 in the Real Property Records of Luna County, New Mexico

42.     Change of Ownership of Water Right No. M-478 from Raymond and Carol Viramontes to Duke Energy Luna, LLC filed at Reception No. 2002-06356 in the Real Property Records of Luna County, New Mexico

43.     Change of Ownership of Water Right No. M-462-A from Bobby D. and Barbara J. Waldrop to Duke Energy Luna, LLC filed at Reception No. 2002-06506 in the Real Property Records of Luna County, New Mexico

44.     Change of Ownership of Water Right No. M-480-A from Bobby D. and Barbara J. Waldrop to Duke Energy Luna, LLC filed at Reception No. 2002-06510 in the Real Property Records of Luna County, New Mexico

45.     Letter dated September 24, 2002 from Modrall Sperling (Counsel for Duke Energy Luna, LLC) to the New Mexico State Engineer Office withdrawing Application to Change Place and Purpose of Use of Underground Water No. M-496

46.     Change of Ownership of Water Rights from Donald L. and Lila M. Garner to Duke Energy Luna, LLC filed at Reception No. 2002-06402 in the Real Property Records of Luna County, New Mexico

47.     The permits set forth in items 13-40 on Schedule 1B.

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Schedule 1B

Permits

Unexpired Permits

1.    Order of the New Mexico Public Regulation Commission dated October 27, 2000 accepting the Stipulation prepared by Duke Energy Luna, LLC, the Staff of the Utility Division of the New Mexico Public Regulation Commission, the New Mexico Industrial Energy Consumers, and Public Service Company of New Mexico, submitted to the New Mexico Public Regulation Commission on October 17, 2000

2.    Final Order of the New Mexico Public Regulation Commission dated March 27, 2001 approving the siting and location of the Luna Energy Facility and associated 3,200 feet of 345 kV connecting transmission line

3.    Prevention of Significant Deterioration Permit No. PSD-NM-2450-M1, issued on June 11, 2002, which replaced Permit No. PSD-NM-2450 issued December 29, 2000, from the State of New Mexico Environment Department Air Quality Bureau

4.    Prevention of Significant Deterioration Permit No. PSD-NM-2450-M1 issued June 11, 2002 from the State of New Mexico Environment Department Air Quality Bureau

5.    Administrative Permit Revision to Prevention of Significant Deterioration Permit No. PSD-NM-2450-M1 issued May 29, 2003 from the State of New Mexico Environment Department Air Quality Bureau

6.    Acid Rain Permit No. P209A issued to Duke Energy Luna, LLC by the State of New Mexico Environment Department Air Quality Bureau dated January 24, 2001

7.    Permit No. 4844 to Construct a Dam (for evaporation ponds) issued to Duke Energy Luna, LLC by the State of New Mexico Office of the State Engineer on January 23, 2002

8.    Certificate of Construction and Operation and Proof of Completion (for OSE File No. 4844) issued February 12, 2004 by the State of New Mexico Office of the State Engineer (for the evaporation ponds)

9.    Notification from US EPA dated September 15, 2004 issued to Duke Energy Luna, LLC acknowledging receipt of Notice of Intent for coverage under the NPDES General Permit for Storm Water Discharges from Construction Activity. Coverage under the permit for the plant site began on December 22, 2003.

9

10.    Undated letter from the New Mexico Environment Department Hazardous Waste Bureau acknowledging receipt of RCRA Notification of Regulated Waste Activity and issuing EPA ID Number NMR000006338 to Duke Energy Luna, LLC

11.    Discharge Plan Approval issued by the State of New Mexico Environment Department to Duke Energy Luna, LLC dated February 22, 2001

12.    Determination of No Hazard to Air Navigation issued to Duke Energy Luna, LLC by the Federal Aviation Administration dated April 12, 2001 (Transmission towers or plant stacks in existing utility corridor)

13.    Permit to Change Place and Purpose of Use of Well M-1730 dated September 23, 2002 issued by the State of New Mexico State Engineer Office. (Property conveyed by Franzoy)

14.    Permit to Change Place and Purpose of Use No. M-526-A dated October 17, 2001 issued by the State of New Mexico State Engineer Office (Property conveyed by Hill)

15.    Permit to Change Location of Well No. M-526-S dated July 10, 2002 issued by the State of New Mexico State Engineer Office (Property conveyed by Hill)

16.    Permit to Change Place and Purpose of Use of underground waters (File Nos. M-448, M-469, M-474) dated February 20, 2001 as amended by State Engineer Order and Revised Permit (File Nos. M-166 and M-167, and M-448, M-469 and M-474) dated April 3, 2001

(a)    Permit to Change Location of Well No. M-469 dated October 15, 2002 issued by the State of New Mexico State Engineer Office (Property conveyed by Hurt Cattle Co.)

(b)    Permit to Change Location of Well No. M-469-S-2 dated October 15, 2002 issued by the State of New Mexico State Engineer Office (Property conveyed by Hurt Cattle Co.)

17.    Permit to Change Place and Purpose of Use No. M-253 dated May 29, 2002 issued by the State of New Mexico State Engineer Office (Property conveyed by Lang)

18.    Permit to Change Place and Purpose of Use No. M-545 dated May 29, 2002 issued by the State of New Mexico State Engineer Office (Property conveyed by Timmons)

19.    Permit to Change Place and Purpose of Use No. M-480 dated November 28, 2001 issued by the State of New Mexico State Engineer Office (Property conveyed by Bell)

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20.    Permit to Change Location of Well No. M-460-S-2 dated April 8, 2002 issued by the State of New Mexico State Engineer Office (Property conveyed by Barker)

21.    Permit to Change Place and Purpose of Use No. M-1715 dated October 17, 2001 issued by the State of New Mexico State Engineer Office (Property conveyed by Phillips)

22.    Permit to Change Place and Purpose of Use No. M-456 dated October 17, 2001 issued by the State of New Mexico State Engineer Office (Property conveyed by Phillips)

(a)    Permit to Change Location of Well No. M-456 dated August 27, 2002 issued by the State of New Mexico State Engineer Office (Property conveyed by Phillips.)

23.    Permit to Change Place and Purpose of Use No. M-456-S dated May 28, 2002 issued by the State of New Mexico State Engineer Office (Property conveyed by Phillips)

24.    Permit to Change Place and Purpose of Use No. M-456-S-2 dated May 9, 2002 issued by the State of New Mexico State Engineer Office (Property conveyed by Phillips)

25.    Permit to Change Location of Well M-455-S-2 dated May 9, 2002 issued by the State of New Mexico State Engineer Office (Property conveyed by Phillips)

26.    Permit to Change Place and Purpose of Use No. M-455 dated October 17, 2001 issued by the State of New Mexico State Engineer Office

27.    Permit to Change Place and Purpose of Use No. M-454 dated September 14, 2001 issued by the State of New Mexico State Engineer Office (Property conveyed by Phillips)

(a)    Permit to Change Location of Well No. M-454-S dated June 12, 2002 issued by the State of New Mexico State Engineer Office (Property conveyed by Phillips)

28.    Permit to Change Place and Purpose of Use No. M-531 dated October 17, 2001 issued by the State of New Mexico State Engineer Office (Property conveyed by Kent Nicoll)

29.    Permit to Change Place and Purpose of Use No. M-532 dated October 17, 2001 issued by the State of New Mexico State Engineer Office (Property conveyed by Kent Nicoll)

(a)    Permit to Change Location of Well No. M-532-S dated July 16, 2002 issued by the State of New Mexico State Engineer Office (Property conveyed by Kent Nicoll)

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30.    Permit to Change Location of Well M-527 dated January 10, 2003 issued by the State of New Mexico State Engineer Office (Property conveyed by Nicoll)

31.    Permit to Change Location of Well No. M-527-S-2 January 10, 2003 issued by the State of New Mexico State Engineer Office (Property conveyed by J. Arza Nicoll)

32.    Permit to Change Place and Purpose of Use No. M-483 dated October 17, 2002 issued by the State of New Mexico State Engineer Office (Property conveyed by Offutt)

33.    Permit to Change Place and Purpose of Use No. M-526 dated November 28, 2001 issued by the State of New Mexico State Engineer Office (Property conveyed by Cramer)

(a)    Permit to Change Location of Well No. M-526-S-4 dated June 12, 2002 issued by the State of New Mexico State Engineer Office (Property conveyed by Cramer)

34.    Permit to Change Place and Purpose of Use No. M-442 dated May 22, 2002 issued by the State of New Mexico State Engineer Officer (Property conveyed by Diaz)

35.    Permit to Change Location of Well No. M-442-S-5 dated October 11, 2002 issued by the State of New Mexico State Engineer Office (Property conveyed by Diaz)

36.    Permit to Change Place and Purpose of Use No. M-533 (M-534) dated April 10, 2002 issued by the State of New Mexico State Engineer Office (Property conveyed by Valdespino)

(a)    Permit to Change Location of Well No. M-533 dated June 12, 2002 issued by the State of New Mexico State Engineer Office (Property conveyed by Valdespino.)

37.    Permit to Change Place and Purpose of Use No. M-1649 dated September 14, 2001 issued by the State of New Mexico State Engineer Office (Property conveyed by Viramontes)

38.    Permit to Change Location of Well No. M-478-S dated July 10, 2002 issued by the State of New Mexico State Engineer Office (Property conveyed by Viramontes)

39.    Permit to Change Place and Purpose of Use No. M-462-A dated October 17, 2001 issued by the State of New Mexico State Engineer Office (Property conveyed by Waldrop)

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40.    Permit to Change Place and Purpose of Use No. M-480-A dated October 17, 2001 issued by the State of New Mexico State Engineer Office (Property conveyed by Waldrop)

(a)    Permit to Change Location of Well No. M-480-A dated May 21, 2002 issued by the State of New Mexico State Engineer Office (Property conveyed by Waldrop)

41.    Temporary Certificate of Occupancy issued to Duke Energy Luna, LLC by the City of Deming on September 16, 2004 for the Administration Building

42.    Temporary Certificate of Occupancy issued to Duke Energy Luna, LLC by the City of Deming on September 16, 2004 for the Warehouse (Storage Building)

43.    Application for Permit to the Use of County Right-of-Way by Utilities and Other Persons submitted by Duke Energy Luna, LLC to the Luna County Road Department, approved July 1, 2002 (Permit 2002-60)

44.    Application for Permit to the Use of County Right-of-Way by Utilities and Other Persons submitted by Duke Energy Luna, LLC to the Luna County Road Department, approved July 1, 2002 (Permit 2002-61)

45.    Application for Permit to the Use of County Right-of-Way by Utilities and Other Persons submitted by Duke Energy Luna, LLC to the Luna County Road Department, approved July 1, 2002 (Permit 2002-62)

46.    Application for Permit to the Use of County Right-of-Way by Utilities and Other Persons submitted by Duke Energy Luna, LLC to the Luna County Road Department, approved July 1, 2002 (Permit 2002-63)

47.    Application for Permit to the Use of County Right-of-Way by Utilities and Other Persons submitted by Duke Energy Luna, LLC to the Luna County Road Department, approved February 10, 2002 (Permit 2002-8)

48.    Application for Permit to the Use of County Right-of-Way by Utilities and Other Persons submitted by Duke Energy Luna, LLC to the Luna County Road Department, approved February 10, 2002 (Permit 2002-9)

49.    Application for Permit to the Use of County Right-of-Way by Utilities and Other Persons submitted by Duke Energy Luna, LLC to the Luna County Road Department, approved February 10, 2002 (Permit 2002-10)

50.    Application for Permit to the Use of County Right-of-Way by Utilities and Other Persons submitted by Duke Energy Luna, LLC to the Luna County Road Department, approved February 10, 2002 (Permit 2002-11)

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51.    Application for Permit to the Use of County Right-of-Way by Utilities and Other Persons submitted by Duke Energy Luna, LLC to the Luna County Road Department, approved February 10, 2002 (Permit 2002-12)

52.    Application for Permit to the Use of County Right-of-Way by Utilities and Other Persons submitted by Duke Energy Luna, LLC to the Luna County Road Department, approved February 10, 2002 (Permit 2002-14)

53.    Application for Permit to the Use of County Right-of-Way by Utilities and Other Persons submitted by Duke Energy Luna, LLC to the Luna County Road Department, approved February 10, 2002 (Permit 2002-15)

54.    Application for Permit to the Use of County Right-of-Way by Utilities and Other Persons submitted by Duke Energy Luna, LLC to the Luna County Road Department, approved February 10, 2002 (Permit 2002-16)

55.    Application for Permit to the Use of County Right-of-Way by Utilities and Other Persons submitted by Duke Energy Luna, LLC to the Luna County Road Department, approved February 10, 2002 (Permit 2002-16A)

56.    Application for Permit to the Use of County Right-of-Way by Utilities and Other Persons submitted by Duke Energy Luna, LLC to the Luna County Road Department, approved March 22, 2002 (Permit 2002-27)

57.    Application for Permit to the Use of County Right-of-Way by Utilities and Other Persons submitted by Duke Energy Luna, LLC to the Luna County Road Department, approved March 22, 2002 (Permit 2002-28)

58.    Application for Driveway Permits submitted by Duke/Fluor Daniel to the Luna County Road Department, approved July 31, 2001:

(a)   Permanent Plant Entrance Road

(b)   Permanent Gas Yard Entrance Road

(c)   Temporary Construction Road #1

(d)   Temporary Construction Road #2

(e)   Temporary Construction Road #3

59.    Utility Permit Approvals issued to Duke Energy Luna, LLC by the New Mexico State Highway and Transportation Department dated January 13, 2003:

(a)   Permit No. 1-01-182, New Mexico Highway 418, Mile Marker 3.1

(b)   Permit No. 1-01-183, U.S. Highway 180, Mile Marker 164.6

(c)   Permit No. 1-01-185, Interstate 10, Mile Marker 79.46

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(d)   Permit No. 1-02-11, Loop 22 (U.S. Highways 70 and 80), Mile Marker 2.7

(e)   Permit No. 1-02-21, Interstate 10, between Mile Markers 83.63 and 83.7

Expired Permits

60.    Utility Permit Approvals issued to Duke Energy Luna, LLC by the New Mexico State Highway and Transportation Department:

(a)   Permit No. 1-02-172, New Mexico Highway 418, Mile Marker 10.3, issued August 12, 2002

(b)   Permit No. 1-02-176, Interstate 10, Mile Marker 78.69, issued August 15, 2002

61.    NPDES Storm Water Construction Permit issued to Duke Energy Luna, LLC by the United States Environmental Protection Agency on September 12, 2001 for construction on plant site (expired upon issuance of new General Permit in July 2003. Coverage obtained under new General Permit, see Item 9 of Schedule 1B).

62.    NPDES Storm Water Construction Permit (Tracking No. NMR10C158) issued to Duke Energy Luna, LLC by the United States Environmental Protection Agency on December 5, 2001 for construction of water pipeline (terminated on September 2, 2002)

63.    NPDES Storm Water Construction Permit (Tracking No. NMR10C396) issued to Framatome ANP DE&S by the United States Environmental Protection Agency for construction at the Deming wastewater treatment plant (terminated on November 26, 2002)

64.    Hydrostatic Test Water Discharge Permit HI-079 issued to Duke Energy Luna, LLC by the New Mexico Energy, Minerals and Natural Resources Department on August 14, 2002 (never activated)

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Schedule 1C

Contracts

1.    Long Term Service Agreement between General Electric International, Inc. and Duke Energy Luna, LLC dated June 29, 2001

2.   Global Amendment to Long Term Service Agreements between Duke Energy Global Markets, Inc. and General Electric International, Inc. dated December 9, 2002

3.   Global Amendment #2 to Long Term Service Agreements between Duke Energy Luna, LLC et al. and General Electric International, Inc. dated March 26, 2004

4.   Wastewater Treatment and Emergency Water Cooperative Agreement between Duke Energy Luna, LLC and the City of Deming, New Mexico dated December 12, 2003

5.   Electric Line Extension Agreement (Company-Built System) between Public Service Company of New Mexico and Duke Energy Luna, LLC dated April 20, 2002

6.   Electric Line Extension Revenue Credit Guarantee Agreement between Public Service Company of New Mexico and Duke Energy Luna, LLC dated April 20, 2002

7.   Operating and Maintenance Agreement between El Paso Natural Gas Company and Duke Energy Luna, LLC dated June 25, 2002 (to extent still in effect)

8.   Letter Agreement for the Construction, Operation and Ownership of the Deming Power Plant Delivery Point between El Paso Natural Gas Company and Duke Energy Luna, LLC dated June 25, 2002 (to extent still in effect)

9.   Letter Agreement for Provision of Onsite Metering Data Signals at the Deming Power Plant Delivery Point metering Facilities between El Paso Natural Gas Company and Duke Energy Luna, LLC dated June 25, 2002 (to extent still in effect)

10.   Assignment and Assumption of Certain Rights and Obligations from Duke Energy North America, LLC to Duke Energy Luna, LLC dated August 10, 2001

11.   Letter dated March 12, 2002 from Duke Energy North America, LLC to General Electric Company confirming the assignment of combustion and steam turbines to Duke Energy Luna, LLC

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12.   Purchase Order No. 70923-2-4001 dated October 1, 2001 issued by Duke Energy North America, LLC to General Electric Company for the purchase of two combustion turbines.

13.   Purchase Order #70923-2-4002 dated October 1, 2001 issued by Duke Energy North America, LLC to General Electric Company for the purchase of one steam turbine.

14.   Verbal agreement with Luna County to allow Duke Energy Luna, LLC to place a temporary sign along the County Road commonly known as Arrowhead Drive.

15.   Purchase orders for leases of trailers and storage units.

16.   Special Warranty Deed from City of Deming, New Mexico to Duke Energy Luna, LLC, dated as of the Closing Date, to be recorded on the Closing Date in the Real Property Records of Luna County, New Mexico.

17.   Purchase Orders with Pro Force for security services dated December 18, 2002 and December 12, 2003, supplemented by letter dated December 17, 2002.

18.   Electricity, water and other minor utility services contracts.

19.   New Mexico One Call contract (notification to begin digging).

20.   Engineering, Procurement and Construction Agreement for the Luna Energy Facility by and among PDES, TEP, PNMR Development and Fluor Enterprises, Inc., dated as of February 24, 2005.

21.   Luna Energy Facility Operation and Maintenance Agreement between PNMR Development, TEP, PDES and North American Energy Services Company, dated as of August 15, 2005.

22.   Construction Administration and Funding Agreement between PNMR Development, TEP and PDES, dated as of October 20, 2005.

23.   Lease Agreement between PNMR Development and John Weldy, dated as of July 11, 2005.

24.   Letter Agreement Establishing Temporary Arrangements regarding Luna Energy Facility between PDES, TEP and PNMR Development, dated as of March 8, 2005.

25.   Confirmation of Customer’s Work Station Configuration Agreement between PNMR Development and Open Access Technology International, Inc., dated as of October 10, 2005.

26.   Ranching and Grazing Lease between PNMR Development and Hurt Cattle Company, dated as of July 11, 2005.

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27.   Waiver and Hold Harmless Agreement between PNMR Development and Justin Nicoll, dated as of May 26, 2005.

28.   Waiver and Hold Harmless Agreement between PNMR Development and Gage Gophers Chapter of the 4-H Club, dated as of May 26, 2005.

29.   Operating and Maintenance Agreement between PNMR Development and El Paso Natural Gas Company, dated as of August 1, 2005.

30.   License Agreement between PNMR Development and El Paso Natural Gas Company, dated as of August 30, 2005.

31.   Construction of Facilities Agreement for the Luna Energy Facility between PNMR Development and El Paso Natural Gas Company, dated as of March 11, 2005.

32.   Second Revised Interconnection Agreement between El Paso Electric Company, PNM. Texas-New Mexico Power Company, Luna Power Company, LLC, PDES, TEP and PNMR Development, dated as of August 5, 2005.

33.   All and any other contracts, agreements of every description pertaining to the Luna Energy Facility, or the construction or operation thereof, to which PNMR Development is a party.

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Schedule 1D

Facility Personal Property and Equipment

1.   Two (2) General Electric model 7241 combustion turbine generators coupled with two (2) hydrogen cooled GE 7FH2 generators (CTGs), plus auxiliary equipment and systems. The combustion turbines are natural gas fuel only with a dry low NOx combustion system. The combustion turbine and auxiliaries are packaged for outdoor installation.

2.   The Stellar Group combustion turbine inlet air chiller system.

3.   Two (2) Erie Power Technology Inc (formerly Aalborg) heat recovery steam generators (HRSGs) and accessories for each combustion turbine. Each HRSG is a duct-fired, three-pressure, reheat, natural circulation type with horizontal gas flow and vertical tubes. Each HRSG has a selective catalytic reduction (SCR) system.

4.   Main steam system and STG by-pass steam system (for start-up, shut-down and upset conditions).

5.   One (1) General Electric steam turbine generator (STG) with accessories and auxiliary systems. The steam turbine is a 3600 rpm, reheat, double flow, down exhaust type turbine with a hydrogen cooled GE 324 Generator.

6.   Boiler feedwater pumps.

7.   Condensate tank and pumps.

8.   Components of a natural gas supply system consisting of lateral piping, metering station parts, pressure regulator, natural gas treatment and heating equipment, and supply piping to the combustion turbines, duct burners, and auxiliary users.

9.   Components of a boiler feedwater treatment system.

10.   Boiler blowdown equipment and tanks.

11.   Chemical feed equipment for boiler feedwater.

12.   Natural gas fired auxiliary boiler.

13.   Red Mountain well field water system, including the water production wells located on the Wellfield Sites listed in Schedule 1A, storage tank, pumping station with pump house, and well field gathering and pumping equipment with DCS interface.

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14.   Capital improvements to the City of Deming’s water treatment plant facilities, including but not limited to pond, sand filters and chlorination equipment. NOTE: Pursuant to the Wastewater Treatment and Emergency Water Cooperative Agreement between Duke Energy Luna, LLC and the City of Deming, New Mexico dated December 12, 2003, title to this system vests in the City of Deming upon completion of construction and acceptance by the City of Deming.

15.   Generator electrical equipment including three (3) 345KV main step-up transformers and three (3) 18 kV generator circuit breakers and associated 18 kV isolated phase bus ducts.

16.   On-site electrical interconnection equipment.

17.   Electrical system including two (2) unit auxiliary transformers, 4,160V switchgear, 480V switchgear, 4,160V-480V station service transformers, 480V MCCs and 125V AC system.

18.   120V AC uninterruptible power supply (UPS) system.

19.   125 Volt DC power system.

20.   One (1) emergency station power diesel generator.

21.   Continuous Emission Monitoring System (CEMS) for each HRSG stack.

22.   Plant control system equipment including distributed control system (DCS) equipment.

23.   Plant/instrument air system equipment.

24.   Plant utility systems equipment including components of service water system, wastewater system, water treatment system, and plant fire protection system.

25.   Administration/Main Control Room Building

26.   Warehouse/Maintenance Building

27.   Fire/Pump House

28.   Power Distribution Centers

29.   Six (6) 2001 Kawasaki Mules, Model #KAF300-C5, VIN#s JK1AFBC161B533733, JK1AFBC171B529433, JK1AFBC101B533758, JK1AFBC101B533761, JK1AFBC161B533716, JK1AFBC171B533742

30.   2002 Ford Explorer VIN #1FMDU74W22UB33380

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31.   All other equipment, parts, systems, materials and other personal property not specified Items 1-30 which comprise part of or are otherwise located on, in or under the power plant, the Power Plant Site, the Wellfield Sites or the Easements.

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EX-10.24

EXHIBIT 10.24

RESTRICTED STOCK RIGHTS AWARD AGREEMENT

PNM RESOURCES, INC.

OMNIBUS PERFORMANCE EQUITY PLAN

PNM Resources, Inc., a New Mexico corporation, (“PNMR” or the “Company”) hereby awards to «First»«Last», (the “Grantee”), a Participant in the PNM Resources, Inc. Omnibus Performance Equity Plan (the “Plan”), as it may be amended, a Restricted Stock Rights Award (the “Award”) for the number of shares of Common Stock of the Company (“Stock”) noted below. The grant is made effective as of the 13th day of February, 20066 (the “Grant Date”).

Capitalized terms used in this Restricted Stock Rights Award Agreement (the “Agreement”) and not otherwise defined herein shall have the meanings given to such terms in the Plan.

1.Grant. Grantee is hereby granted a Restricted Stock Rights Award for «Restricted_Stock_Rights_» shares of Stock. This Award is granted pursuant to the Plan, the terms of which are hereby incorporated by reference.

2.Vesting.

(a)Except as set forth below, these Restricted Stock Rights shall vest in the following manner: (i) on the first anniversary of the Grant Date, 33%; (ii) on the second anniversary of the Grant Date, 67%; and (ii) on the third anniversary of the Grant Date, 100%.

(b)Upon the termination of the Grantee’s employment due to death, Disability, Retirement, or Impaction, the Grantee’s nonvested Restricted Stock Rights shall vest as described in Section 13.1(a)(ii) of the Plan.

(c)Upon a Change in Control, the Grantee’s nonvested Restricted Stock Rights shall fully vest.

(d)Upon the involuntary or voluntary termination of employment of Grantee for any reason other than those set forth in Subparagraphs (b) and (c) above, the Restricted Stock Rights, if not previously vested, shall be canceled and forfeited immediately.

(e)Upon termination of employment with the Company for Cause, all nonvested Restricted Stock Rights shall be terminated and forfeited immediately.

3.Form and Timing of Delivery of Certificate. Within an administratively reasonable period of time following the lapse of restrictions and after satisfaction of all applicable withholding requirements, the Grantee shall receive a stock certificate evidencing Grantee’s ownership of the shares.

4.Adjustments. Neither the existence of the Plan nor this Award shall affect, in any way, the right or power of the Company to make or authorize: any or all adjustments, recapitalizations, reorganizations, or other changes in the Company’s capital structure or its

business; or any merger or consolidation of the Company; or the dissolution or liquidation of the Company; or any sale or transfer of all or any part of its assets or business; or any corporate act or proceeding, whether of a similar character or otherwise; all of which, and the resulting adjustments in, or impact on, the Award are more fully defined in Section 5.3 of the Plan.

5.Withholding and Deductions. In accordance with Sections 17.1 and 17.2 of the Plan, the Company may withhold, or require Grantee to remit to the Company, an amount sufficient to satisfy any federal, state or local withholding tax requirements.

6.Dividend Equivalents. The Grantee will not be entitled to receive a dividend equivalent for any of the Restricted Stock Rights.

7.Compliance with Exchange Act. If the Grantee is subject to Section 16 of the Exchange Act, Restricted Stock Rights granted pursuant to this Award are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act.

8.Non-Assignability. The Award and Grantee’s rights under this Agreement shall not be transferable other than by will or by the laws of descent and distribution. The Restricted Stock Rights are otherwise non-assignable. (See Section 13 of the Plan). The terms hereof shall be binding on the executors, administrators, heirs and successors of the Grantee.

9.Voting Rights. During the Restricted Period, the Grantee will have no voting rights with respect to nonvested Restricted Stock Rights.

10.Grantee Representation. As a condition to the receipt of any shares of Stock hereunder, the Company may require a representation from the Grantee that the Stock is being acquired only for investment purposes and without any present intention to sell or distribute such shares.

11.Tax Issues. Pursuant to Section 83 of the Internal Revenue Code of 1986 (the “Code”) the value of the shares of Stock received by Grantee will be taxed as ordinary income as of the date the restrictions lapse (i.e., as they vest). Grantee understands that Grantee may elect to be taxed as of the Grant Date, rather than as the Restricted Stock Rights vest, by filing an election under Section 83(b) of the Code with the Internal Revenue Service within 30 days of the Grant Date. The Grantee acknowledges that Grantee should consult a tax advisor regarding the consequences of this Award and whether or not to file an election under Section 83(b) of the Code. The Grantee also acknowledges that the dividend equivalents represent taxable compensation income and are subject to applicable withholding and employment taxes.

12.Employment Agreement. Notwithstanding anything to the contrary contained in this Agreement, (a) neither the Plan nor this Agreement is intended to create an express or implied contract of employment for a specified term between the Grantee and the Company and (b) unless otherwise expressed or provided, in writing, by an authorized officer, the employment relationship between the Grantee and the Company shall be defined as “employment at will” wherein either party, without prior notice, may terminate the relationship with or without cause.

13.Regulatory Approvals and Listing. The Company shall not be required to issue any certificate for shares of Stock upon the vesting of Restricted Stock Rights granted under this Agreement prior to satisfying any regulatory approval, registration, qualification or other requirements of the Securities and Exchange Commission, the Internal Revenue Service or any other governmental agency which the Committee, in its sole discretion, shall determine to be necessary or advisable. (See Section 19.1 of the Plan).

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14.Administration. This Agreement shall at all times be subject to the terms and conditions of the Plan and the Plan shall in all respects be administered by the Committee in accordance with the terms of and as provided in the Plan. The Committee shall have the sole and complete discretion with respect to the interpretation of this Agreement and the Plan, and all matters reserved to it by the Plan. The decisions of the majority of the Committee with respect thereto and to this Agreement shall be final and binding upon Grantee and the Company. In the event of any conflict between the terms and conditions of this Agreement and the Plan, the provisions of the Plan shall control

15.Waiver and Modification. The provisions of this Agreement may not be waived or modified unless such waiver or modification is in writing signed by the Company.

16.Validity and Construction. The validity and construction of this Award shall be governed by the laws of the State of New Mexico.

MANY OF THE PROVISIONS OF THIS AWARD AGREEMENT ARE SUMMARIES OF SIMILAR PERTINENT PROVISIONS OF THE PLAN. TO THE EXTENT THIS AGREEMENT IS SILENT ON AN ISSUE OR THERE IS A CONFLICT BETWEEN THE PLAN AND THIS AGREEMENT, THE PLAN PROVISIONS SHALL CONTROL.

IN WITNESS WHEREOF, the Company has caused this Restricted Stock Rights Award Agreement to be executed, effective as of February 13, 20066.

PNM RESOURCES, INC.

By:/s/ JEFFRY E. STERBA

JEFFRY E. STERBA

Chairman, President and Chief Executive Officer

________________________________

Grantee

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EX-10.31

EXHIBIT 10.31

PNM RESOURCES, INC.

2006 OFFICER INCENTIVE PLAN

INTRODUCTION

This document serves as a comprehensive single source of information about the PNM Resources, Inc. Officer Incentive Plan (the “Plan”). It describes the objectives of the Plan, its various elements, and how they function. If you have questions that are not addressed by this document, please direct them to the Compensation Department.

PLAN OBJECTIVES

The Plan is designed to motivate and reward participants for achieving and exceeding annual company, business unit and individual goals, and the company-wide earnings per share (“EPS”) goal.

EFFECTIVE DATES

The Plan is effective from January 1, 2006 through December 31, 2006 (the “Plan Year”). Management reserves the right, however, to adjust, amend or suspend the Plan at its discretion during the Plan Year, with the approval of the Human Resources and Compensation Committee (the “Committee”) of the Board of Directors (the “Board”).

ADMINISTRATION

·   Plan Year Goals

Individual goal sets (e.g. combined company, business unit, and individual) will be established for each Officer. After considering the recommendations of management, the Committee will approve the company-wide EPS goals against which performance will be measured for the Plan Year.

·   Incentive Award Approvals and Payout Timing

Shortly after the end of the Plan Year, the Committee or the Board will, in its sole discretion, determine the final performance results which will be used to calculate awards, if any. Awards will be distributed by check to eligible participants following such approval during the first quarter following the end of the Plan Year.

ETHICS

The purpose of the Plan is to fairly reward performance achievement. Any employee who manipulates or attempts to manipulate the Plan for personal gain at the expense of customers, other employees or company objectives will be subject to appropriate disciplinary action, up to and including termination of employment.

ELIGIBILITY

All officers are eligible to participate in the Plan with the exception of the Vice Presidents for First Choice Power, who will participate in the First Choice Power Incentive Plan. For purposes of this Plan, officer means any employee of the company with the title of Chief Executive Officer, President, Executive Vice President, Senior Vice President or Vice President.

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·   Pro Rata Awards for Partial Service Periods

Pro rata awards for the number of months actively employed at each eligibility level during the Plan Year will be paid to the following participants at the time awards are paid to all participants: (Note: Any month in which a participant is actively on the payroll for at least one day will count as a full month.)

-   Participants who are newly hired during the Plan Year.

-   Participants who are promoted, transferred or demoted during the Plan Year.

-   Participants who are on leave of absence for any full months during the Plan Year.

-   Participants who are impacted or leave the company due to retirement or disability during the Plan Year. (Note: For purposes of the Plan, “retirement” means termination of employment with the company and all affiliates after the employee has attained: (1) age forty-five and twenty years of service; (2) age fifty-five and ten years of service; (3) the age at which the early distribution penalty of Section 72(t) of the Internal Revenue Code no longer applies and five years of service; or (4) any age and thirty years of service.)

-   Participants who die during the Plan Year, in which case the award will be paid to the spouse of a married participant or the legal representative of an unmarried participant.

·   Forfeiture of Awards

Any participant who terminates employment on or before awards are distributed for the Plan Year for any reason other than death, impaction or retirement (e.g., voluntary separation, termination for performance or misconduct - even if the terminated participant elects to take retirement) will not be eligible for payment of an award.

·   Provisions for a Change in Control

Please refer to the PNM Resources, Inc. Officer Retention Plan for additional information.

·   Eligible Base for Incentive Purposes

For the purpose of incentive calculations, the applicable salary grade midpoint is the participant’s salary grade midpoint effective December 31 of the Plan Year unless the participant has been demoted during the Plan Year. In this event, the participant’s salary grade midpoint may be prorated based on the period of time worked at each level.

AWARD DETERMINATION

Awards may be earned for performance that provides additional value to our shareholders. The incremental performance needed to fund awards is taken into consideration in establishing performance thresholds and goals under the Plan.

·   Performance Thresholds

In order to be eligible for incentive awards, the following performance threshold must be met for 2006 (Individual Award):

-   Overall combined company, business unit, and individual goal performance that at least achievesthe threshold performance level. If this performance threshold is not met, no award will be paid for the Plan Year.

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In order to be eligible for the award enhancement, the following performance threshold must be met for 2006:

-   Company-wide EPS of $1.68 or more. If this performance threshold is not met, no award enhancement will be applied.

·   Combined Company, Business Unit, and Individual Performance Award Opportunity

For the 2006 Plan Year, the combined company, business unit, and individual performance (Individual Award) opportunities are as follows:

	Individual Goal Set
Award Eligibility Level	Threshold*	Stretch*	Optimal*
Vice-President	4.0%	7.0%	10.0%
Senior Vice-President	6.4%	11.2%	16.0%
Executive Vice-President	8.0%	14.0%	20.0%
Chairman, President, and CEO	11.2%	19.6%	28.0%

* Award calculated as a percentage of salary grade midpoint

·   Earnings Per Share (EPS) Award Enhancement

For the 2006 Plan Year, the EPS award enhancement opportunities are as follows:

EPS Threshold Target = $1.65	EPS = $1.65 to $1.90	EPS Optimal Target = $1.90
Individual Award is equal to the workgroup result - the multiplier is 1	Workgroup Award is enhanced 1.16x to 5x using straight-line interpolation	Individual Award is enhanced a maximum of 5x

For this Plan, EPS is defined as net income related to running the business (excluding certain extraordinary items or events that result in windfalls or penalties which are not in keeping with the spirit of the Plan) divided by the number of shares of PNM Resources, Inc. common stock outstanding.

·   Award Calculation

Combined company, business unit, and individual goal performance that meets or exceeds the threshold target level will be eligible for an award. The amount of each participant’s award is determined by the participant’s eligibility level and the level of combined company, business unit, and individual goal performance in the “Combined Company, Business Unit, and Individual Performance Award Opportunity” table above.

Company EPS performance that meets or exceeds the threshold target will serve as an enhancement to the award paid for workgroup performance. As identified in the “EPS Award Enhancement” table above, the award enhancement will be a minimum of 1x at the EPS threshold target, a maximum of 5x at the EPS optimal target, and interpolated between the EPS threshold and optimal targets.

The resulting percent is multiplied by the participant’s eligible salary grade midpoint to determine the amount of the participant’s award.

For Example: Assume that overall workgroup results are at the optimal performance level and company-wide EPS performance is $1.78. A participant who is eligible for an award at the Vice-President eligibility level would receive an award of 26% of salary grade midpoint for the Plan Year. That is, workgroup optimal performance resulting in an award of 10%, which is then enhanced 2.60x for EPS performance. Assuming the participant’s salary grade midpoint is $170,500 the award would be $44,330 ($170,500 x 26%).

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EX-10.43

Exhibit 10.43

THIRD AMENDMENT

TO THE

PNM RESOURCES, INC.

NON-UNION SEVERANCE PAY PLAN

Effective January 1, 2002, Public Service Company of New Mexico (“PNM”) adopted the Public Service Company of New Mexico Benefits My Way Plan (the “BMW Plan”). Effective November 27, 2002, sponsorship of the BMW Plan was transferred from PNM to PNM Resources, Inc. (“PNM Resources”) and the Plan as renamed the “PNM Resources, Inc. Benefits My Way Plan.” The BMW Plan consisted of a number of component programs including Program 12, Non-Union Severance Pay Program (the “Non-Union Severance Program”). Effective as of January 1, 2004, PNM Resources amended and restated the BMW Plan to divide it into a number of separate plans that replace several of the component programs in effect on December 31, 2003. As part of the amendment and restatement, the PNM Resources, Inc. Non-Union Severance Pay Plan (the “Plan”) was created as a successor plan to the Non-Union Severance Program, effective as of January 1, 2004. The Plan has since been amended on two previous occasions. By this instrument, PNM Resources now desires to amend the Plan in order to exclude employees who are potentially eligible to receive benefits from the First Choice Power, L.P. Customer Operations Outsourcing Severance Plan from participating in this Plan.

1.This Third Amendment shall be effective as of October 1, 2005, unless otherwise noted herein.

2.This Third Amendment amends only the provisions of the Plan as noted below, and those provisions not expressly amended shall be considered in full force and effect. Notwithstanding the foregoing, this Third Amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions and intent of this ThirdAmendment.

3.Section 3.5 (Certain Employees Ineligible For Benefits of the Plan) is hereby amended by adding a new subsection (f) to provide as follows:

(f)Employees who are listed on Attachment A to the First Choice Power, L.P. Customer Operations Outsourcing Severance Plan as it may be modified or supplemented from time to time by the President of First Choice Power, L.P. pursuant to said Attachment A.

IN WITNESS WHEREOF, PNM Resources has caused this Third Amendment to be executed as of this 7th day of December, 2005.

PNM RESOURCES, INC.

By: /s/ Alice A. Cobb

Its: Senior Vice President and Chief Administrative Officer

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EX-10.132

EXHIBIT 10.132

BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION

IN THE MATTER OF THE APPLICATION OF	)
PUBLIC SERVICE COMPANY OF NEW MEXICO	)
FOR APPROVAL OF A CERTIFICATE OF	)
PUBLIC CONVENIENCE AND NECESSITY FOR	)
A 141 MW COMBUSTION TURBINE UNIT AND	) Case No. 05-00275-UT
THE CONVERSION OF THAT UNIT TO A 272 MW	)
COMBINED CYCLE GENERATOR.	)
	)
PUBLIC SERVICE COMPANY OF NEW MEXICO,	)
	)
Applicant.	)
	)

STIPULATION

Public Service Company of New Mexico (“PNM”); the Staff of the Utility Division (“Staff”) of the New Mexico Public Regulation Commission (“NMPRC” or “Commission”); the New Mexico Industrial Energy Consumers (“NMIEC”), Patricia Madrid, the Attorney General of the State of New Mexico (the “AG”) and the Coalition for Clean Affordable Energy (collectively the “Signatories”), through their undersigned authorized representatives, agree and stipulate as follows:

INTRODUCTION

1.On July 6, 2005, PNM filed an Application with the Commission seeking authorization to (a) operate as public utility plant the existing gas-fired combustion turbine located near Afton, in Dona Anna County, New Mexico (the “Afton CT”) which PNM is currently operating as a merchant plant; (b) convert the Afton CT to a gas-fired combined cycle generator (the “Afton CC”) that would expand the capacity of the plant and allow it to serve all jurisdictional customers on PNM’s system (collectively the Afton CT and Afton CC are referred

to as the “Afton Facility”); and (c) include in rate base in PNM’s next electric rate case the depreciated net book value of the Afton CT and the actual cost up to $141.8 million for the Afton CC conversion. PNM’s Application requested a total value for the Afton Facility of $211.6 million to be included in rates.

2.The Signatories have arrived at this Stipulation which they believe is fair, just and reasonable, and agree that the construction and operation of the Afton Facility, pursuant to this Stipulation, is required by the public convenience and necessity. In addition to the Signatories, Western Water and Power Production Limited; City of Albuquerque; Regents of the University of New Mexico; Natural Resources Defense Council; Community Action New Mexico; El Paso Electric Company; National Nuclear Security Agency; Energy, Minerals & Natural Resources Department of the State of New Mexico; and People’s Energy Resources Company intervened in the proceeding and participated, from time to time, in settlement discussions.

STIPULATION

3.The Signatories stipulate that PNM’s Application should be approved as provided herein and PNM should be authorized to (a) operate as a public utility the Afton CT; (b) convert the Afton CT to the Afton CC, a gas-fired combined cycle generator of approximately 235 MW capacity; (c) include in rate base in PNM’s next electric general rate case the cost of the Afton Facility as agreed to herein, provided the Afton Facility is in service within eighteen (18) months of the Commission’s order approving this Stipulation or December 31, 2007, whichever is earlier; (d) in the event the deadlines in (c) are not met, PNM will only be permitted to recover in rates the net book value of the Afton Facility in an electric general rate case subsequent to Afton Facility’s in-service date; and (e) receive all other approvals and authorizations as may be required under the New Mexico Public Utility Act for the issuance of a certificate of public convenience and necessity for the Afton Facility on the following terms and conditions:

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4.The Afton Facility book value for ratemaking in PNM’s 2007 rate case shall be the lower of the actual cost of the Afton Facility or $187.6 million.^* In subsequent rate cases, this amount will be adjusted to reflect additional depreciation and ADIT from the in-service date of the Afton Facility.

5.Allocation of the Afton Facility costs is 50% to TNMP customers and 50% to PNM customers, until rates equalize in the 2010 to 2015 timeframe as specified in the Commission’s Final Order in NMPRC Case No. 04-00315-UT.

6.In future rate cases, PNM will work with the Signatories towards the goal of avoiding reinstatement of a fuel adjustment clause. To mitigate risk associated with gas cost volatility for gas-fired electric generation, the Signatories will support PNM’s recovery in base rates of the reasonable costs of prudently hedging its gas requirements and otherwise mitigating its gas cost risks.

7.PNM will propose in its next general rate case Application interruptible rates and a new inverted block rate to absorb any residential rate increase. If it is demonstrated that the proposed rate increase to residential customers in that case is too great to place entirely in the third block, it will file a supporting study and propose an alternative that encourages less consumption. PNM will preserve the structure, but not necessarily the rates, of its Incremental Interruptible Power Rate for customers currently on that tariff.

 ^* The $187.6 million is exclusive of Accumulated Deferred Income Taxes (“ADIT”). ADIT will be treated for regulatory purposes consistent with past rate proceedings.

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8.PNM shall conduct a feasibility study of Algodones, Person and other load side sites for future jurisdictional generation, by the earlier of 90 days after any filing requesting additional jurisdictional generation or December 31, 2006.

9.Prior to the anticipated Reeves’ retirement and/or repowering, but with sufficient time for reasonable alternatives to be implemented, PNM will demonstrate the economic benefit to ratepayers of Reeves’ retirement and/or repowering.

10.     The entirety of transmission costs associated with the Afton Facility shall be $2.9 million per year for customers in areas served by TNMP and $3.0 million for PNM customers through December 31, 2010. In addition, PNM will not seek more than $2.9 million in the Afton Facility transmission costs in any TNMP rate case filed before December 31, 2010. After 2010, the Afton Facility transmission costs will be allocated 50% to customers in areas served by TNMP and 50% to PNM customers until rates are combined between the two customer groups.

11.In the future, PNM will file any applications to include merchant plant in ratebase at least 36 months prior to the date requested for inclusion in ratebase, unless all signatories agree otherwise.

12.Recognizing the importance of environmental, energy efficiency and renewable energy concerns to PNM’s facility planning process, in the analysis undertaken to prepare PNM’s 2007 Electric Supply Plan to be filed on February 1, 2007 pursuant to the Case 3137 Stipulation, PNM commits to incorporate Integrated Resource Planning principles including:

a)   demand side management options for reducing energy and peak load,  

b)   an assessment of renewable energy alternatives, and  

c)   an environmental risk analysis.

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In addition, PNM will also incorporate Integrated Resource Planning principles in its distribution and transmission planning processes.

13.By January 31, 2007, PNM will file at the Commission an application to initiate comprehensive electric energy efficiency programs, which will take into account the results of the electric energy efficiency potential study and the appliance saturation study that PNM will undertake during 2006 pursuant to the Stipulation in NMPRC Case No. 05-00261-UT.

14.PNM will undertake a third-party engineering study to evaluate the potential at the Afton facility for boiler feedwater pre-heating using renewable energy generation facilities that could be constructed at or in reasonable proximity to the generation station; however, this commitment does not constitute a requirement that PNM would need to acquire additional land and permits solely for the purpose of reserving the potential for future renewable energy boiler feedwater pre-heating facilities.

15.Except as specifically stated in the language of this Stipulation, the provisions of this Stipulation have no precedential effect and the Parties do not waive rights they may have in any other pending or future proceeding and will not be deemed to have approved, accepted, agreed to or consented to the application of any concept, principle, theory or method in any future proceeding.

16.A Final Order issued by the Commission approving this Stipulation will not constitute a bar to further litigation of issues raised in pleadings and testimony or any issues which could have been raised or any other matters which have not been specifically addressed by this Stipulation. In accordance with 17 NMAC 1.2.23.4, by approving this Stipulation, the Commission is neither granting any approval nor creating any precedent regarding any principle or issue in this or any other proceeding.

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17.This Stipulation reflects a negotiated settlement, and if the Stipulation is not executed or is not adopted in its entirety by the Commission, without additions or deletions, the Stipulation will be void and any statement made or positions taken by the Parties during the course of these negotiations will not be admissible before any regulatory agency or court. The Stipulation contains the full intent and understanding of the entire agreement of the Parties and no implication should be drawn on any matter not addressed in the Stipulation. There are not and have not been, any representations, warranties or agreements other than those specifically set forth above.

18.This Stipulation may be executed in a number of counterparts including by telefax, each of which will be deemed to be an original and all of which will constitute one and the same agreement.

Respectfully submitted this 30^th day of November, 2005.

Patrick Ortiz

Gary Boyle

Alvarado Square, MS 2822

Albuquerque, NM 87158-2822

(505) 241-2896

(505) 241-2368 (fax

portiz@pnm.com

WHITE, KOCH, KELLY & McCARTHY, P.A.

By:/s/ Benjamin Phillips

BENJAMIN PHILLIPS

REBECCA DEMPSEY

433 Paseo de Peralta

Santa Fe, NM 87501

Phone: (505) 982-4374

Fax: (505) 984-8631

phillips@wkkm.com

rdempsey@wkkm.com

Attorneys for PNM

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UTILITY DIVISION STAFF OF THE

NEW MEXICO PUBLIC REGULATION

COMMISSION

By:/s/ Dahl Harris

DAHL HARRIS

Staff Counsel

223 East Palace

Santa Fe, NM 87502-2013

Phone:(505) 827-7479

Fax:(505) 927-6916

NEW MEXICO INDUSTRIAL ENERGY

CONSUMERS.

By:/s/ Steve S. Michel

STEVEN S. MICHEL

134A Martinez Street

Santa Fe, NM 87501

Phone:(505) 989-1450

Fax:(505) 989-8731

stevensmichel@msn.com

PATRICIA MADRID, ATTORNEY GENERAL OF THE STATE OF NEW MEXICO

By:Telephonically approved 11/30/05 BP

JEFF TAYLOR

Assistant Attorney General

Post Office Drawer 1508

Santa Fe, NM 87504-1508

Phone:(505) 827-6000

Fax:(505) 827-5826

COALITION FOR CLEAN AFFORDABLE ENERGY

Susan Innis

Western Resource Advocates

2260 Baseline Rd., Suite 200

Boulder, CO 80302

7

BELIN & SUGARMAN

By:/s/ Alletta Belin

ALLETTA BELIN

618 Paseo de Peralta

Santa Fe, New Mexico 87501

Phone:(505) 983-8936

Fax:(505) 983-0036

belin@bs-law.com

8

EX-12.1

Exhibit 12.1

PNM RESOURCES, INC. AND SUBSIDIARIES

Ratio or Earnings to Fixed Charges

(1,000's)

Line		Year Ended December 31,
No.		12/31/05	12/31/04	12/31/03	12/31/02	12/31/01	12/31/00
	Fixed charges, as defined by the Securities and
	Exchange Commission:
1	Interest on Long-term Debt	$ 75,736	$ 46,702	$ 59,429	$ 56,409	$ 62,716	$ 62,823
2	Amortization of Debt Premium, Discount
	and Expenses	3,642	2,697	2,838	2,302	2,346	2,037
3	Other Interest	14,299	2,319	5,423	2,859	(42)	752
4	Estimated Interest Factor of Lease Rental Charges	20,643	19,617	20,452	23,233	22,856	19,716
5	Total Fixed Charges	$114,320	$ 71,335	$ 88,142	$ 84,803	$ 87,876	$ 85,328
	Earnings, as defined by the Securities and
	Exchange Commission:
6	Consolidated Net Earnings from Continuing
	Operations	$ 71,021	$ 88,258	$ 59,138	$ 64,272	$150,433	$100,946
7	Income Taxes	32,861	49,247	27,889	33,032	81,063	74,345
8	Add Fixed Charges as Above	114,320	71,335	88,142	84,803	87,876	85,328
9	Earnings Available for Fixed Charges	$218,202	$208,840	$175,169	$182,107	$319,372	$ 260,619
10	Ratio for Earnings to Fixed Charges	1.91	2.93	1.99	2.15	3.63	3.05

EX-12.2

Exhibit 12.2

PNM RESOURCES, INC. AND SUBSIDIARIES

Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends

(1,000's)

Line		Year Ended December 31,
No.		12/31/05	12/31/04	12/31/03	12/31/02	12/31/01	12/31/00
	Fixed charges, as defined by the Securities and
	Exchange Commission:
1	Interest on Long-term Debt	$ 75,736	$ 46,702	$ 59,429	$ 56,409	$ 62,716	$ 62,823
2	Amortization of Debt Premium, Discount and
	Expenses	3,642	2,697	2,838	2,302	2,346	2,037
3	Other Interest	14,299	2,319	5,423	2,859	(42)	752
4	Estimated Interest Factor of Lease Rental
	Charges	20,643	19,617	20,452	23,233	22,856	19,716
5	Total Fixed Charges	114,320	71,335	88,142	84,803	87,876	85,328
6	Preferred dividend requirements	2,868	572	586	586	586	586
7	Total Fixed Charges and Preferred dividend
	requirements	$117,188	$ 71,907	$ 88,728	$ 85,389	$ 88,462	$ 85,914
	Earnings, as defined by the Securities and
	Exchange Commission:
8	Consolidated Net Earnings from Continuing
	Operations	$ 71,021	$ 88,258	$ 59,138	$ 64,272	$150,433	$100,946
9	Income Taxes	32,861	49,247	27,889	33,032	81,063	74,345
10	Add Fixed Charges as Above	114,320	71,335	88,142	84,803	87,876	85,328
11	Earnings Available for Fixed Charges	$218,202	$208,840	$175,169	$182,107	$319,372	$260,619
12	Ratio for Earnings to Fixed Charges	1.86	2.90	1.97	2.13	3.61	3.03

EX-21

EXHIBIT 21

Certain Subsidiaries of PNM Resources, Inc.

As of December 31, 2005, PNM Resources, Inc. directly or indirectly owns all of the voting securities of the following "significant subsidiaries" (as defined in Rule 1-02(w) of Regulation S-X):

Public Service Company of New Mexico, a New Mexico corporation that does business under the names “Public Service Company of New Mexico” and “PNM”.

Texas-New Mexico Power Company, a Texas corporation that does business under the name Texas-New Mexico Power Company.

First Choice Power Special Purpose, LP, a Texas limited partnership that does business under its partnership name.

First Choice Power, LP, a Texas limited partnership that does business under its partnership name.

FCP Enterprises Inc., a Delaware corporation that does business under its corporate name.

TNP Enterprises, Inc., a Texas corporation that does business under its corporate name.

The remaining subsidiaries of PNM Resources, Inc. considered in the aggregate as a single subsidiary, do not constitute a "significant subsidiary" as of the end of the year covered by this report.

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-128607, 333-10993, 333-100186, 333-106054, 333-106080, and 333-121059 on Form S-3 and Registration Statement Nos. 333-129454, 333-03303, 333-03289, 333-61598, 333-76316, 333-76288, 333-88372, 333-100184, 333-113684, 333-121371, 333-125010 on Form S-8 of our reports dated March 8, 2006 (which express an unqualified opinion and include explanatory paragraphs regarding the adoption of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, effective January 1, 2003, and Financial Accounting Standards Board Financial Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations in 2005, the change in actuarial valuation measurement date for the pension plan and other post-retirement benefits from September 30 to December 31 during 2003 and PNM Resources, Inc.’s acquisition of TNP Enterprises, Inc. in 2005), relating to the consolidated financial statements and financial statement schedules of PNM Resources, Inc. and management's report on the effectiveness of internal control over financial reporting appearing in this Annual Report on Form 10-K of PNM Resources, Inc. for the year ended December 31, 2005.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

March 10, 2006

EX-23.2

EXHIBIT 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-53367 and 333-106079 on Form S-3 of our reports dated March 8, 2006 (which express an unqualified opinion and include explanatory paragraphs regarding the adoption of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, effective January 1, 2003, and Financial Accounting Standards Board Financial Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations in 2005 and the change in actuarial valuation measurement date for the pension plan and other post-retirement benefits from September 30 to December 31 during 2003), relating to the consolidated financial statements and financial statement schedule of Public Service Company of New Mexico and management's report of the effectiveness of internal control over financial reporting appearing in this Annual Report on Form 10-K of Public Service Company of New Mexico for the year ended December 31, 2005.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

March 10, 2006

EX-23.3

EXHIBIT 23.3

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-64215 on Form S-3 of our report dated March 8, 2006 (which expresses an unqualified opinion and includes explanatory paragraphs relating to PNM Resources, Inc.’s acquisition of TNP Enterprises, Inc in 2005 and the adoption of Financial Accounting Standards Board Financial Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations in 2005), relating to the consolidated financial statements and financial statement schedule of Texas-New Mexico Power Company appearing in this Annual Report on Form 10-K of Texas-New Mexico Power Company for the year ended December 31, 2005.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

March 10, 2006

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Jeffry E. Sterba, certify that:

1.   I have reviewed this Annual Report on Form 10-K of PNM Resources, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)   All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 14, 2006

/s/ Jeffry E. Sterba

Jeffry E. Sterba,

Chairman, President and

Chief Executive Officer

PNM Resources, Inc.

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Charles N. Eldred, certify that:

1.   I have reviewed this Annual Report on Form 10-K of PNM Resources, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)   All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 14, 2006

/s/ Charles N. Eldred

Charles N. Eldred,

Senior Vice President, and

Chief Financial Officer

PNM Resources, Inc.

EX-31.3

EXHIBIT 31.3

CERTIFICATION

I, Jeffry E. Sterba, certify that:

1.   I have reviewed this Annual Report on Form 10-K of Public Service Company of New Mexico;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)   All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 14, 2006

/s/ Jeffry E. Sterba

Jeffry E. Sterba,

Chairman, President and

Chief Executive Officer

Public Service Company of New Mexico

EX-31.4

EXHIBIT 31.4

CERTIFICATION

I, Charles N. Eldred, certify that:

1.   I have reviewed this Annual Report on Form 10-K of Public Service Company of New Mexico;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)   All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 14, 2006

/s/ Charles N. Eldred

Charles N. Eldred,

Senior Vice President, and

Chief Financial Officer

Public Service Company of New Mexico

EX-31.5

EXHIBIT 31.5

CERTIFICATION

I, W. Douglas Hobbs, certify that:

1.   I have reviewed this Annual Report on Form 10-K of Texas-New Mexico Power Company;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)   All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 14, 2006

/s/ W. Douglas Hobbs

W. Douglas Hobbs,

President and

Chief Executive Officer

Texas-New Mexico Power Company

EX-31.6

EXHIBIT 31.6

CERTIFICATION

I, Charles N. Eldred, certify that:

1.   I have reviewed this Annual Report on Form 10-K of Texas-New Mexico Power Company;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)   All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 14, 2006

/s/ Charles N. Eldred

Charles N. Eldred,

Senior Vice President and

Chief Financial Officer

Texas-New Mexico Power Company

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the year ended December 31, 2005, for PNM Resources, Inc. (“Company”), as filed with the Securities and Exchange Commission on March 14, 2006 (“Report”), I, Jeffry E. Sterba, Chairman, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of § 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 14, 2006	By:	/s/Jeffry E. Sterba
		Jeffry E. Sterba
		Chairman, President and
		Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the year ended December 31, 2005, for PNM Resources, Inc. (“Company”), as filed with the Securities and Exchange Commission on March 14, 2006 (“Report”), I, Charles N. Eldred, Senior Vice President, and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of § 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 14, 2006	By:	/s/ Charles N. Eldred
		Charles N. Eldred
		Senior Vice President,
		and Chief Financial Officer

EX-32.3

EXHIBIT 32.3

CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the year ended December 31, 2005, for Public Service Company of New Mexico (“Company”), as filed with the Securities and Exchange Commission on March 14, 2006 (“Report”), I, Jeffry E. Sterba, Chairman, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of § 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 14, 2006	By:	/s/Jeffry E. Sterba
		Jeffry E. Sterba
		Chairman, President and
		Chief Executive Officer

EX-32.4

EXHIBIT 32.4

CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the year ended December 31, 2005, for Public Service Company of New Mexico (“Company”), as filed with the Securities and Exchange Commission on March 14, 2006 (“Report”), I, Charles N. Eldred, Senior Vice President, and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of § 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 14, 2006	By:	/s/ Charles N. Eldred
		Charles N. Eldred
		Senior Vice President,
		and Chief Financial Officer

EX-32.5

EXHIBIT 32.5

CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the year ended December 31, 2005, for Texas-New Mexico Power Company (“Company”), as filed with the Securities and Exchange Commission on March 14, 2006 (“Report”), I, W. Douglas Hobbs, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of § 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 14, 2006	By:	/s/ W. Douglas Hobbs
		W. Douglas Hobbs
		President and
		Chief Executive Officer

EX-32.6

EXHIBIT 32.6

CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the year ended December 31, 2005, for Texas-New Mexico Power Company (“Company”), as filed with the Securities and Exchange Commission on March 14, 2006 (“Report”), I, Charles N. Eldred, Senior Vice President, and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of § 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 14, 2006	By:	/s/ Charles N. Eldred
		Charles N. Eldred
		Senior Vice President,
		and Chief Financial Officer