UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

~~UNITED STATES~~
~~SECURITIES AND EXCHANGE COMMISSION~~
~~Washington, D.C. 20549~~

~~FORM 10-Q~~ þ
~~(Mark One)~~
~~[X]~~ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedJune 30, 2007

~~For the quarterly period ended~~ ~~June 30, 2006~~

- OR -

~~[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THESECURITIES EXCHANGE ACT OF 1934For the transition period from _______________ to _________________~~


Commission	Name of Registrants, State of Incorporation,	I.R.S. Employer
File Number	Address and Telephone Number	Identification No.
001-32462	PNM Resources, Inc.	85-0468296
	(A New Mexico Corporation)
	Alvarado Square
	Albuquerque, New Mexico 87158
	(505) 241-2700

001-06986	Public Service Company of New Mexico	85-0019030
	(A New Mexico Corporation)
	Alvarado Square
	Albuquerque, New Mexico 87158
	(505) 241-2700

002-97230	Texas-New Mexico Power Company	75-0204070
	(A Texas Corporation)
	4100 International Plaza,
	P.O. Box 2943
	Fort Worth, Texas 76113
	(817) 731-0099

Indicate by check mark whether PNM Resources, Inc. (“PNMR”) and Public Service Company of New Mexico (“PNM”) (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. YES

Indicate by check mark whether PNM Resources, Inc. (“PNMR”) and Public Service Company of New Mexico (“PNM”) (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. YESþ NOo

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

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

~~YES~~ NOü

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

Indicate by check mark whether 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~~ Large accelerated filerþ Accelerated filero Non-accelerated fileroü

~~Accelerated filer~~

~~Non-accelerated filer~~

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

Large accelerated filero Accelerated filero Non-accelerated filerþ

~~Large accelerated filer~~

~~Accelerated filer~~

~~Non-accelerated filer~~ ü

Indicate by check mark whether any of the registrants is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YESNO üo NOþ

As of August 1, ~~2006, 69,592,245~~2007, 76,726,852 shares of common stock, no par value per share, of PNMR were outstanding.

The total number of shares of ~~Common Stock~~common stock of PNM outstanding as of August 1, ~~2006~~2007 was 39,117,799 all held by PNMR (and none held by non-affiliates).

The total number of shares of ~~Common Stock~~common stock of TNMP outstanding as of August 1, ~~2006~~2007 was ~~9,615~~6,358 all held indirectly by PNMR (and none held by non-affiliates).

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

This Form 10-Q 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.~~PNM (and its subsidiary). TNMP makes no representations as to the information relating to PNMR and its subsidiaries other than ~~TNMP.~~TNMP (and its subsidiaries). When this Form 10-Q is incorporated by reference into any filing with the SEC made by PNM or TNMP, the portions of this Form 10-Q that relate to PNMR and its subsidiaries other than PNM (and its subsidiary) or TNMP (and its subsidiaries), respectively, are not incorporated by reference therein.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

INDEX

	~~Page No.~~
~~GLOSSARY~~	1

~~PART I. FINANCIAL INFORMATION:~~
		Page No.
~~ITEM 1. FINANCIAL STATEMENTS (Unaudited)~~
GLOSSARY			1

~~PNM Resources, Inc. and Subsidiaries~~
~~Condensed Consolidated Statements of Earnings~~ PART I. FINANCIAL INFORMATION
~~Three and Six Months Ended June 30, 2006 and 2005~~	3
~~Condensed Consolidated Balance Sheets~~
~~June 30, 2006 and December 31, 2005~~	4
~~Condensed Consolidated Statements of Cash Flows~~
~~Six Months Ended June 30, 2006 and 2005~~	6
~~Condensed Consolidated Statements of Comprehensive Income~~
~~Three and Six Months Ended June 30, 2006 and 2005~~	8
~~Public Service Company of New Mexico and Subsidiary~~
~~Condensed Consolidated Statements of Earnings~~
~~Three and Six Months Ended June 30, 2006 and 2005~~	9
~~Condensed Consolidated Balance Sheets~~
~~June 30, 2006 and December 31, 2005~~	10
~~Condensed Consolidated Statements of Cash Flows~~
~~Six Months Ended June 30, 2006 and 2005~~	12
~~Condensed Consolidated Statements of Comprehensive Income~~
~~Three and Six Months Ended June 30, 2006 and 2005~~	14
~~Texas-New Mexico Power Company and Subsidiaries~~
~~Condensed Consolidated Statements of Earnings~~
~~Three and Six Months Ended June 30, 2006 and 2005~~	15
~~Condensed Consolidated Balance Sheets~~
~~June 30, 2006 and December 31, 2005~~	17
~~Condensed Consolidated Statements of Cash Flows~~
~~Six Months Ended June 30, 2006 and 2005~~	19
~~Condensed Consolidated Statements of Comprehensive Income~~
~~Three and Six Months Ended June 30, 2006 and 2005~~	21
~~Notes to Condensed Consolidated Financial Statements~~	23

ITEM 1. FINANCIAL STATEMENTS (Unaudited)

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS			4

CONDENSED CONSOLIDATED BALANCE SHEETS			5

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS			7

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME			9

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS			10

CONDENSED CONSOLIDATED BALANCE SHEETS			11

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS			13

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME			15

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS			16

CONDENSED CONSOLIDATED BALANCE SHEETS			17

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS			19

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME			21

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			22

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL	68
CONDITION AND RESULTS OF OPERATIONS			63

ITEM 3. QUANTITATIVE AND QUALITATIVE ~~DISCLOSURES~~DISCLOSURE ABOUT MARKET RISK	~~106~~

~~ITEM 4. CONTROLS AND PROCEDURES~~	~~112~~

~~PART II. OTHER INFORMATION:~~ 94

ITEM ~~1. LEGAL PROCEEDINGS~~4. CONTROLS AND PROCEDURES	~~114~~		100

~~ITEM 1A. RISK FACTORS~~ PART II. OTHER INFORMATION	~~114~~

ITEM 41. LEGAL PROCEEDINGS			102

ITEM 1A. RISK FACTORS			102

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	~~114~~		102

ITEM ~~5. OTHER EVENTS~~6. EXHIBITS	~~114~~		103

~~ITEM 6. EXHIBITS~~ SIGNATURE	~~115~~		104

~~Signature~~Exhibit 2.1
~~116~~Exhibit 4.23
Exhibit 12.1
Exhibit 12.2
Exhibit 31.1
Exhibit 31.2
Exhibit 31.3
Exhibit 31.4
Exhibit 31.5
Exhibit 31.6
Exhibit 32.1
Exhibit 32.2
Exhibit 32.3
Exhibit 32.4
Exhibit 32.5
Exhibit 32.6

~~iii~~

GLOSSARY


Definitions:
Afton		Afton Generating Station
ALJ		Administrative Law Judge
Altura		Altura Power L.P.
~~APB~~APS	~~Accounting Principles Board~~
~~APS~~	Arizona Public Service Company
Avistar		Avistar, Inc.
BART		Best Available Retrofit Technology
Board		Board of Directors of PNMR
BTU		British Thermal Unit
Cal PX		California Power Exchange
Cal ISO		California Independent System Operator
Cascade		Cascade Investment, L.L.C.
Company		PNM Resources, Inc. and Subsidiaries
Constellation		Constellation Energy Commodities Group, Inc.
CTC		Competition Transition Charge
Decatherm	~~1,000,000~~	Million BTUs
~~Delta~~EaR	~~Delta-Person Limited Partnership~~
~~EaR~~	Earnings at Risk
ECJV		ECJV Holdings, LLC
ECMT		EnergyCo Marketing and Trading, LLC
EEI		Edison Electric Institute
EIP		Eastern Interconnection Project
EITF		Emerging Issues Task Force
EnergyCo		EnergyCo, LLC, a joint venture between PNMR and ECJV
EPA		United States Environmental Protection Agency
~~EPE~~ERCOT	~~El Paso Electric Company~~
~~ERCOT~~	Electric Reliability Council of Texas
ESI		Electric Service Identifier
ESPP		Employee Stock Purchase Plan
FASB		Financial Accounting Standards Board
FCPSP		First Choice Power Special Purpose, L.P.
~~Federal Funds Rate~~FERC	~~Overnight Rate on Federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank~~
~~FERC~~	Federal Energy Regulatory Commission
FIN		FASB Interpretation Number
FIP		Federal Implementation Plan
First Choice		First Choice Power, L. P. and Subsidiaries
Four Corners		Four Corners Power Plant
GAAP		Generally Accepted Accounting Principles in the United States of America
~~LIBOR~~GWh	~~London Interbank Offered Rate~~	Gigawatt hours
~~Lordsburg~~ISO	~~Lordsburg Generating Station~~	Independent System Operator
Luna		Luna Energy Facility
MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations
MMBTUs		Million ~~British Thermal Units~~BTUs
~~Moody's~~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


Definitions:
NDT		Nuclear Decommissioning Trusts for PVNGS
Ninth Circuit		United States Court of Appeals for the Ninth Circuit
NMED		New Mexico Environment Department
NMPRC		New Mexico Public Regulation Commission
NOPR		Notice of Proposed Rulemaking
NSPS		New Source Performance Standards
NSR		New Source Review
~~OASIS~~NYMEX	~~Open Access Same Time Information System~~	New York Mercantile Exchange
OATT		Open Access Transmission Tariff
~~OMOI~~O&M	~~Office of Market Oversight and Investigation~~
~~O&M~~	Operations and Maintenance
~~PEP~~PCRBs	~~PNMR Omnibus Performance Equity Plan~~	Pollution Control Revenue Bonds
PGAC		Purchased Gas Adjustment Clause
PG&E		Pacific Gas and Electric Co.
PNM		Public Service Company of New Mexico and Subsidiary
PNM Facility		PNM’s $400 Million Unsecured Revolving Credit Facility
PNMR		PNM Resources, Inc. and Subsidiaries
PNMR Facility		PNMR’s $600 Million Unsecured Revolving Credit Facility
PPA		Power Purchase Agreement
PSA		Power Supply Agreement
PSD		Prevention of Significant Deterioration
PUCT		Public Utility Commission of Texas

PVNGS		Palo Verde Nuclear Generating Station
~~Reeves~~REC	~~Reeves Generating Station~~	Renewable Energy Certificates
REP		Retail Electricity Provider
RMC		Risk Management Committee
~~RMRR~~RTO	~~Routine Maintenance, Repair or Replacement~~	Regional Transmission Organization
SDG&E		San Diego Gas and Electric Company
SEC		United States Securities and Exchange Commission
~~Sempra~~	~~Sempra Generation, a subsidiary of Sempra Energy~~
~~SESCO~~	~~San Angelo Electric Service Company~~
SFAS		FASB Statement of Financial Accounting Standards
SJCC		San Juan Coal Company
SJGS		San Juan Generating Station
SOAH		State Office of Administrative Hearings
S&P		Standard and Poors Ratings Services
~~SPS~~TECA	~~Southwestern Public Service Company~~
~~TCEQ~~	~~Texas Commission on Environmental Quality~~
~~TECA~~	Texas Electric Choice Act
TNMP		Texas-New Mexico Power Company and Subsidiaries
TNP		TNP Enterprises, Inc. and Subsidiaries
Throughput		Volumes of gas delivered, whether or not owned by the Company
Twin Oaks		Assets of Twin Oaks Power, L.P. and Twin Oaks Power III, L.P.
VaR		Value at Risk

Accounting Pronouncements (as amended):

~~WSPP~~	~~Western Systems Power Pool~~
EITF 03-11		EITF Issue No. 03-11 “Reporting Realized Gains and Losses on Derivative Instruments that are Subject to FASB Statement No. 133 and Not Held for Trading Purposes”
EITF 03-13		EITF Issue No. 03-13 “Applying the Conditions in Paragraph 42 of FASB Statement No. 144 in Determining Whether to Report Discontinued Operations”
FIN 48 SAB 108		FIN No. 48 “Accounting for Uncertainty in Income Taxes” SEC Staff Accounting Bulletin No. 108“Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”
SFAS 5		SFAS No. 5 “Accounting for Contingencies”
SFAS 57		SFAS No. 57 “Related Party Disclosures”
SFAS 71		SFAS No. 71 “Accounting for Effects of Certain Types of Regulation”
SFAS 128		SFAS No. 128 “Earnings per Share”
SFAS 133		SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”
SFAS 141		SFAS No. 141 “Business Combinations”
SFAS 144		SFAS No.144 “Accounting for the Impairment or Disposal of Long-Lived Assets”
SFAS 149		SFAS No. 149 “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”
SFAS 154		SFAS No. 154 “Accounting Changes and Error Corrections”

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

~~(Unaudited)~~


	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
				(As Restated,						(As Restated,
				See Note 16)						See Note 16)
	(In thousands, except share information)
Operating Revenues:
Electric	$	505,376		$	477,603		$	942,183		$	925,819
Gas		75,136			68,869			291,620			276,345
Other		169			197			379			306

Total operating revenues		580,681			546,669			1,234,182			1,202,470


Operating Expenses:
Cost of energy sold		356,533			306,500			735,053			732,472
Administrative and general		64,341			66,311			135,547			131,616
Energy production costs		52,256			44,038			100,080			81,949
Depreciation and amortization		39,695			37,953			80,137			72,283
Transmission and distribution costs		22,194			21,314			44,761			40,364
Taxes other than income taxes		19,003			18,261			37,623			35,225

Total operating expenses		554,022			494,377			1,133,201			1,093,909

Operating income		26,659			52,292			100,981			108,561


Other Income and Deductions:
Interest income		7,041			8,916			17,829			19,067
Gains on investments held by NDT		2,957			1,158			3,001			2,054
Other income		1,890			764			3,929			3,035
Equity in net earnings of EnergyCo		2,272			—			1,610			—
Carrying charges on regulatory assets		—			2,004			—			3,977
Other deductions		(5,530	)		(2,497	)		(6,518	)		(4,013	)

Net other income and deductions		8,630			10,345			19,851			24,120


Interest Charges:
Interest on long-term debt		18,734			24,267			42,743			46,798
Other interest charges		11,158			12,231			24,996			18,263

Total interest charges		29,892			36,498			67,739			65,061


Earnings before Income Taxes		5,397			26,139			53,093			67,620

Income Taxes (Benefit) (See Note 15)		(14,975	)		10,024			2,923			25,372

Preferred Stock Dividend Requirements of Subsidiary		132			132			264			264


Net Earnings	$	20,240		$	15,983		$	49,906		$	41,984


Net Earnings per Common Share (see Note 5):
Basic	$	0.26		$	0.23		$	0.65		$	0.61

Diluted	$	0.26		$	0.23		$	0.64		$	0.61

Dividends Declared per Common Share	$	0.23		$	0.22		$	0.46		$	0.44

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

Three Months Ended

Six Months Ended

June 30,

June 30,

2006

2005

2006

2005

(In thousands, except per share amounts)
Operating Revenues:

Electric $ 477,603 $ 322,676 $ 925,819 $ 585,119
Gas 68,869 82,261 276,345 247,494
Other 197 317 306 554
Total operating revenues 546,669 405,254 1,202,470 833,167

Operating Expenses:

Cost of energy sold 306,500 238,191 732,472 485,669
Administrative and general 66,311 52,786 131,616 94,095
Energy production costs 43,714 39,805 81,301 75,838
Depreciation and amortization 37,953 35,637 72,283 64,464
Transmission and distribution costs 21,314 15,051 40,364 29,113
Taxes, other than income taxes 18,261 10,571 35,225 19,442
Income taxes 6,190 (3,367 ) 16,437 10,024
Total operating expenses 500,243 388,674 1,109,698 778,645
Operating income 46,426 16,580 92,772 54,522

Other Income and Deductions:

Interest income 8,916 11,622 19,067 20,922
Other income 1,922 2,634 5,089 6,344
Carrying charges on regulatory assets 2,004 525 3,977 525
Other deductions (2,497 ) (1,542 ) (4,013 ) (3,678 )
Other income taxes (3,834 ) (4,677 ) (8,935 ) (8,561 )
Net other income and deductions 6,511 8,562 15,185 15,552

Interest Charges
36,498 21,533 65,061 35,824

Preferred Stock Dividend Requirements of

Subsidiary
132 2,068 264 2,200

Net Earnings
$ 16,307 $ 1,541 $ 42,632 $ 32,050

Net Earnings per Common Share (see Note 5):

Basic
$ 0.24 $ 0.02 $ 0.62 $ 0.51

Diluted
$ 0.23 $ 0.02 $ 0.61 $ 0.50

Dividends Declared per Common Share
$ 0.22 $ 0.19 $ 0.44 $ 0.37

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

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

June 30,

December 31,

2006

2005

(In thousands)
ASSETS

Utility Plant:

Electric plant in service $ 4,020,138 $ 3,315,642
Gas plant in service 728,494 711,823
Common plant in service and plant held for future use 144,764 135,849
4,893,396 4,163,314
Less accumulated depreciation and amortization 1,428,793 1,374,599
3,464,603 2,788,715
Construction work in progress 144,514 168,195
Nuclear fuel, net of accumulated amortization of $13,758 and $14,679 28,086 27,182

Net utility plant 3,637,203 2,984,092

Other Property and Investments:

Investment in lessor notes 271,000 286,678
Other investments 137,020 180,013
Non-utility property, net of accumulated depreciation of $2,372 and $22 7,898 4,214

Total other property and investments 415,918 470,905

Current Assets:

Cash and cash equivalents 73,890 68,199
Special deposits 5,159 534
Accounts receivable, net of allowance for uncollectible accounts of $4,856 and $3,653 127,726 128,834
Unbilled revenues 100,900 151,773
Other receivables 64,296 64,285
Inventories 60,547 52,037
Regulatory assets 830 28,058
Other current assets 108,087 102,577

Total current assets 541,435 596,297

Deferred Charges:

Regulatory assets 357,106 347,279
Prepaid pension cost 93,471 91,444
Goodwill 495,441 499,155
Other intangible assets, net of accumulated amortization of $1,397 and $742 102,857 78,512
Other deferred charges 94,112 57,025

Total deferred charges 1,142,987 1,073,415
$ 5,737,543 $ 5,124,709

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

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

June 30,

December 31,

2006

2005

(In thousands)
CAPITALIZATION AND LIABILITIES

Capitalization:

Common stockholders’ equity:
Common stock outstanding (no par value, 120,000,000 shares authorized: issued
69,216,719 and 68,786,286 at June 30, 2006 and December 31, 2005, respectively) $ 826,899 $ 813,425
Accumulated other comprehensive loss, net of tax (99,168 ) (91,589 )
Retained earnings 592,115 564,623

Total common stockholders’ equity 1,319,846 1,286,459
Cumulative preferred stock of subsidiary without mandatory redemption
($100 stated value, 10,000,000 shares authorized: issued 115,293 at
June 30, 2006 and December 31, 2005) 11,529 11,529
Long-term debt 1,743,555 1,746,395

Total capitalization 3,074,930 3,044,383

Current Liabilities:

Short-term debt 842,500 332,200
Accounts payable 136,504 206,648
Accrued interest and taxes 63,720 27,815
Regulatory liabilities 1,600 7,085
Other current liabilities 259,554 149,748

Total current liabilities 1,303,878 723,496

Long-Term Liabilities:

Accumulated deferred income taxes 433,049 451,263
Accumulated deferred investment tax credits 31,989 33,806
Regulatory liabilities 395,000 402,253
Asset retirement obligations 58,175 55,646
Accrued pension liability and postretirement benefit cost 223,930 227,202
Other deferred credits 216,592 186,660

Total long-term liabilities 1,358,735 1,356,830

Commitments and Contingencies (see Note 9) - -
$ 5,737,543 $ 5,124,709

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

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Six Months Ended

June 30,

2006

2005

(In thousands)
Cash Flows From Operating Activities:

Net earnings $ 42,632 $ 32,050
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization 81,465 69,510
Allowance for equity funds used during construction (73 ) (1,196 )
Accumulated deferred income tax (7,920 ) 4,381
Net unrealized (gains)/losses on trading and marketing securities 1,864 (812 )
Realized gains on investment securities (1,839 ) (2,229 )
Carrying charges on deferred stranded costs (3,978 ) (525 )
Interest on retail competition transition obligation 885 -
Carrying charges on other regulatory assets and liabilities (1,829 ) (1,317 )
Amortization of fair value of acquired Twin Oaks sales contract (16,878 ) -
Amortization of emissions allowances 832 -
Amortization of fair value of acquired First Choice contracts (2,780 ) (370 )
Stock based compensation expense 5,513 -
Excess tax benefits from stock-based payment arrangements (908 ) -
Other, net 1,203 318
Changes in certain assets and liabilities, net of amounts acquired:
Accounts receivable - customer 25,314 23,046
Accounts receivable - other (4,888 ) (5,918 )
Unbilled revenues 46,947 36,661
Regulatory assets 21,120 (9,087 )
Other assets (4,445 ) (1,561 )
Accrued postretirement benefit costs (5,299 ) (1,091 )
Accounts payable (88,241 ) (44,382 )
Accrued interest and taxes 36,812 41,880
Other liabilities (13,884 ) (25,921 )
Net cash flows from operating activities 111,625 113,437

Cash Flows From Investing Activities:

Utility plant additions (123,288 ) (74,790 )
Nuclear fuel additions (5,280 ) (5,159 )
Proceeds from sales of securities 45,322 41,910
Purchases of securities (45,738 ) (42,693 )
Return of principal PVNGS lessor notes 11,297 10,681
Cash acquired from purchase of TNP, net of cash paid - 34,531
Twin Oaks business acquisition (481,015 ) -
Other, net 2,309 4,061
Net cash flows used for investing activities (596,393 ) (31,459 )

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

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Six Months Ended

June 30,

2006

2005

(In thousands)
Cash Flows From Financing Activities:

Short-term borrowings (repayments), net 30,300 (74,000 )
Short-term bridge loan for Twin Oaks acquisition 480,000 -
Long-term debt borrowings - 239,832
Long-term debt repayments - (110,532 )
Issuance of common stock 9,281 101,231
Repurchase of common stock-based payments (1,965 ) (10,263 )
Excess tax benefits from stock-based payment arrangements 908 -
Dividends paid (29,029 ) (25,299 )
Other, net 964 2,820
Net cash flows from financing activities 490,459 123,789

Increase in Cash and Cash Equivalents 5,691 205,767
Beginning of Period 68,199 17,195
End of Period $ 73,890 $ 222,962

Supplemental Cash Flow Disclosures:

Interest paid, net of capitalized interest $ 67,495 $ 13,541

Income taxes paid (refunded), net $ (11,586 ) $ (16,176 )

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

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2006

2005

2006

2005

(In thousands)

Net Earnings
$ 16,307 $ 1,541 $ 42,632 $ 32,050
Other Comprehensive Income (Loss):

Unrealized gain (loss) on securities:

Unrealized holding gains (losses) arising during
the period, net of tax (expense) benefit
of $154, $(437), $(6,953) and $(402) (236 ) 667 10,610 612
Reclassification adjustment for gains included in
net income, net of tax expense
of $606, $134, $427 and $662 (924 ) (204 ) (652 ) (1,010 )

Fair value adjustment for certain

derivative transactions:

Change in fair market value of designated
cash flow hedges, net of tax (expense) benefit
of $2,557, $(1,996), $8,177 and $(3,975) (5,130 ) 3,098 (13,612 ) 6,118
Reclassification adjustment for (gains) losses
included in net income, net of tax expense
(benefit) of $(2,059), $23, $2,619 and $849 3,723 (35 ) (3,925 ) (1,295 )

Total Other Comprehensive Income (Loss)
(2,567 ) 3,526 (7,579 ) 4,425

Total Comprehensive Income
$ 13,740 $ 5,067 $ 35,053 $ 36,475

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

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2006

2005

2006

2005

(In thousands)
Operating Revenues:

Electric $ 259,298 $ 270,005 $ 570,765 $ 532,448
Gas 68,869 82,261 276,345 247,494
Total operating revenues 328,167 352,266 847,110 779,942

Operating Expenses:

Cost of energy sold 185,410 206,798 524,672 454,210
Administrative and general 40,520 42,496 81,648 82,975
Energy production costs 42,080 39,806 79,667 75,839
Depreciation and amortization 24,289 32,417 49,144 60,362
Transmission and distribution costs 15,916 13,898 30,223 27,961
Taxes, other than income taxes 8,414 7,459 17,727 15,751
Income taxes (1,254 ) (1,677 ) 13,708 12,966
Total operating expenses 315,375 341,197 796,789 730,064
Operating income 12,792 11,069 50,321 49,878

Other Income and Deductions:

Interest income 8,670 9,097 18,023 18,303
Other income 1,705 2,185 3,533 5,461
Other deductions (1,504 ) (864 ) (2,355 ) (2,028 )
Other income taxes (3,444 ) (4,220 ) (7,455 ) (8,061 )
Net other income and deductions 5,427 6,198 11,746 13,675

Interest Charges
14,899 13,137 28,319 26,937

Net Earnings
3,320 4,130 33,748 36,616

Preferred Stock Dividend Requirements
132 132 264 264

Net Earnings Available for Common Stock
$ 3,188 $ 3,998 $ 33,484 $ 36,352

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

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

June 30,

December 31,

2006

2005

(In thousands)
ASSETS

Utility Plant:

Electric plant in service $ 2,673,780 $ 2,576,182
Gas plant in service 728,494 711,823
Common plant in service and plant held for future use 72,806 74,857
3,475,080 3,362,862
Less accumulated depreciation and amortization 1,241,740 1,205,386
2,233,340 2,157,476
Construction work in progress 115,161 137,663
Nuclear fuel, net of accumulated amortization of $13,758 and $14,679 28,086 27,182

Net utility plant 2,376,587 2,322,321

Other Property and Investments:

Investment in lessor notes 271,000 286,678
Other investments 127,097 170,422
Non-utility property 966 966

Total other property and investments 399,063 458,066

Current Assets:

Cash and cash equivalents 2,720 12,690
Special deposits 376 263
Accounts receivable, net of allowance for uncollectible accounts of $1,440 and $1,435 68,805 108,569
Unbilled revenues 55,907 121,453
Other receivables 60,630 53,546
Affiliate accounts receivable 8,613 -
Inventories 49,017 50,411
Regulatory assets 830 28,058
Other current assets 69,184 75,885

Total current assets 316,082 450,875

Deferred Charges:

Regulatory assets 226,130 223,325
Prepaid pension cost 93,471 91,444
Other deferred charges 44,984 41,720

Total deferred charges 364,585 356,489
$ 3,456,317 $ 3,587,751

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

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

June 30,

December 31,

2006

2005

(In thousands)
CAPITALIZATION AND LIABILITIES

Capitalization:

Common stockholder’s equity:
Common stock outstanding (no par value, 40,000,000 shares authorized:
issued 39,117,799 at June 30, 2006 and December 31, 2005) $ 765,500 $ 765,500
Accumulated other comprehensive loss, net of tax (94,950 ) (90,515 )
Retained earnings 366,025 332,542

Total common stockholder’s equity 1,036,575 1,007,527
Cumulative preferred stock without mandatory redemption ($100 stated value,
10,000,000 shares authorized: issued 115,293 at June 30, 2006 and
December 31, 2005) 11,529 11,529
Long-term debt 986,377 987,068

Total capitalization 2,034,481 2,006,124

Current Liabilities:

Short-term debt 100,200 128,200
Accounts payable 70,385 170,517
Affiliate accounts payable 61,274 50,070
Accrued interest and taxes 49,898 15,951
Regulatory liabilities 1,600 7,085
Other current liabilities 84,537 91,668

Total current liabilities 367,894 463,491

Long-Term Liabilities:

Accumulated deferred income taxes 278,693 300,752
Accumulated deferred investment tax credits 30,842 32,266
Regulatory liabilities 338,258 346,007
Asset retirement obligations 57,438 54,940
Accrued pension liability and postretirement benefit cost 214,834 217,092
Other deferred credits 133,877 167,079

Total long-term liabilities 1,053,942 1,118,136
Commitments and Contingencies (see Note 9) - -
$ 3,456,317 $ 3,587,751

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

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Six Months Ended

June 30,

2006

2005

(In thousands)
Cash Flows From Operating Activities:

Net earnings $ 33,748 $ 36,616
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization 57,771 66,868
Allowance for equity funds used during construction 1 (1,163 )
Accumulated deferred income tax (15,001 ) 3,720
Net unrealized (gains)/losses on trading securities 1,965 (812 )
Realized gains on investment securities (1,842 ) (2,229 )
Carrying charges on other regulatory assets and liabilities (1,829 ) (1,317 )
Changes in certain assets and liabilities:
Accounts receivable - customer 39,764 28,184
Accounts receivable - other (7,084 ) (3,296 )
Unbilled revenues 65,547 40,143
Regulatory assets 22,846 (10,069 )
Other assets (7,384 ) 3,738
Accrued postretirement benefit costs (4,285 ) (3,983 )
Accounts payable (100,132 ) (68,594 )
Accrued interest and taxes 33,570 11,745
Other liabilities (16,914 ) (16,376 )
Net cash flows from operating activities 100,741 83,175

Cash Flows From Investing Activities:

Utility plant additions (94,728 ) (54,728 )
Nuclear fuel additions (5,280 ) (5,159 )
Proceeds from sales of securities 45,322 41,910
Purchases of securities (45,738 ) (42,693 )
Return of principal PVNGS lessor notes 11,297 10,681
Other, net 6,601 472
Net cash flows used for investing activities (82,526 ) (49,517 )

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

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2006

2005

2006

2005

Net Earnings Available for Common Stock
$ 3,188 $ 3,998 $ 33,484 $ 36,352
Other Comprehensive Income (Loss):

Unrealized gain (loss) on securities:

Unrealized holding gains (losses) arising during
the period, net of tax (expense) benefit
of $154, $(437), $(6,953) and $(402) (236 ) 667 10,610 612
Reclassification adjustment for gains included in
net income, net of tax expense
of $606, $134, $427 and $662 (924 ) (204 ) (652 ) (1,010 )

Fair value adjustment for certain

derivative transactions:

Change in fair market value of designated
cash flow hedges, net of tax (expense) benefit
of $606, $(1,469), $6,563 and $(3,448) (926 ) 2,242 (10,015 ) 5,262
Reclassification adjustment for gains included
in net income, net of tax expense
of $3, $23 and $2,869 and $849 (4 ) (35 ) (4,378 ) (1,295 )

Total Other Comprehensive Income (Loss)
(2,090 ) 2,670 (4,435 ) 3,569

Total Comprehensive Income
$ 1,098 $ 6,668 $ 29,049 $ 39,921

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

~~TEXAS-NEW MEXICO POWER COMPANY~~PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

June 30, December 31,
2007 2006
(In thousands)
ASSETS

Current Assets:

Cash and cash equivalents $ 58,050 $ 123,419
Special deposits 1,094 5,146
Accounts receivable, net of allowance for uncollectible accounts of $6,436 and $6,899 137,951 168,126
Unbilled revenues 100,311 116,878
Other receivables 99,091 73,744
Inventories 58,963 63,329
Regulatory assets 12,321 17,507
Derivative instruments 91,600 59,312
Income taxes receivable 50,960 65,210
Other current assets 73,667 63,414

Total current assets 684,008 756,085

Other Property and Investments:

Investment in PVNGS lessor notes 203,862 257,659
Equity investment in EnergyCo 198,144 —
Investments held by NDT 136,424 123,143
Other investments 54,996 46,577
Non-utility assets, net of accumulated depreciation of $1,291 and $1,365 7,084 7,565

Total other property and investments 600,510 434,944

Utility Plant:

Electric plant in service 3,743,584 4,263,068
Gas plant in service 751,736 721,168
Common plant in service and plant held for future use 123,616 157,064

4,618,936 5,141,300
Less accumulated depreciation and amortization 1,662,465 1,639,156

2,956,471 3,502,144
Construction work in progress 312,161 230,871
Nuclear fuel, net of accumulated amortization of $20,353 and $14,008 35,263 28,844

Net utility plant 3,303,895 3,761,859

Deferred Charges and Other Assets:

Regulatory assets 545,739 553,564
Pension asset 10,163 8,853
Goodwill 494,513 495,738
Other intangible assets, net of accumulated amortization of $2,707 and $2,052 76,547 102,202
Derivative instruments 27,548 39,886
Other deferred charges 50,030 77,703

Total deferred charges and other assets 1,204,540 1,277,946

$ 5,792,953 $ 6,230,834

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

PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

June 30, December 31,
2007 2006
(In thousands, except share information)
LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

Short-term debt $ 559,670 $ 764,345
Current installments of long-term debt 148,935 3,298
Accounts payable 167,512 214,229
Accrued interest and taxes 58,379 98,789
Regulatory liabilities 17,577 1,172
Derivative instruments 105,840 68,575
Other current liabilities 114,052 225,653

Total current liabilities 1,171,965 1,376,061

Long-term Debt
1,531,850 1,765,907

Deferred Credits and Other Liabilities:

Accumulated deferred income taxes 579,586 586,283
Accumulated deferred investment tax credits 28,531 30,236
Regulatory liabilities 392,570 389,330
Asset retirement obligations 63,789 61,338
Accrued pension liability and postretirement benefit cost 131,126 134,799
Derivative instruments 19,632 14,581
Other deferred credits 135,797 155,860

Total deferred credits and other liabilities 1,351,031 1,372,427

Total liabilities 4,054,846 4,514,395

Commitments and Contingencies (See Note 9)

Cumulative Preferred Stock of Subsidiary
without mandatory redemption requirements ($100 stated value, 10,000,000 shares authorized; issued and outstanding 115,293 shares)
11,529 11,529

Common Stockholders’ Equity:

Common stock outstanding (no par value, 120,000,000 shares authorized; issued and outstanding 76,719,731 and 76,648,472 shares) 1,039,530 1,040,451
Accumulated other comprehensive income, net of income tax 17,599 28,909
Retained earnings 669,449 635,550

Total common stockholders’ equity 1,726,578 1,704,910

$ 5,792,953 $ 6,230,834

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

PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Six Months Ended June 30,
2007 2006
(As Restated,
See Note 16)
(In thousands)
Cash Flows From Operating Activities:

Net earnings $ 49,906 $ 41,984
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization 97,093 79,651
Allowance for equity funds used during construction (876 ) (73 )
Deferred income tax expense (benefit) 13,062 (7,920 )
Equity in net earnings of EnergyCo (1,610 ) —
Net unrealized losses on derivatives 7,940 1,864
Realized gains on investments held by NDT (3,001 ) (2,054 )
Realized loss on Altura contribution 3,637 —
Impairment loss on intangible assets 3,380 —
Carrying charges on regulatory assets and liabilities (513 ) (4,922 )
Amortization of fair value of acquired Twin Oaks sales contract (35,073 ) (16,878 )
Stock based compensation expense 5,250 5,513
Excess tax benefit from stock-based payment arrangements (8 ) (908 )
Other, net (561 ) (9 )
Changes in certain assets and liabilities:
Accounts receivable 23,680 55,214
Unbilled revenues 16,567 17,047
Regulatory assets (1,752 ) 20,878
Other assets (2,792 ) (7,819 )
Accrued pension liability and postretirement benefit costs (4,549 ) (5,409 )
Accounts payable (42,325 ) (88,716 )
Accrued interest and taxes (14,709 ) 35,402
Deferred credits (17,567 ) (9,168 )
Other liabilities (7,987 ) (2,234 )

Net cash flows from operating activities 87,192 111,443

Cash Flows From Investing Activities:

Utility plant additions (213,070 ) (128,568 )
Proceeds from sales of investments held by NDT 62,697 45,534
Purchases of investments held by NDT (66,903 ) (45,738 )
Proceeds from sales of utility plant 25,041 —
Return of principal on PVNGS lessor notes 11,953 11,297
Investments in EnergyCo (2,540 ) —
Distributions from EnergyCo 362,275 —
Twin Oaks acquisition — (481,015 )
Other, net (6,977 ) 2,309

Net cash flows from investing activities 172,476 (596,181 )

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

PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Six Months Ended June 30,
2007 2006
(As Restated,
See Note 16)
(In thousands)
Cash Flows From Financing Activities:

Short-term borrowings (repayments), net (204,675 ) 510,300
Long-term borrowings 20,000 —
Redemption of long-term debt (100,500 ) —
Issuance of common stock 2,127 10,511
Proceeds from stock option exercise 10,773 4,878
Purchase of common stock to satisfy stock awards (17,693 ) (6,843 )
Excess tax benefits from stock-based payment arrangements 8 908
Dividends paid (34,766 ) (29,029 )
Other, net (311 ) (296 )

Net cash flows from financing activities (325,037 ) 490,429

Change in Cash and Cash Equivalents
(65,369 ) 5,691
Cash and Cash Equivalents Beginning of Period
123,419 68,199

Cash and Cash Equivalents End of Period
$ 58,050 $ 73,890

Supplemental Cash Flow Disclosures:

Interest paid, net of capitalized interest $ 58,323 $ 67,495

Income taxes paid (refunded), net $ — $ (11,586 )

Supplemental schedule of noncash investing and financing activities:

As of June 1, 2007, PNMR contributed its ownership of Altura to EnergyCo at a fair value of $549.6 million after an adjustment for working capital changes. See Note 11. In conjunction with the contribution, PNMR removed Altura’s assets and liabilities from its balance sheet as follows:

Current assets $ 22,529
Utility plant, net 575,906
Deferred charges 46,018

Total assets contributed 644,453

Current liabilities 63,268
Deferred credits and other liabilities 37,005

Total liabilities contributed 100,273
Other comprehensive income (12,651 )

Total liabilities and OCI contributed 87,622

Net contribution to EnergyCo $ 556,831

Utility plant purchased through assumption of long-term debt that offsets a portion of investment in PVNGS lessor notes and is eliminated in consolidation. See Note 2. $ 41,152

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

PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
(As Restated, (As Restated,
See Note 16) See Note 16)
(In thousands)

Net Earnings
$ 20,240 $ 15,983 $ 49,906 $ 41,984

Other Comprehensive Income:

Unrealized gain (loss) on investment securities:

Unrealized holding gains (losses) arising during the period, net of income tax (expense) benefit of $(2,230), $154, $(3,486) and $(6,953) 3,403 (236 ) 5,320 10,610
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $787, $606, $1,058 and $427 (1,201 ) (924 ) (1,614 ) (652 )

Fair value adjustment for designated cash flow hedges:

Change in fair market value, net of income tax expense (benefit) of $(1,387), $2,577, $10,795 and $8,177 1,996 (5,130 ) (16,578 ) (13,612 )
Reclassification adjustment for (gains) losses included in net earnings, net of income tax (expense) benefit of $288, $(2,059), $(962) and $2,619 (454 ) 3,723 1,562 (3,925 )

Total Other Comprehensive Income (Loss)
3,744 (2,567 ) (11,310 ) (7,579 )

Total Comprehensive Income
$ 23,984 $ 13,416 $ 38,596 $ 34,405

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

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

~~(Unaudited)~~


	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
				(As Restated,						(As Restated,
				See Note 16)						See Note 16)
	(In thousands)
Operating Revenues:
Electric	$	300,307		$	259,298		$	540,632		$	570,765
Gas		75,136			68,869			291,620			276,345

Total operating revenues		375,443			328,167			832,252			847,110


Operating Expenses:
Cost of energy sold		230,414			185,410			495,295			524,672
Administrative and general		42,866			40,520			87,248			81,648
Energy production costs		43,330			42,404			84,159			80,315
Depreciation and amortization		26,202			24,289			52,558			49,144
Transmission and distribution costs		17,244			15,916			34,885			30,223
Taxes other than income taxes		10,021			8,414			18,707			17,727

Total operating expenses		370,077			316,953			772,852			783,729

Operating income		5,366			11,214			59,400			63,381


Other Income and Deductions:
Interest income		6,650			8,670			15,352			18,023
Gains on investments held by NDT		2,957			1,158			3,001			2,054
Other income		1,072			547			2,227			1,479
Other deductions		(1,907	)		(1,504	)		(2,516	)		(2,355	)

Net other income and deductions		8,772			8,871			18,064			19,201


Interest Charges:
Interest on long-term debt		11,956			13,167			24,393			25,026
Other interest charges		3,683			1,732			7,338			3,293

Total interest charges		15,639			14,899			31,731			28,319


Earnings (Loss) before Income Taxes		(1,501	)		5,186			45,733			54,263

Income Taxes (Benefit)		(690	)		2,190			17,664			21,163


Net Earnings (Loss)		(811	)		2,996			28,069			33,100

Preferred Stock Dividend Requirements		132			132			264			264


Net Earnings (Loss) Available for Common Stock	$	(943	)	$	2,864		$	27,805		$	32,836

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

Post-Acquisition

Post-Acquisition

Pre-Acquisition

Three months ended

For the period

For the period

June 30,

June 6-June 30,

April 1-June 6,

2006

2005

2005

(In thousands)

Operating Revenues:

Electric $ 61,456 $ 19,235 $ 46,938
Total operating revenues 61,456 19,235 46,938

Operating Expenses:

Cost of energy sold 22,651 6,702 16,793
Administrative and general 9,688 2,183 4,551
Depreciation and amortization 7,832 2,085 5,436
Transmission and distribution costs 5,399 1,150 3,944
Taxes, other than income taxes 5,872 1,885 3,195
Income taxes 1,238 1,125 2,808
Total operating expenses 52,680 15,130 36,727
Operating income 8,776 4,105 10,211

Other Income and Deductions:

Interest income 81 87 360
Other income 125 111 252
Carrying charges on regulatory assets 2,004 525 1,394
Other deductions (32 ) (11 ) (30 )
Other income taxes (847 ) (314 ) (715 )
Net other income and deductions 1,331 398 1,261

Interest Charges
7,271 1,956 5,088

Net Earnings
$ 2,836 $ 2,547 $ 6,384

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

~~TEXAS-NEW~~PUBLIC SERVICE COMPANY OF NEW MEXICO ~~POWER COMPANY~~ AND ~~SUBSIDIARIES~~

SUBSIDIARY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED ~~STATEMENTS OF EARNINGS~~BALANCE SHEETS
(Unaudited)

~~(Unaudited)~~


	June 30,		December 31,
	2007		2006
	(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	1,430	$	11,886
Special deposits		774		376
Accounts receivable, net of allowance for uncollectible accounts of $1,571 and $1,788		107,545		122,648
Unbilled revenues		45,339		81,166
Other receivables		79,619		62,040
Affiliate accounts receivable		1,166		8,905
Inventories		57,052		51,801
Regulatory assets		12,321		17,507
Income taxes receivable		—		13,222
Derivative instruments		38,459		27,750
Other current assets		54,515		51,231


Total current assets		398,220		448,532


Other Property and Investments:
Investment in PVNGS lessor notes		245,014		257,659
Investments held by NDT		136,424		123,143
Other investments		26,510		15,634
Non-utility property		976		966


Total other property and investments		408,924		397,402


Utility Plant:
Electric plant in service		2,890,200		2,742,795
Gas plant in service		751,736		721,168
Common plant in service and plant held for future use		18,237		72,806

		3,660,173		3,536,769
Less accumulated depreciation and amortization		1,373,124		1,279,349

		2,287,049		2,257,420
Construction work in progress		294,565		191,403
Nuclear fuel, net of accumulated amortization of $20,353 and $14,008		35,263		28,844


Net utility plant		2,616,877		2,477,667


Deferred Charges and Other Assets:
Regulatory assets		406,299		410,979
Derivative instruments		19,837		12,504
Goodwill		102,601		—
Other deferred charges		65,304		66,465


Total deferred charges and other assets		594,041		489,948


	$	4,018,062	$	3,813,549

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

Post-Acquisition

Post-Acquisition

Pre-Acquisition

Six months ended

For the period

For the period

June 30,

June 6-June 30,

January 1-June 6,

2006

2005

2005

(In thousands)

Operating Revenues:

Electric $ 124,141 $ 19,235 $ 112,820
Total operating revenues 124,141 19,235 112,820

Operating Expenses:

Cost of energy sold 49,823 6,702 43,885
Administrative and general 20,919 2,183 11,048
Depreciation and amortization 15,563 2,085 12,954
Transmission and distribution costs 10,112 1,150 9,111
Taxes, other than income taxes 11,479 1,885 9,228
Income taxes 558 1,125 5,055
Total operating expenses 108,454 15,130 91,281
Operating income 15,687 4,105 21,539

Other Income and Deductions:

Interest income 336 87 650
Other income 311 111 523
Carrying charges on regulatory assets 3,977 525 (1,407 )
Other deductions (62 ) (11 ) (79 )
Other income taxes (1,759 ) (314 ) 154
Net other income and deductions 2,803 398 (159 )

Interest Charges
14,498 1,956 12,120

Net Earnings
$ 3,992 $ 2,547 $ 9,260

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

June 30,

December 31,

2006

2005

(In thousands)
ASSETS

Utility Plant:

Electric plant in service $ 893,196 $ 877,893
Construction work in progress 6,683 7,138
Common plant in service and plant held for future use 589 589
900,468 885,620
Less accumulated depreciation and amortization 308,383 296,611

Net utility plant 592,085 589,009

Other Property and Investments:

Other investments 548 548
Non-utility property, net of accumulated depreciation of $3 and $3 2,120 2,120

Total other property and investments 2,668 2,668

Current Assets:

Cash and cash equivalents 18,732 16,228
Accounts receivable, net of allowance for uncollectible accounts of $79 and $100 11,058 13,191
Federal income tax refund 33,671 36,392
Unbilled revenues 5,962 6,679
Affiliate accounts receivable 10,809 -
Other receivables 720 6,087
Inventories 1,495 1,478
Other current assets 794 1,211

Total current assets 83,241 81,266

Deferred Charges:

Stranded costs 87,316 87,316
Carrying charges on stranded costs 37,895 33,918
Other regulatory assets 5,765 2,720
Goodwill 363,763 367,245
Other deferred charges 3,339 4,948

Total deferred charges 498,078 496,147
$ 1,176,072 $ 1,169,090

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

June 30,

December 31,

2006

2005

(In thousands)
CAPITALIZATION AND LIABILITIES

Capitalization:

Common stockholder’s equity:
Common stock outstanding ($10 par value, 12,000,000 shares authorized:
issued 9,615 at June 30, 2006 and December 31, 2005) $ 96 $ 96
Paid-in-capital 492,812 494,287
Accumulated other comprehensive loss, net of tax (29 ) (29 )
Retained earnings 9,442 5,450

Total common stockholder’s equity 502,321 499,804
Long-term debt 416,012 415,864

Total capitalization 918,333 915,668

Current Liabilities:

Accounts payable 11,833 11,913
Affiliate accounts payable 17,545 -
Accrued interest and taxes 13,459 24,250
Accrued payroll and benefits 671 3,268
Other current liabilities 6,824 5,516

Total current liabilities 50,332 44,947

Long-Term Liabilities:

Accumulated deferred income taxes 139,669 139,405
Accumulated deferred investment tax credits 1,147 1,540
Regulatory liabilities 56,742 56,246
Accrued pension liability 2,202 3,585
Accrued postretirement benefit cost 6,894 6,525
Other deferred credits 753 1,174

Total long-term liabilities 207,407 208,475
Commitments and Contingencies (see Note 9) - -
$ 1,176,072 $ 1,169,090

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

TEXAS-NEW MEXICO POWER COMPANY

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Post-Acquisition

Post-Acquisition

Pre-Acquisition

Six months ended

For the period

For the period

June 30,

June 6-June 30,

January 1-June 6,

2006

2005

2005

(In thousands)
Cash Flows From Operating Activities:

Net earnings $ 3,992 $ 2,547 $ 9,260
Adjustments to reconcile net earnings to net cash flows from
operating activities:
Depreciation and amortization 15,712 2,261 14,042
Allowance for equity funds used during construction (74 ) (8 ) (60 )
Accumulated deferred income tax 1,877 75 (1,267 )
Carrying charges on deferred stranded costs (3,978 ) (525 ) 1,407
Interest on retail competition transition obligation 885 - -
Other, net (21 ) (1 ) (120 )
Changes in certain assets and liabilities:
Accounts receivable 2,154 823 149
Unbilled revenues 717 (139 ) (106 )
Other assets 7,053 (1,468 ) (3,800 )
Accrued postretirement benefit costs (1,014 ) (2,583 ) 495
Accounts payable (79 ) 652 (5,379 )
Accrued interest and taxes (10,872 ) 1,586 (4,134 )
Change in affiliate accounts 6,736 1,249 47
Other liabilities (2,583 ) 2,180 4,819
Net cash flows from operating activities 20,505 6,649 15,353

Cash Flows From Investing Activities:

Utility plant additions (18,152 ) (1,685 ) (17,822 )
Other, net 69 840 (242 )
Acquisition costs - (3,473 ) -
Net cash flows used for investing activities (18,083 ) (4,318 ) (18,064 )

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

TEXAS-NEW MEXICO POWER COMPANY

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Post-Acquisition

Post-Acquisition

Pre-Acquisition

Three months ended

For the period

For the period

June 30,

June 6-June 30,

April 1-June 6,

2006

2005

2005

(In thousands)

Net Earnings
$ 2,836 $ 2,547 $ 6,384
Other Comprehensive Income:

Interest rate hedge net of reclassification adjustment, net of
income tax benefit (expense) of $0 , $0 and $1,004 $ - $ - $ 1,632

Total Other Comprehensive Income
$ - $ - $ 1,632

Total Comprehensive Income
$ 2,836 $ 2,547 $ 8,016

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

TEXAS-NEW MEXICO POWER COMPANY

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Post-Acquisition

Post-Acquisition

Pre-Acquisition

Six months ended

For the period

For the period

June 30,

June 6-June 30,

January 1-June 6,

2006

2005

2005

(In thousands)

Net Earnings
$ 3,992 $ 2,547 $ 9,260
Other Comprehensive Income:

Interest rate hedge net of reclassification adjustment, net of
income tax benefit (expense) of $0 , $0 and $1,084 $ - $ - $ 1,761

Total Other Comprehensive Income
$ - $ - $ 1,761

Total Comprehensive Income
$ 3,992 $ 2,547 $ 11,021

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

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

June 30, December 31,
2007 2006
(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY

Current Liabilities:

Short-term debt $ 242,070 $ 251,300
Accounts payable 81,556 138,577
Affiliate accounts payable 14,958 16,898
Accrued interest and taxes 47,650 41,340
Regulatory liabilities 17,577 1,172
Derivative instruments 55,735 43,096
Other current liabilities 69,166 82,262

Total current liabilties 528,712 574,645

Long-term Debt
1,005,639 987,205

Deferred Credits and Other Liabilities:

Accumulated deferred income taxes 394,973 368,256
Accumulated deferred investment tax credits 28,207 29,404
Regulatory liabilities 351,578 335,196
Asset retirement obligations 63,076 60,493
Accrued pension liability and postretirement benefit cost 126,187 129,595
Derivative instruments 11,560 14,100
Other deferred credits 104,073 112,990

Total deferred credits and liabilities 1,079,654 1,050,034

Total liabilities 2,614,005 2,611,884

Commitments and Contingencies (See Note 9)

Cumulative Preferred Stock
without mandatory redemption requirements ($100 stated value, 10,000,000 authorized; issued and outstanding 115,293 shares)
11,529 11,529

Common Stockholder’s Equity:

Common stock outstanding (no par value, 40,000,000 shares authorized; issued and outstanding 39,117,799 shares) 932,522 765,500
Accumulated other comprehensive income, net of income tax 15,685 8,761
Retained earnings 444,321 415,875

Total common stockholder’s equity 1,392,528 1,190,136

$ 4,018,062 $ 3,813,549

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

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Six Months Ended June 30,
2007 2006
(As Restated,
See Note 16)
(In thousands)
Cash Flows From Operating Activities:

Net earnings $ 28,069 $ 33,100
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization 66,320 58,311
Allowance for equity funds used during construction (755 ) 1
Deferred income tax (benefit) (138 ) (15,059 )
Net unrealized losses on derivatives 10,896 1,967
Realized gains on investments held by NDT (3,001 ) (2,054 )
Carrying charges on regulatory assets and liabilities (513 ) (1,829 )
Other, net 80 (4,075 )
Changes in certain assets and liabilities, net of amounts acquired:
Accounts receivable 25,047 69,659
Unbilled revenues 39,358 35,646
Regulatory assets (1,253 ) 22,960
Other assets 8,718 (16,075 )
Accrued pension liability and postretirement benefit costs (2,822 ) (2,869 )
Accounts payable (59,844 ) (100,340 )
Accrued interest and taxes 16,975 33,560
Deferred credits (17,398 ) (8,661 )
Other liabilities (5,077 ) (3,713 )

Net cash flows from operating activities 104,662 100,529

Cash Flows From Investing Activities:

Utility plant additions (149,648 ) (100,008 )
Proceeds from sales of investments held by NDT 62,697 45,534
Purchases of investments held by NDT (66,903 ) (45,738 )
Proceeds from sales of utility plant 25,041 —
Return of principal on PVNGS lessor notes 11,953 11,297
Other, net (10,774 ) 6,601

Net cash flows from investing activities (127,634 ) (82,314 )

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

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Six Months Ended June 30,
2007 2006
(As Restated,
See Note 16)
(In thousands)
Cash Flows From Financing Activities:

Short-term borrowings (repayments), net (7,179 ) (28,000 )
Long-term borrowings 20,000 —
Dividends paid (264 ) (264 )
Other, net (41 ) 79

Net cash flows from financing activities 12,516 (28,185 )

Change in Cash and Cash Equivalents
(10,456 ) (9,970 )
Cash and Cash Equivalents at Beginning of Period
11,886 12,690

Cash and Cash Equivalents at End of Period
$ 1,430 $ 2,720

Supplemental Cash Flow Disclosures:

Interest paid, net of capitalized interest $ 29,758 $ 30,193

Income taxes paid, net $ — $ 457

Supplemental schedule of noncash investing and financing activities:

As of January 1, 2007, TNMP transferred its New Mexico operational assets and liabilities to PNMR through a redemption of TNMP’s common stock. PNMR contemporaneously contributed the TNMP New Mexico operational assets and liabilities to PNM. (See Note 14).
Current assets $ 15,444
Other property and investments 12
Utility plant, net 96,610
Goodwill 102,601
Deferred charges 1,794

Total assets transferred from TNMP 216,461

Current liabilities 17,313
Long-term debt 1,065
Deferred credits and other liabilities 31,060

Total liabilities transferred from TNMP 49,438

Net assets transferred — increase in common stockholder’s equity $ 167,023

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

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
(As Restated, (As Restated,
See Note 16) See Note 16)
(In thousands)

Net Earnings (Loss) Available for Common Stock
$ (943 ) $ 2,864 $ 27,805 $ 32,836

Other Comprehensive Income (Loss):

Unrealized gain (loss) on investment securities:

Unrealized holding gains (losses) arising during the period, net of income tax (expense) benefit of $(2,230), $154, $(3,486) and $(6,953) 3,403 (236 ) 5,320 10,610
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $787, $606, $1,058 and $427 (1,201 ) (924 ) (1,614 ) (652 )

Fair value adjustment for designated cash flow hedges:

Change in fair market value, net of income tax (benefit) of $(723), $606, $(1,511) and $6,563 1,103 (926 ) 2,305 (10,015 )
Reclassification adjustment for (gains) losses included in net earnings, net of income tax (expense) benefit of $236, $3, $(599) and $2,869 (361 ) (4 ) 913 (4,378 )

Total Other Comprehensive Income (Loss)
2,944 (2,090 ) 6,924 (4,435 )

Total Comprehensive Income
$ 2,001 $ 774 $ 34,729 $ 28,401

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

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
	(In thousands)

Electric Operating Revenues	$	43,536		$	39,696		$	84,464		$	75,244


Operating Expenses:
Cost of energy sold		7,221			7,145			14,392			13,594
Administrative and general		7,361			7,848			16,263			17,061
Depreciation and amortization		7,041			6,337			14,041			12,512
Transmission and distribution costs		4,945			4,463			9,868			8,208
Taxes other than income taxes		5,413			5,482			10,238			10,672

Total operating expenses		31,981			31,275			64,802			62,047

Operating income		11,555			8,421			19,662			13,197


Other Income and Deductions:
Interest income		776			81			864			336
Other income		770			85			1,046			253
Carrying charges on regulatory assets		—			2,004			—			3,977
Other deductions		(46	)		(20	)		(73	)		(43	)

Net other income and deductions		1,500			2,150			1,837			4,523


Interest Charges:
Interest on long-term debt		6,153			6,432			12,585			12,864
Other interest charges		718			829			1,364			1,632

Total interest charges		6,871			7,261			13,949			14,496


Earnings before Income Taxes		6,184			3,310			7,550			3,224

Income taxes		1,950			2,101			2,378			1,330


Net Earnings from Continuing Operations		4,234			1,209			5,172			1,894

Discontinued Operations, net of income tax expense (benefit) of $0, $(16), $0 and $987		—			1,627			—			2,098


Net Earnings	$	4,234		$	2,836		$	5,172		$	3,992

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

June 30, December 31,
2007 2006
(In thousands)
ASSETS

Current Assets:

Cash and cash equivalents $ 34 $ 2,542
Special deposits 50 —
Accounts receivable, net of allowance for uncollectible accounts of $0 and $31 8,757 10,317
Unbilled revenues 3,018 6,000
Affiliate accounts receivable 7,680 —
Other receivables 5,483 1,515
Inventories 1,670 1,509
Federal income tax receivable 38,018 40,473
Other current assets 803 944

Total current assets 65,513 63,300

Other Property and Investments:

Other investments 554 511
Non-utility property, net of accumulated depreciation of $0 and $3 2,111 2,120

Total other property and investments 2,665 2,631

Utility Plant:

Electric plant in service 770,630 925,538
Common plant in service and plant held for future use 488 589

771,118 926,127
Less accumulated depreciation and amortization 264,203 326,404

506,915 599,723
Construction work in progress 10,242 13,799

Net utility plant 517,157 613,522

Deferred Charges and Other Assets:

Stranded costs 87,962 89,949
Carrying charges on stranded costs 40,652 41,584
Other regulatory assets 10,826 11,052
Goodwill 260,144 363,764
Pension asset 10,163 8,853
Other deferred charges 6,919 9,205

Total deferred charges and other assets 416,666 524,407

$ 1,002,001 $ 1,203,860

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

June 30, December 31,
2007 2006
(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY

Current Liabilities:

Short-term debt — affiliate $ 27,200 $ —
Current installments of long-term debt 148,935 2,523
Accounts payable 3,001 11,332
Affiliate accounts payable 4,303 15,673
Accrued interest and taxes 15,900 23,110
Other current liabilities 3,646 7,579

Total current liabilties 202,985 60,217

Long-term Debt
167,451 420,546

Deferred Credits and Other Liabilities:

Accumulated deferred income taxes 126,164 145,641
Accumulated deferred investment tax credits 324 832
Regulatory liabilities 40,992 54,134
Accrued pension liability and postretirement benefit cost 4,939 5,203
Other deferred credits 2,916 2,668

Total deferred credit and other liabilities 175,335 208,478

Total liabilities 545,771 689,241

Commitments and Contingencies (See Note 9)

Common Stockholder’s Equity:

Common stock outstanding ($10 par value, 12,000,000 shares authorized; issued and outstanding 6,358 and 9,615 shares) 64 96
Paid-in-capital 427,320 492,812
Accumulated other comprehensive income, net of income tax 562 562
Retained earnings 28,284 21,149

Total common stockholder’s equity 456,230 514,619

$ 1,002,001 $ 1,203,860

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

TEXAS-NEW MEXICO POWER COMPANY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Six Months Ended June 30,
2007 2006
(In thousands)
Cash Flows From Operating Activities:

Net earnings $ 5,172 $ 3,992
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization 13,873 16,386
Rate case amortization 1,851 —
Allowance for equity funds used during construction (121 ) (74 )
Deferred income tax expense (benefit) (2,205 ) (438 )
Carrying charges on deferred stranded costs — (3,978 )
Interest on retail competition transition obligation — 885
Other, net (572 ) (1,035 )
Changes in certain assets and liabilities:
Accounts receivable (8,137 ) 2,154
Unbilled revenues (549 ) (2,497 )
Other assets (1,156 ) 1,792
Accrued pension liability and postretirement benefit costs (554 ) —
Accounts payable (5,508 ) (307 )
Accrued interest and taxes (2,422 ) (2,838 )
Change in affiliate accounts (11,435 ) 9,046
Other liabilities (1,445 ) (1,805 )

Net cash flows from operating activities (13,208 ) 21,283

Cash Flows From Investing Activities:

Utility plant additions (17,249 ) (18,930 )
Other, net — 69

Net cash flows from investing activities (17,249 ) (18,861 )

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

TEXAS-NEW MEXICO POWER COMPANY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Six Months Ended June 30,
2007 2006
(In thousands)
Cash Flow From Financing Activities:

Short-term debt — affiliate 27,200 —
Redemption of long-term debt (100,500 ) —
Equity contribution by parent 101,249 —
Other, net — 82

Net cash flows from financing activites 27,949 82

Change in Cash and Cash Equivalents
(2,508 ) 2,504
Cash and Cash Equivalents Beginning of Period
2,542 16,228

Cash and Cash Equivalents End of Period
$ 34 $ 18,732

Supplemental Cash Flow Disclosures:

Interest paid, net of capitalized interest $ 14,127 $ 12,749

Income taxes paid, net $ — $ —

Supplemental schedule of noncash investing and financing activities:

As of January 1, 2007, TNMP transferred its New Mexico operational assets and liabilities to PNMR through a redemption of TNMP’s common stock. PNMR contemporaneously contributed the TNMP New Mexico operational assets and liabilities to PNM. (See Note 14).

Current assets $ 15,444
Other property and investments 12
Utility plant, net 96,610
Goodwill 102,601
Deferred charges 1,794

Total assets transferred to PNM 216,461

Current liabilities 17,313
Long-term debt 1,065
Deferred credits and other liabilities 31,060

Total liabilities transferred to PNM 49,438

Net assets transferred — common stock redeemed $ 167,023

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

TEXAS-NEW MEXICO POWER COMPANY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
(In thousands)

Net Earnings and Total Comprehensive Income
$ 4,234 $ 2,836 $ 5,172 $ 3,992

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

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Significant Accounting Policies and Responsibility for Financial Statements

Financial Statement Preparation

In the opinion of ~~the~~ management, ~~of PNMR,~~ the accompanying unaudited interim Condensed Consolidated Financial Statements reflect all normal and recurring accruals and adjustments which are necessary to present fairly ~~the Company’s~~ financial position at June 30, ~~2006~~2007 and December 31, ~~2005,~~2006, the consolidated results of ~~its~~ operations and comprehensive income for the three months and six months ended June 30, ~~2006~~2007 and ~~2005~~2006 and the consolidated statements of cash flows for the six months ended June 30, ~~2006~~2007 and 2005. These Condensed Consolidated Financial Statements are unaudited, and certain information and note disclosures normally included in the Company’s annual Consolidated Financial Statements have been condensed or omitted, as permitted under the applicable rules and regulations. PNMR’s four primary subsidiaries are PNM, TNMP, First Choice and Altura. Readers of these financial statements should refer to PNMR’s, PNM’s and TNMP’s audited Consolidated Financial Statements and Notes thereto for the year ended December 31, 2005 that are included in their respective Annual Reports on Form 10-K/A (Amendment No. 2) for the year ended December 31, 2005. The results of operations presented in the accompanying Condensed Consolidated Financial Statements are not necessarily representative of operations for an entire year.

~~TNP Acquisition~~

As discussed in Note 2, on June 6, 2005, PNMR completed the acquisition of TNP effective at 8:00 AM Central Daylight Time. The acquisition was accounted for using the purchase method of accounting. 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 TNP’s principal subsidiaries, TNMP and First Choice. Accordingly, TNMP’s post-acquisition financial statements reflect a new basis of accounting, and separate financial statements and note amounts in tabular format are presented for pre-acquisition and post-acquisition periods, separated by a heavy black line.

~~Presentation~~

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

~~Change in Presentation~~

Certain amounts in the 2005 Condensed Consolidated Financial Statements and Notes thereto for PNMR, PNM and TNMP have been reclassified to conform to the 2006 financial statement presentation. Specifically, certain amounts in the 2005 Condensed Consolidated Financial Statements and Notes thereto of TNMP have been reclassified to conform to PNMR’s presentation for comparability.

~~Principles of Consolidation~~

The Condensed 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 and TNMP in 2006 or 2005 include energy purchases and sales, dividends paid on common stock, the redemption of common stock of TNMP, and consolidation of the PVNGS capital trust. All significant intercompany transactions and balances have been eliminated. See Note 12.

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Financial Statement Preparation~~

2006. The preparation of financial statements in conformity with generally accepted 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~~results could ultimately differ from those estimated. The results of operations presented in the accompanying Condensed Consolidated Financial Statements are not necessarily representative of operations for an entire year.

These Condensed Consolidated Financial Statements are unaudited, and certain information and note disclosures normally included in the annual Consolidated Financial Statements have been condensed or omitted, as permitted under the applicable rules and regulations. Readers of these financial statements should refer to PNMR’s, PNM’s and TNMP’s audited Consolidated Financial Statements and Notes thereto that are included in their respective 2006 Annual Reports on Form 10-K/A (Amendment No. 1).

~~Goodwill~~Principles of Consolidation

The Condensed Consolidated Financial Statements of each of PNMR, PNM, and ~~Other Intangible Assets~~

~~The excess purchase price over the fair value~~TNMP include their accounts and those 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~~subsidiaries in which that entity owns a majority voting interest. PNMR’s primary subsidiaries are amortized over their estimated useful lives. Goodwill and non-amortizing 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. Goodwill forPNM, TNMP, ~~and~~ First Choice and, through May 31, 2007, Altura. PNM consolidates the ~~First Choice trade name,~~PVNGS Capital Trust. PNMR shared services administrative and general expenses, which represent costs that are primarily driven by corporate level activities, are allocated to the business segments. Other significant intercompany transactions between PNMR, PNM, and TNMP include energy purchases and sales, transmission and distribution services, dividends paid on common stock, and interest paid by PVNGS Capital Trust to PNM. All intercompany transactions and balances have been eliminated. See Note 12.

Presentation

The Notes to Condensed Consolidated Financial Statements include disclosures for PNMR, PNM, and TNMP. For discussion purposes, this report will use the term “Company” when discussing matters of common applicability to PNMR, PNM and TNMP. Discussions regarding only PNMR, PNM or TNMP will be indicated as such. Certain amounts in the 2006 Condensed Consolidated Financial Statements and Notes thereto have been reclassified to conform to the 2007 financial statement presentation. Income taxes, which previously had been separated between operating expense and other income and deductions in the Condensed Consolidated Statements of Earnings, is being presented on a ~~non-amortized intangible asset, were evaluated for impairment as of April 1, 2006. As a result of~~combined basis. In addition, certain sections on the ~~evaluation, no impairment was recognized. Other intangible assets subject to amortization 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. As of June 30, 2006, goodwill on PNMR’s and TNMP's~~ Condensed Consolidated Balance ~~Sheet decreased $3.7 million and $3.5 million, respectively, for amounts recorded as a result of corrections to deferred taxes related to pre-acquisition periods.~~

~~Decommissioning Costs~~

~~Accounting for decommissioning costs for nuclear and fossil-fuel generation involves significant estimates related to costs to be incurred many years~~Sheets have been rearranged in the ~~future after plant closure. Changes in~~current presentation.

At December 31, 2006, certain income tax receivables and payables were shown on a net basis. In 2007, these ~~estimates could significantly impact PNMR’s~~income tax receivables and ~~PNM’s financial position, results of operations and cash flows. PNM owns and leases nuclear and fossil-fuel facilities that~~payables 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. Adoption of~~shown gross on the ~~statement changed~~Condensed Consolidated Balance Sheet. For comparability, the method of accounting for both nuclear generation decommissioning and fossil-fuel generation decommissioning. Nuclear decommissioning costs and related accruals are based on site-specific estimates of the costs for removing all radioactive materials and other structures at the site. PNM’s accruals for Units 1, 2 and 3December 31, 2006 balances have been ~~made based on such estimates, the guidelines of the NRC~~reclassified resulting in income tax receivables and ~~the probability of a license extension. PVNGS Unit 3 is excluded from PNM’s retail rates while PVNGS Units 1~~payables each being increased by $65.2 million for PNMR, $13.2 million for PNM, and ~~2 are included. PNM collects a provision~~$4.1 million 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.TNMP.

~~Stock-Based Compensation~~

~~See Note 6 for a comprehensive discussion of the accounting for stock-based compensation expense, including a discussion of the assumptions used to estimate the fair market value of awards.~~

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Carrying Charges on Stranded Costs~~

~~TNMP’s estimate of allowable carrying charges on stranded costs that it may recover from its transmission~~(2) Acquisitions and distribution customers is based on a United States Supreme Court ruling and the PUCT’s application of that ruling. As of June 30, 2006 and December 31, 2005, the regulatory asset recorded on the Condensed Consolidated Balance Sheets for carrying costs was $37.9 million and $33.9 million, respectively (see Note 10). As of June 30, 2006, the equity-related portion of carrying costs totaled $29.5 million. TNMP expects to collect the equity-related portion of carrying costs from customers but is prohibited under GAAP from recognizing those amounts in its consolidated financial statements until the actual receipt of the equity-related portion of carrying costs from customers.

~~(2)~~ ~~Acquisitions~~

~~Twin Oaks~~

Disposition

On April 18, 2006, PNMR’s wholly owned subsidiary, Altura, purchased the Twin Oaks business, which included athe 305 MW coal-fired Twin Oaks power plant located 150 miles south of Dallas, ~~Texas for $480.0 million in cash plus~~Texas. Effective June 1, 2007, PNMR contributed Altura, including the ~~assumption of contracts and liabilities.~~Twin Oaks business, to EnergyCo. See Note 11. The results of Twin Oaks operations have been included in the Consolidated Financial Statements of PNMR from that date. PNMR acquired Twin Oaks to expand the Company’s merchant generation fleet in order to serve a growing wholesale market in the Southwest. PNMR secured bridge financing for Altura to close the transaction (see Note 7). In addition, PNMR incurred transaction and other costs of $1.0 million.

~~The following table presents the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.~~

At April 18, 2006

(In thousands)
Net utility plant $ 595,336
Other current assets 10,341
Other intangible assets 25,000
Other deferred charges 99,598
Total assets acquired 730,275

Other current liabilities 96,088
Other deferred credits 153,173
Total liabilities assumed 249,261

Net assets acquired $ 481,014

Altura obtained, or is in the process of obtaining, independent valuations of acquired property and intangible assets; thus, the allocation of the purchase price is subject to adjustment and will be finalized within one year of the acquisition.

The Purchase Agreement also includes the development rights for a possible 600-megawatt expansion of the plant, which PNMR has classified as an intangible asset. The necessary permits for the plant expansion are being obtained, which are expected inApril 18, 2006 through May 31, 2007. An additional $2.5 million payment will be made to the seller 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. PNMR has not made a decision regardingBeginning June 1, 2007, the Twin Oaks ~~expansion, but it~~operations are included in EnergyCo, which is ~~considering a variety of options, including self development or sale to a third party.~~accounted for by PNMR using the equity method.

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

As part of the acquisition of Twin Oaks, PNMR determined the fair value of two contractual obligations to sell power. The first contract obligates ~~PNMR~~Altura to sell power through September 2007 at which time the second contract begins and extends for three years. In comparing the pricing terms of the contractual obligations against the forward price of electricity in the relevant market, PNMR concluded that the contracts were below market. In accordance with SFAS ~~No.~~ 141, ~~as amended,~~ ~~“Business Combinations”~~ ~~(“SFAS 141”),~~ the contracts were recorded at fair value ~~and will~~to be amortized as an increase in operating revenue over the contract ~~lives.~~periods. The amortization matches the difference between the forward price curve and the contractual obligations for each month in accordance with the contract as of the acquisition date. For the first contract, ~~$95.2~~which runs through September 30, 2007, $94.9 million was recorded in other current liabilities and ~~$52.7~~$52.4 million was recorded in other deferred ~~credits.~~credits for a contract total of $147.3 million. As of May 31, 2007, the Company had amortized $105.9 million, including $20.0 million during the three months ended March 31, 2007 and $15.0 million during the period from April 1, 2007 through May 31, 2007. For the second contract, ~~$29.7~~which begins October 1, 2007, $29.6 million was recorded in other deferred ~~credits.~~

credits and no amortization has been recorded.

The ~~following unaudited pro forma financial information presents~~Twin Oaks purchase agreement also includes the development rights for a ~~summary~~possible 600-megawatt expansion of ~~PNMR’s consolidated results~~the plant, which PNMR classified as an intangible asset with a value of ~~operations for~~$25 million at the ~~three and six months~~date of acquisition. PNMR reassessed this valuation during the quarter ended June 30, ~~2006~~2007 and ~~2005 assuming~~determined that the ~~acquisition~~asset was impaired, resulting in a pre-tax loss of ~~Twin Oaks had been completed as of January 1, 2006 and 2005, respectively, including adjustments,~~$3.4 million, which are based upon preliminary estimates, to reflect the allocation of the purchase price to the acquired net assets. The pro forma financial information does not include 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 of these dates. In addition, the pro forma financial information does not include results of operations from TNP prior to its acquisition on June 6, 2005.

For the Three
Months Ended

For the Six
Months Ended

June 30,

June 30,

2006

2005

2006

2005

(In thousands, except per share amounts)
Operating revenues $ 559,375 $ 452,788 $ 1,262,178 $ 928,771
Operating expenses $ 506,659 $ 418,032 $ 1,146,775 $ 836,894
Earnings before extraordinary item $ 21,631 $ 12,927 $ 57,512 $ 55,826
Net earnings $ 21,631 $ 12,927 $ 57,512 $ 55,826
Net earnings per common share:
Basic $ 0.31 $ 0.20 $ 0.84 $ 0.89
Diluted $ 0.31 $ 0.19 $ 0.83 $ 0.87

~~TNP~~

was recorded in energy production costs.

On June ~~6, 2005,~~29, 2007, a wholly-owned subsidiary of PNMR ~~acquired all~~purchased 100% of a trust, which owns a 2.27% undivided interest, representing 29.8 MW, in PVNGS Unit 2 and a 0.76% undivided interest in certain PVNGS common facilities, as well as a lease under which such facilities are leased to PNM. The beneficial interest in the trust was purchased for $44.0 million in cash and the assumption of $41.2 million in long-term debt payable to PVNGS Capital Trust. This long-term debt offsets a portion of the ~~outstanding common shares of TNP, including its principal subsidiaries, TNMP~~investment in PVNGS lessor notes and ~~First Choice.~~is eliminated in PNMR’s consolidated financial statements. The ~~aggregate~~funds for the 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~~were provided by PNMR. The lease remains in effect and ~~common stock valued at $87.4 million. The results of TNP’s operations have been included in the Condensed Consolidated Financial Statements of PNMR from that date.~~this transaction has no impact on PNM’s consolidated financial statements.

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

(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~~for operating ~~results without regard to the effect of accounting or regulatory changes and similar other items not related to~~segments reflects normal operations. ~~A reconciliation from~~Unusual and non-recurring items are included in the Corporate and Other segment. As discussed below and effective January 1, 2007, TNMP’s New Mexico operations were transferred to PNM Electric. See Note 14. The 2006 segment ~~presentation to the GAAP financial statements~~information is ~~provided.~~presented as previously reported and does not reflect this transfer.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

REGULATED OPERATIONS

PNM Electric

PNM Electric ~~consists of the operations of PNM,~~is a regulated ~~utility. PNM Electric~~utility that provides integrated electricity services that include 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 the PNM Wholesale ~~and~~ segment.

TNMP Electric ~~segments.~~

~~TNMP Electric~~

TNMP Electric ~~consists of the operations of TNMP,~~is a regulated ~~utility. In~~utility operating in Texas and, through December 31, 2006, in New Mexico. TNMP’s operations are subject to traditional rate of return regulation. TNMP ~~Electric~~ provides regulated transmission and distribution services ~~to its customers which include First Choice. In New Mexico,~~in Texas under the TECA.

Through December 31, 2006, TNMP ~~Electric provides~~provided integrated ~~electricity~~electric services that ~~include~~included the transmission, distribution, ~~purchase~~ and sale of electricity to its New Mexico customers as well as transmission to third parties and to PNM. ~~TNMP Electric's Texas and~~Effective January 1, 2007, TNMP’s New Mexico operations ~~are subject~~were transferred to ~~traditional cost-of-service regulation.~~PNM. PNM Wholesale remains the sole electricity supplier for the transferred operations.

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

PNM Gas

PNM Gas is a regulated utility that distributes natural gas to most of the major communities in New Mexico. 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 sales-service customers. As a result, increases or decreases in gas revenues resulting from gas price fluctuations do not impact PNMR’s or PNM’s consolidated gross margin or earnings.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

UNREGULATED OPERATIONS

Wholesale

~~For~~ for PNMR ~~and~~includes PNM Wholesale and Altura and consists of the generation and sale of electricity into the wholesale market. PNM Wholesale sells the unused capacity of ~~PNM's~~PNM’s jurisdictional assets as well as the capacity of PNM’s wholesale plants excluded from retail rates. Although the FERC has jurisdiction over the rates of PNM Wholesale, ~~the Company includes Wholesale~~it is included in ~~the~~ unregulated ~~portion of its business~~operations because PNM Wholesale is not subject to traditional rate of return regulation.

~~The Wholesale segment~~ Twin Oaks is included in ~~PNMR’s~~the consolidated results of operations ~~also includes the results of Altura~~for PNMR from the date of its acquisition ~~of Twin Oaks~~ on April 18, 2006 ~~(see Note 2).~~through May 31, 2007, at which time Altura was contributed to EnergyCo. See Notes 2 and 11. Power from Twin Oaks is ~~not included in the results of operations for PNM.~~sold at wholesale through ERCOT.

~~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~~” (“EITF 03-11”), 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 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. Although First Choice is regulated in certain respects by the PUCT, ~~under ERCOT, the Company includes First Choice~~it is included in ~~the~~ unregulated ~~portion of its business~~operations because First Choice is not subject to traditional rate of return regulation.

EnergyCo

Upon the contribution of Altura to EnergyCo, EnergyCo became a separate segment for PNMR effective June 1, 2007. PNMR’s investment in EnergyCo is held in the Corporate and Other segment and is accounted for using the equity method of accounting and EnergyCo’s revenues and expenses are not included in PNMR’s consolidated results of operations or the following tables. See Notes 2 and 11.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

CORPORATE AND OTHER

PNMR provides energy and technology related services through its wholly owned subsidiary, Avistar, and those results are included in the Corporate and Other segment. PNMR Services Company, which provides corporate services to the Company, its subsidiaries, and EnergyCo, is also included in the Corporate and Other segment.

Adjustments related to EITF 03-11 are included in Corporate and Other. EITF 03-11 requires a net presentation of all realized gains and losses on non-normal derivative transactions that do not physically deliver and that are offset by similar transactions during settlement. Management evaluates Wholesale operations on a gross presentation basis due to its primarily net asset-backed marketing strategy and the importance it places on the ability to repurchase and remarket previously sold capacity.

The following tables present summarized financial information for PNMR and PNM, as restated, by business segment. Explanations for footnotes (a) through (e) follow the tables.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

PNMR SEGMENT INFORMATION


	Regulated									Unregulated
	PNM			TNMP									First			Corporate
2007	Electric (d)			Electric (d)			PNM Gas			Wholesale			Choice			and Other			Consolidated
	(In thousands)
*Three Months Ended June 30, 2007:*
Operating revenues	$	169,744		$	26,480		$	75,136		$	185,697		$	150,002		$	(26,378	)(a)	$	580,681
Intersegment revenues		1,396			17,056			49			8,363			31			(26,895	)		—

Total revenues		171,140			43,536			75,185			194,060			150,033			(53,273	)		580,681
Cost of energy		65,881			7,221			45,095			165,639			125,863			(53,166	)(a)		356,533
Intersegment energy transfer		3,628			—			—			(3,628	)		—			—			—

Gross margin		101,631			36,315			30,090			32,049			24,170			(107	)		224,148

Operating expenses		73,577			17,719			25,921			19,225			12,961			8,391	(b)		157,794
Depreciation and amortization		16,387			7,041			6,064			6,187			470			3,546			39,695

Operating income		11,667			11,555			(1,895	)		6,637			10,739			(12,044	)		26,659


Interest income		5,654			776			(543	)		1,298			534			(678	)		7,041
Equity in earnings of EnergyCo		—			—			—			—			—			2,272			2,272
Other income (deductions)		1,045			724			50			998			8			(3,640	)		(815	)
Net interest charges		(9,367	)		(6,871	)		(2,938	)		(6,576	)		(1,061	)		(3,079	)		(29,892	)


Segment earnings before taxes		8,999			6,184			(5,326	)		2,357			10,220			(17,169	)		5,265

Income taxes (benefit)		3,563			1,950			(2,109	)		933			3,854			(23,166)	(b,c)		(14,975	)


Segment net earnings (loss)	$	5,436		$	4,234		$	(3,217	)	$	1,424		$	6,366		$	5,997		$	20,240


*Six Months Ended June 30, 2007:*
Operating revenues	$	337,619		$	50,641		$	291,620		$	311,564		$	285,520		$	(42,782	)(a)	$	1,234,182
Intersegment revenues		3,634			33,823			97			17,047			78			(54,679	)		—

Total revenues		341,253			84,464			291,717			328,611			285,598			(97,461	)		1,234,182
Cost of energy		132,383			14,392			206,808			241,986			236,679			(97,195	)(a)		735,053
Intersegment energy transfer		(2,030	)		—			—			2,030			—			—			—

Gross margin		210,900			70,072			84,909			84,595			48,919			(266	)		499,129

Operating expenses		146,213			36,369			51,533			44,926			28,118			10,852	(b)		318,011
Depreciation and amortization		32,772			14,041			12,245			13,946			941			6,192			80,137

Operating income		31,915			19,662			21,131			25,723			19,860			(17,310	)		100,981


Interest income		11,771			864			453			2,736			1,017			988			17,829
Equity in earnings of EnergyCo		—			—			—			—			—			1,610			1,610
Other income (deductions)		1,182			973			172			1,296			(34	)		(3,441	)		148
Net interest charges		(19,186	)		(13,949	)		(5,954	)		(15,717	)		(1,176	)		(11,757	)		(67,739	)


Segment earnings before taxes		25,682			7,550			15,802			14,038			19,667			(29,910	)		52,829

Income taxes (benefit)		10,168			2,378			6,256			5,557			7,419			(28,855)	(b,c)		2,923


Segment net earnings (loss)	$	15,514		$	5,172		$	9,546		$	8,481		$	12,248		$	(1,055	)	$	49,906


*At June 30, 2007:*
Total Assets	$	2,431,469		$	989,641		$	663,498		$	360,509		$	408,702		$	939,134		$	5,792,953
Goodwill	$	102,601		$	260,144		$	—		$	—		$	131,768		$	—		$	494,513

~~PNMR Segment Information~~

~~Summarized financial information for PNMR by business segment for the three months ended June 30, 2006 is as follows (in thousands):~~

Regulated

Unregulated

Segments of Business
PNM

TNMP

PNM

First

Corporate

Electric

Electric

Gas

Wholesale

Choice

& Other

Consolidated

2006:

Operating revenues $ 144,080 $ 43,437 $ 68,869 $ 141,820 $ 154,908 $ (6,445 )
(a)
$ 546,669
Intersegment revenues 2,256 18,019 92 12,674 - (33,041 ) -
Total revenues
146,336 61,456 68,961 154,494 154,908 (39,486 ) 546,669
Less: Cost of energy 43,308 22,652 42,168 119,869 118,073 (39,570 ) (a) 306,500
Intersegment energy
Transfer 8,524 - - (8,524 ) - - -
Gross margin
94,504 38,804 26,793 43,149 36,835 84 240,169
Operating expenses 66,564 20,957 25,881 18,380 15,367 2,451 (b) 149,600
Depreciation and
amortization 14,316 7,831 5,994 7,155 510 2,147 37,953
Income taxes 1,852 1,239 (3,236 ) 3,219 7,363 (4,247 ) (b) 6,190
Operating income
11,772 8,777 (1,846 ) 14,395 13,595 (267 ) 46,426

Interest income 6,626 81 468 1,323 116 302 8,916
Other income/(deductions) 216 2,097 (11 ) 330 (225 ) (1,110 ) 1,297
Other income taxes (2,709 ) (847 ) (181 ) (654 ) 42 515 (3,834 )
Interest charges (8,946 ) (7,271 ) (3,091 ) (9,512 ) (248 ) (7,430 ) (36,498 )
Segment net income (loss)
$ 6,959 $ 2,837 $ (4,661 ) $ 5,882 $ 13,280 $ (7,990 ) $ 16,307

Gross property additions
$ 46,114 $ 10,936 $ 9,633 $ 5,797 $ - $ 4,267 $ 76,747

At June 30, 2006:

Total assets
$ 1,935,934 $ 1,131,593 $ 616,678 $ 1,082,632 $ 374,640 $ 596,066 $ 5,737,543
Goodwill
$ - $ 363,763 $ - $ - $ 131,678 $ - $ 495,441

~~(a)~~

~~Reflects EITF 03-11 impact, under which wholesale revenues and the associated cost of energy of $6.6 million are reclassified to a net margin basis in accordance with GAAP.~~

~~(b)~~

~~Includes TNP and Twin Oaks acquisition integration costs of $1.8 million and an income tax benefit of $0.7 million in income taxes.~~

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

PNMR SEGMENT INFORMATION


	Regulated									Unregulated
	PNM			TNMP									First			Corporate
2006	Electric (d)			Electric (d)			PNM Gas			Wholesale			Choice			and Other			Consolidated
	(In thousands)
*Three Months Ended June 30, 2006:*
Operating revenues	$	144,080		$	43,437		$	68,869		$	141,820		$	154,908		$	(6,445	)(a)	$	546,669
Intersegment revenues		2,256			18,019			92			12,674			—			(33,041	)		—

Total revenues		146,336			61,456			68,961			154,494			154,908			(39,486	)		546,669
Cost of energy		43,308			22,652			42,168			119,869			118,073			(39,570	)(a)		306,500
Intersegment energy transfer		8,524			—			—			(8,524	)		—			—			—

Gross margin		94,504			38,804			26,793			43,149			36,835			84			240,169
Operating expenses		66,887			20,957			25,881			18,380			15,367			2,452	(e)		149,924
Depreciation and amortization		14,316			7,831			5,994			7,155			510			2,147			37,953

Operating income		13,301			10,016			(5,082	)		17,614			20,958			(4,515	)		52,292


Interest income		6,626			81			468			1,323			116			302			8,916
Other income (deductions)		216			2,097			(11	)		330			(225	)		(1,110	)		1,297
Net interest charges		(8,946	)		(7,271	)		(3,091	)		(9,512	)		(248	)		(7,430	)		(36,498	)


Segment earnings before income taxes		11,197			4,923			(7,716	)		9,755			20,601			(12,753	)		26,007

Income taxes (benefit)		4,433			2,086			(3,055	)		3,873			7,321			(4,634	)(e)		10,024


Segment net earnings (loss)	$	6,764		$	2,837		$	(4,661	)	$	5,882		$	13,280		$	(8,119	)	$	15,983


*Six Months Ended June 30, 2006:*
Operating revenues	$	280,676		$	90,406		$	276,345		$	306,131		$	259,990		$	(11,078	)(a)	$	1,202,470
Intersegment revenues		4,438			33,735			141			27,851			—			(66,165	)		—

Total revenues		285,114			124,141			276,486			333,982			259,990			(77,243	)		1,202,470
Cost of energy		88,782			49,823			199,859			262,746			208,408			(77,146	)(a)		732,472
Intersegment energy transfer		3,346			—			—			(3,346	)		—			—			—

Gross margin		192,986			74,318			76,627			74,582			51,582			(97	)(e)		469,998
Operating expenses		134,366			42,489			50,971			30,165			28,545			2,618			289,154
Depreciation and amortization		29,288			15,563			11,914			10,316			1,008			4,194			72,283

Operating income		29,332			16,266			13,742			34,101			22,029			(6,909	)		108,561


Interest income		13,137			336			1,733			2,602			508			751			19,067
Other income (deductions)		414			4,226			90			1,036			(235	)		(742	)		4,789
Net interest charges		(17,543	)		(14,498	)		(6,088	)		(13,333	)		(472	)		(13,127	)		(65,061	)


Segment earnings before income taxes		25,340			6,330			9,477			24,406			21,830			(20,027	)		67,356

Income taxes (benefit)		10,032			2,325			3,752			9,673			7,760			(8,170	)(e)		25,372


Segment net earnings (loss)	$	15,308		$	4,005		$	5,725		$	14,733		$	14,070		$	(11,857	)	$	41,984


*At June 30, 2006:*
Total Assets	$	1,935,934		$	1,131,593		$	616,678		$	1,082,632		$	374,640		$	596,066		$	5,737,543
Goodwill	$	—		$	363,764		$	—		$	—		$	131,677		$	—		$	495,441

~~Summarized financial information for PNMR by business segment for the three months ended June 30, 2005 is as follows (in thousands):~~

Regulated

Unregulated

Segments of Business
PNM

TNMP

PNM

First

Corporate

Electric

Electric*

Gas

Wholesale

Choice*

& Other

Consolidated

2005:

Operating revenues $ 137,314 $ 12,684 $ 82,261 $ 139,273 $ 43,031 $ (9,309 ) (a) $ 405,254
Intersegment revenues 1,467 6,551 123 3,009 - (11,150 ) -
Total revenues
138,781 19,235 82,384 142,282 43,031 (20,459 ) 405,254
Less: Cost of energy 44,998 6,702 53,292 119,653 34,083 (20,537 ) (a) 238,191
Intersegment energy
transfer (3,412 ) - - 3,412 - - -
Gross margin
97,195 12,533 29,092 19,217 8,948 78 167,063
Operating expenses 65,786 5,086 24,234 11,080 3,197 8,830 (b) 118,213
Depreciation and
amortization 17,495 2,085 5,596 4,041 105 6,315 (c) 35,637
Income taxes 2,155 1,175 (1,442 ) 44 2,020 (7,319 ) (b,c,e) (3,367 )
Operating income
11,759 4,187 704 4,052 3,626 (7,748 ) 16,580

Interest income 6,473 87 487 1,303 161 3,111 11,622
Other income/(deductions) 1,020 625 408 405 (15 ) (2,894 ) (d) (451 )
Other income taxes (2,967 ) (314 ) (354 ) (677 ) (51 ) (314 ) (d) (4,677 )
Interest charges (8,471 ) (1,956 ) (2,905 ) (3,987 ) (28 ) (4,186 ) (e) (21,533 )
Segment net income (loss)
$ 7,814 $ 2,629 $ (1,660 ) $ 1,096 $ 3,693 $ (12,031 ) $ 1,541

Gross property additions
$ 26,091 $ 1,685 $ 9,774 $ 2,855 $ 46 $ 9,805 $ 50,256

At December 31, 2005:

Total assets
$ 1,937,811 $ 1,169,090 $ 721,021 $ 421,377 $ 318,820 $ 556,590 $ 5,124,709
Goodwill
$ - $ 367,245 $ - $ - $ 131,910 $ - $ 499,155

~~(a)~~

~~Reflects EITF 03-11 impact, under which wholesale revenues and the associated cost of energy of $9.6 million are reclassified to a net margin basis in accordance with GAAP.~~

~~(b)~~

Includes acquisition related costs of $4.6 million and regulatory costs of $2.3 million in operating expenses and an income tax benefit of $2.7 million in income taxes associated with the NMPRC’s approval of the TNP acquisition.

~~(c)~~

~~Includes a write-off of software costs of $4.5 million in depreciation and amortization expense and an income tax benefit of $1.8 million in the income taxes.~~

~~(d)~~

~~Includes income from proceeds earned on the TNP debt refinancing of $1.3 million and an income tax expense of $0.5 million in the income taxes.~~

~~(e)~~

~~Includes TNP debt refinancing costs of $4.9 million in interest charges and an income tax benefit of $1.8 million in income taxes.~~

*	~~Includes results from June 6 through June 30, 2005~~

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

PNM SEGMENT INFORMATION


	PNM			PNM			PNM
2007	Electric (d)			Gas			Wholesale			Other			Consolidated
	(In thousands)
*Three Months Ended June 30, 2007:*
Operating revenues	$	169,744		$	75,136		$	157,104		$	(26,541	)(a)	$	375,443
Intersegment revenues		1,396			49			8,364			(9,809	)		—

Total revenues		171,140			75,185			165,468			(36,350	)(a)		375,443
Cost of energy		65,881			45,095			155,742			(36,304	)		230,414
Intersegment energy transfer		3,628			—			(3,628	)		—			—

Gross margin		101,631			30,090			13,354			(46	)		145,029

Operating expenses		73,577			25,921			14,159			(196	)		113,461
Depreciation and amortization		16,387			6,064			3,113			638			26,202

Operating income		11,667			(1,895	)		(3,918	)		(488	)		5,366


Interest income		5,654			(543	)		1,270			269			6,650
Other income (deductions)		1,045			50			997			(102	)		1,990
Net interest charges		(9,367	)		(2,938	)		(3,552	)		218			(15,639	)


Segment earnings before income taxes		8,999			(5,326	)		(5,203	)		(103	)		(1,633	)

Income taxes (benefit)		3,563			(2,109	)		(2,060	)		(84	)		(690	)


Segment net earnings (loss)	$	5,436		$	(3,217	)	$	(3,143	)	$	(19	)	$	(943	)


*Six Months Ended June 30, 2007:*
Operating revenues	$	337,619		$	291,620		$	246,168		$	(43,155	)(a)	$	832,252
Intersegment revenues		3,634			97			17,048			(20,779	)		—

Total revenues		341,253			291,717			263,216			(63,934	)		832,252
Cost of energy		132,383			206,808			219,923			(63,819	)(a)		495,295
Intersegment energy transfer		(2,030	)		—			2,030			—			—

Gross margin		210,900			84,909			41,263			(115	)		336,957

Operating expenses		146,213			51,533			27,600			(347	)		224,999
Depreciation and amortization		32,772			12,245			6,263			1,278			52,558

Operating income		31,915			21,131			7,400			(1,046	)		59,400


Interest income		11,771			453			2,591			537			15,352
Other income (deductions)		1,182			172			1,295			(201	)		2,448
Net interest charges		(19,186	)		(5,954	)		(7,194	)		603			(31,731	)


Segment earnings before income taxes		25,682			15,802			4,092			(107	)		45,469

Income taxes (benefit)		10,168			6,256			1,620			(380	)		17,664


Segment net earnings	$	15,514		$	9,546		$	2,472		$	273		$	27,805


*At June 30, 2007:*
Total assets	$	2,451,206		$	671,002		$	362,912		$	532,942		$	4,018,062
Goodwill	$	102,601		$	—		$	—		$	—		$	102,601

~~Summarized financial information for PNMR by business segment for the six months ended June 30, 2006 is as follows (in thousands):~~

Regulated

Unregulated

Segments of Business
PNM

TNMP

PNM

First

Corporate

Electric

Electric

Gas

Wholesale

Choice

& Other

Consolidated

2006:

Operating revenues $ 280,676 $ 90,406 $ 276,345 $ 306,131 $ 259,990 $ (11,078 ) (a) $ 1,202,470
Intersegment revenues 4,438 33,735 141 27,851 - (66,165 ) -
Total revenues
285,114 124,141 276,486 333,982 259,990 (77,243 ) 1,202,470
Less: Cost of energy 88,782 49,823 199,859 262,746 208,408 (77,146 ) (a) 732,472
Intersegment energy
transfer 3,346 - - (3,346 ) - - -
Gross margin
192,986 74,318 76,627 74,582 51,582 (97 ) 469,998
Operating expenses 133,718 42,489 50,971 30,165 28,545 2,618 (b) 288,506
Depreciation and
amortization 29,288 15,563 11,914 10,316 1,008 4,194 72,283
Income taxes 4,924 566 3,030 8,233 7,663 (7,979 ) (b) 16,437
Operating income (loss)
25,056 15,700 10,712 25,868 14,366 1,070 92,772

Interest income 13,137 336 1,733 2,602 508 751 19,067
Other income/(deductions) 414 4,226 90 1,036 (235 ) (742 ) 4,789
Other income taxes (5,365 ) (1,759 ) (722 ) (1,440 ) (97 ) 448 (8,935 )
Interest charges (17,543 ) (14,498 ) (6,088 ) (13,333 ) (472 ) (13,127 ) (65,061 )
Segment net income
$ 15,699 $ 4,005 $ 5,725 $ 14,733 $ 14,070 $ (11,600 ) $ 42,632

Gross property additions
$ 76,430 $ 18,152 $ 13,998 $ 9,548 $ 297 $ 10,143 $ 128,568

At June 30, 2006:

Total assets
$ 1,935,934 $ 1,131,593 $ 616,678 $ 1,082,632 $ 374,640 $ 596,066 $ 5,737,543
Goodwill
$ - $ 363,763 $ - $ - $ 131,678 $ - $ 495,441

~~(a)~~

~~Reflects EITF 03-11 impact, under which wholesale revenues and the associated cost of energy of $11.4 million are reclassified to a net margin basis in accordance with GAAP.~~

~~(b)~~

~~Includes TNP and Twin Oaks acquisition integration costs of $2.8 million and an income tax benefit of $1.1 million in income taxes.~~

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

PNM SEGMENT INFORMATION


	PNM			PNM			PNM
2006	Electric (d)			Gas			Wholesale			Other			Consolidated
	(In thousands)
*Three Months Ended June 30, 2006:*
Operating revenues	$	144,080		$	68,869		$	109,063		$	(6,642	)(a)	$	315,370
Intersegment revenues		2,133			92			—			(2,225	)		—
Affiliated sales		123			—			12,674			—			12,797

Total revenues		146,336			68,961			121,737			(8,867	)		328,167
Cost of energy		43,308			42,168			108,756			(8,822	)(a)		185,410
Intersegment energy transfer		8,524			—			(8,524	)		—			—

Gross margin		94,504			26,793			21,505			(45	)		142,757

Operating expenses		66,887			25,881			14,928			(442	)		107,254
Depreciation and amortization		14,316			5,994			3,191			788			24,289

Operating income		13,301			(5,082	)		3,386			(391	)		11,214


Interest income		6,626			468			1,276			300			8,670
Other income (deductions)		216			(11	)		315			(451	)		69
Net interest charges		(8,946	)		(3,091	)		(3,842	)		980			(14,899	)


Segment earnings before income taxes		11,197			(7,716	)		1,135			438			5,054

Income taxes (benefit)		4,433			(3,055	)		450			362			2,190


Segment net earnings (loss)	$	6,764		$	(4,661	)	$	685		$	76		$	2,864


*Six Months Ended June 30, 2006:*
Operating revenues	$	280,676		$	276,345		$	273,374		$	(11,383	)(a)	$	819,012
Intersegment revenues		4,191			141			—			(4,332	)		—
Affiliated sales		247			—			27,851			—			28,098

Total revenues		285,114			276,486			301,225			(15,715	)		847,110
Cost of energy		88,782			199,859			251,633			(15,602	)(a)		524,672
Intersegment energy transfer		3,346			—			(3,346	)		—			—

Gross margin		192,986			76,627			52,938			(113	)		322,438

Operating expenses		134,366			50,971			26,713			(2,137	)		209,913
Depreciation and amortization		29,288			11,914			6,352			1,590			49,144

Operating income		29,332			13,742			19,873			434			63,381


Interest income		13,137			1,733			2,555			598			18,023
Other income (deductions)		414			90			1,021			(611	)		914
Net interest charges		(17,543	)		(6,088	)		(7,663	)		2,975			(28,319	)


Segment earnings before income taxes		25,340			9,477			15,786			3,396			53,999

Income taxes		10,032			3,752			6,250			1,129			21,163


Segment net earnings	$	15,308		$	5,725		$	9,536		$	2,267		$	32,836


*At June 30, 2006:*
Total assets	$	1,943,340		$	616,678		$	410,579		$	485,720		$	3,456,317

~~Summarized financial information for PNMR by business segment for the six months ended June~~

30 ~~2005 is as follows (in thousands):~~

Regulated

Unregulated

Segments of Business
PNM

TNMP

PNM

First

Corporate

Electric

Electric*

Gas

Wholesale

Choice*

& Other

Consolidated

2005:

Operating revenues $ 269,805 $ 12,684 $ 247,494 $ 271,277 $ 43,031 $ (11,124 ) (a) $ 833,167
Intersegment revenues 3,158 6,551 176 3,009 - (12,894 ) -
Total revenues
272,963 19,235 247,670 274,286 43,031 (24,018 ) 833,167
Less: Cost of energy 92,401 6,702 167,727 208,965 34,083 (24,209 ) (a) 485,669
Intersegment energy
transfer (17,535 ) - - 17,535 - - -
Gross margin
198,097 12,533 79,943 47,786 8,948 191 347,498
Operating expenses 129,123 5,086 48,325 21,968 3,197 10,789 (b) 218,488
Depreciation and
amortization 35,053 2,085 11,172 8,028 105 8,021 (c) 64,464
Income taxes 6,654 1,175 5,787 3,875 2,020 (9,487 ) (b,c,e) 10,024
Operating income (loss)
27,267 4,187 14,659 13,915 3,626 (9,132 ) 54,522

Interest income 13,689 87 1,243 2,647 161 3,095 20,922
Other income/(deductions) 1,577 625 485 1,338 (15 ) (3,019 ) (d) 991
Other income taxes (6,044 ) (314 ) (684 ) (1,578 ) (51 ) 110 (d) (8,561 )
Interest charges (17,114 ) (1,956 ) (5,829 ) (8,003 ) (28 ) (2,894 ) (e) (35,824 )
Segment net income
$ 19,375 $ 2,629 $ 9,874 $ 8,319 $ 3,693 $ (11,840 ) $ 32,050

Gross property additions
$ 40,715 $ 1,685 $ 18,721 $ 4,169 $ 46 $ 14,613 $ 79,949

At December 31, 2005:

Total assets
$ 1,937,811 $ 1,169,090 $ 721,021 $ 421,377 $ 318,820 $ 556,590 $ 5,124,709
Goodwill
$ - $ 367,245 $ - $ - $ 131,910 $ - $ 499,155

~~(a)~~

~~Reflects EITF 03-11 impact, under which wholesale revenues and the associated cost of energy of $11.7 million are reclassified to a net margin basis in accordance with GAAP.~~

~~(b)~~

~~(c)~~

~~Includes a write-off of software costs of $4.5 million in depreciation and amortization expense and an income tax benefit of $1.8 million in the income taxes.~~

~~(d)~~

~~Includes income from proceeds earned on the TNP debt refinancing of $1.3 million and an income tax expense of $0.5 million in the income taxes.~~

~~(e)~~

~~Includes TNP debt refinancing costs of $4.9 million in interest charges and an income tax benefit of $1.8 million in income taxes.~~

*	~~Includes results from June 6 through June 30, 2005~~

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~PNM Segment Information~~

~~Summarized financial information for PNM by business segment for the three months ended June 30, 2006 is as follows (in thousands):~~

Segments of Business
PNM

PNM

PNM

Electric

Gas

Wholesale

Other

Consolidated

2006:

Operating revenues $ 144,080 $ 68,869 $ 109,063 $ (6,642 ) (a) $ 315,370
Intersegment revenues 2,256 92 12,674 (2,225 ) 12,797
Total revenues
146,336 68,961 121,737 (8,867 ) 328,167
Less: Cost of energy 43,308 42,168 108,756 (8,822 ) (a) 185,410
Intersegment energy transfer 8,524 - (8,524 ) - -
Gross margin
94,504 26,793 21,505 (45 ) 142,757
Operating expenses 66,564 25,881 14,928 (443 ) 106,930
Depreciation and amortization 14,316 5,994 3,191 788 24,289
Income taxes 1,852 (3,236 ) (180 ) 310 (1,254 )
Operating income
11,772 (1,846 ) 3,566 (700 ) 12,792

Interest income 6,626 468 1,276 300 8,670
Other income/(deductions) 216 (11 ) 315 (451 ) 69
Other income taxes (2,709 ) (181 ) (630 ) 76 (3,444 )
Interest charges (8,946 ) (3,091 ) (3,842 ) 980 (14,899 )
Segment net income
$ 6,959 $ (4,661 ) $ 685 $ 205 $ 3,188

Gross property additions
$ 46,114 $ 9,633 $ 5,797 $ (342 ) $ 61,202

At June 30, 2006:

Total assets
$ 1,943,340 $ 616,678 $ 410,579 $ 485,720 $ 3,456,317

~~(a)~~

~~Reflects EITF 03-11 impact, under which wholesale revenues and the associated cost of energy of $6.6 million are reclassified to a net margin basis in accordance with GAAP.~~

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Summarized financial information for PNM by business segment for the three months ended June 30, 2005 is as follows (in thousands):~~

Segments of Business
PNM

PNM

PNM

Electric

Gas

Wholesale

Other

Consolidated

2005:

Operating revenues $ 137,314 $ 82,261 $ 139,273 $ (9,627 ) (a) $ 349,221
Intersegment revenues 1,467 123 3,009 (1,554 ) 3,045
Total revenues
138,781 82,384 142,282 (11,181 ) 352,266
Less: Cost of energy 44,998 53,292 119,653 (11,145 ) (a) 206,798
Intersegment energy transfer (3,412 ) - 3,412 - -
Gross margin
97,195 29,092 19,217 (36 ) 145,468
Operating expenses 65,786 24,234 11,080 2,559 (b) 103,659
Depreciation and amortization 17,495 5,596 4,041 5,285 (c) 32,417
Income taxes 2,155 (1,442 ) 44 (2,434 ) (b,c) (1,677 )
Operating income
11,759 704 4,052 (5,446 ) 11,069

Interest income 6,473 487 1,303 834 9,097
Other income/(deductions) 1,020 408 405 (644 ) 1,189
Other income taxes (2,967 ) (354 ) (677 ) (222 ) (4,220 )
Interest charges (8,471 ) (2,905 ) (3,987 ) 2,226 (13,137 )
Segment net income
$ 7,814 $ (1,660 ) $ 1,096 $ (3,252 ) $ 3,998

Gross property additions
$ 26,091 $ 9,774 $ 2,855 $ (3,822 ) $ 34,898

At December 31, 2005:

Total assets
$ 1,937,811 $ 721,021 $ 421,377 $ 507,542 $ 3,587,751

~~(a)~~

~~Reflects EITF 03-11 impact, under which wholesale revenues and the associated cost of energy of $9.6 million are reclassified to a net margin basis in accordance with GAAP.~~

~~(b)~~

Includes acquisition related costs of $1.2 million and regulatory costs of $2.3 million in operating expenses and an income tax benefit of $1.4 million in income taxes associated with the NMPRC’s approval of the TNP acquisition.

~~(c)~~

~~Includes a write-off of software costs of $4.5 million in depreciation and amortization expense and an income tax benefit of $1.8 million in the income taxes.~~

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Summarized financial information for PNM by business segment for the six months ended June 30, 2006 is as follows (in thousands):~~

Segments of Business
PNM

PNM

PNM

Electric

Gas

Wholesale

Other

Consolidated

2006:

Operating revenues $ 280,676 $ 276,345 $ 273,374 $ (11,383 ) (a) $ 819,012
Intersegment revenues 4,438 141 27,851 (4,332 ) 28,098
Total revenues
285,114 276,486 301,225 (15,715 ) 847,110
Less: Cost of energy 88,782 199,859 251,633 (15,602 ) (a) 524,672
Intersegment energy transfer 3,346 - (3,346 ) - -
Gross margin
192,986 76,627 52,938 (113 ) 322,438
Operating expenses 133,718 50,971 26,713 (2,137 ) 209,265
Depreciation and amortization 29,288 11,914 6,352 1,590 49,144
Income taxes 4,924 3,030 4,834 920 13,708
Operating income (loss)
25,056 10,712 15,039 (486 ) 50,321

Interest income 13,137 1,733 2,555 598 18,023
Other income/(deductions) 414 90 1,021 (611 ) 914
Other income taxes (5,365 ) (722 ) (1,416 ) 48 (7,455 )
Interest charges (17,543 ) (6,088 ) (7,663 ) 2,975 (28,319 )
Segment net income
$ 15,699 $ 5,725 $ 9,536 $ 2,524 $ 33,484

Gross property additions
$ 76,430 $ 13,998 $ 9,548 $ 32 $ 100,008

At June 30, 2006:

Total assets
$ 1,943,340 $ 616,678 $ 410,579 $ 485,720 $ 3,456,317

~~(a)~~

~~Reflects EITF 03-11 impact, under which wholesale revenues and the associated cost of energy of $11.4 million are reclassified to a net margin basis in accordance with GAAP.~~

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Summarized financial information for PNM by business segment for the six months ended June 30, 2005 is as follows (in thousands):~~

Segments of Business
PNM

PNM

PNM

Electric

Gas

Wholesale

Other

Consolidated

2005:

Operating revenues $ 269,805 $ 247,494 $ 271,277 $ (11,679 ) (a) $ 776,897
Intersegment revenues 3,158 176 3,009 (3,298 ) 3,045
Total revenues
272,963 247,670 274,286 (14,977 ) 779,942
Less: Cost of energy 92,401 167,727 208,965 (14,883 ) (a) 454,210
Intersegment energy transfer (17,535 ) - 17,535 - -
Gross margin
198,097 79,943 47,786 (94 ) 325,732
Operating expenses 129,123 48,325 21,968 3,110 (b) 202,526
Depreciation and amortization 35,053 11,172 8,028 6,109 (c) 60,362
Income taxes 6,654 5,787 3,875 (3,350 ) (b,c) 12,966
Operating income (loss)
27,267 14,659 13,915 (5,963 ) 49,878

Interest income 13,689 1,243 2,647 724 18,303
Other income/(deductions) 1,577 485 1,338 (231 ) 3,169
Other income taxes (6,044 ) (684 ) (1,578 ) 245 (8,061 )
Interest charges (17,114 ) (5,829 ) (8,003 ) 4,009 (26,937 )
Segment net income
$ 19,375 $ 9,874 $ 8,319 $ (1,216 ) $ 36,352

Gross property additions
$ 40,715 $ 18,721 $ 4,169 $ (3,718 ) $ 59,887

At December 31, 2005:

Total assets
$ 1,937,811 $ 721,021 $ 421,377 $ 507,542 $ 3,587,751

~~(a)~~

~~Reflects EITF 03-11 impact, under which wholesale revenues and the associated cost of energy of $11.7 million are reclassified to a net margin basis in accordance with GAAP.~~

~~(b)~~

~~(c)~~

~~Includes a write-off of software costs of $4.5 million in depreciation and amortization expense and an income tax benefit of $1.8 million in the income taxes.~~

TNMP

SEGMENT INFORMATION

TNMP operates in only one reportable segment; therefore tabular presentation of segment data is not ~~required.~~presented.

Footnote explanations for the above tables are as follows:

	(a)		Reflects EITF 03-11 impact of $26.5 million and $6.6 million for the three months ended June 30, 2007 and 2006 and $43.2 million and $11.4 million for the six months ended June 30, 2007 and 2006.

	(b)		For the three months and six months ended June 30, 2007, includes EnergyCo formation costs of $3.0 million and $4.2 million, impairment loss on Twin Oaks intangible assets of $3.4 million and $3.4 million, and a loss related to the contribution of Altura to EnergyCo of $3.6 million and $3.6 million (all included in operating expenses) and an income tax benefit of $4.0 million and $4.4 million (included in income taxes).

	(c)		Includes an income tax benefit of $16.0 million for the settlement with the IRS on previously unrecognized income tax benefits. See Note 15.

	(d)		Operations and assets, including goodwill, transferred from TNMP Electric to PNM Electric on January 1, 2007 are included in PNM Electric and excluded from TNMP Electric in 2007, and excluded from PNM Electric and included in TNMP Electric in 2006.

	(e)		For the three months and six months ended June 30, 2006, includes TNP and Twin Oaks acquisition integration costs of $1.8 million and $2.8 million and an income tax benefit of $0.7 million and $1.1 million in income taxes.

(4) Energy Related Derivative Contracts

OVERVIEW

The Company may enter into agreements for the sale or purchase of derivative instruments, including options and swaps, to manage risks related to changes in natural gas prices and electric prices and to take advantage of existing market opportunities. At the inception of any such transaction meeting the definition of a hedge, the Company documents the relationships between the hedging instruments and the items being hedged. This documentation includes the strategy that supports executing the specific transaction. SFAS 133 requires that certain derivative instruments, which the Company classifies as mark-to-market instruments and hedge instruments, be carried at fair value in the Condensed Consolidated Balance Sheets. Note 8 of Notes to Consolidated Financial Statements in the 2006 Annual Reports on Form 10-K/A (Amendment No. 1) contains information regarding energy related derivative contracts. See Note 7 for additional information regarding interest rate swaps.

Changes in the fair value of mark-to-market instruments are reflected in results of operations, with changes related to sales contracts included in operating revenues and changes related to purchase contracts included in cost of energy sold. Changes in the fair value of hedge instruments are included in accumulated other comprehensive income, except for amounts related to the PGAC that are recoverable from or refundable to customers, which are included in regulatory assets and liabilities on the Condensed Consolidated Balance Sheets. Amounts due to or from counterparties for energy related derivative contracts are shown as derivative contracts on the Condensed Consolidated Balance Sheets.

Gains or losses related to hedge instruments are reclassified from accumulated other comprehensive income when the hedged transaction settles and impacts earnings. The amounts shown as current assets and current liabilities relate to contracts that will be settled in the next twelve months.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~(4)~~ ~~Fair Value of Commodity Financial Instruments~~

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. Fair value is based on current market ~~quotes.~~quotes to the extent they are available and applicable to the Company’s financial instruments, supplemented by modeling techniques and assumptions made by the Company. The market prices used to fair value ~~PNM’s~~the Company’s energy portfolio are based on closing exchange prices and over-the-counter quotations.

~~The Company may enter into agreements for the sale or purchase~~Valuation of certain derivative instruments ~~including options~~requires the use of models and ~~swaps, to manage risks related to changes~~assumptions. At June 30, 2007, PNM implemented new market price curve models and assumptions. This change in ~~natural gas prices and electric prices. At~~valuation is a change in accounting estimate under SFAS 154. The effect of the inception of any such transaction, the Company documents the relationships between the hedging instruments and the items being hedged. This documentation includes the strategy that supports executing the specific transaction. See Note 7change in estimate was a decrease in net earnings for ~~details regarding interest rate swaps that~~ PNMR and PNM ~~have entered into.~~

~~The~~of $1.2 million, which is $0.015 per share for PNMR. Fluctuating commodity prices on open positions prevent the Company ~~utilizes~~from predicting with certainty the ~~following derivative instruments by commodity type:~~

~~Energy Contracts~~ - forward derivative physical and financial purchases and sales of electricity and gas with the intent of optimizing the Company’s net generation position and to take advantage of existing market opportunities.

~~Gas Fixed-for-Float Swaps~~ - forward financial purchases and sales of fixed-for-float price swaps to manage the price risk associated with electricity and gas and to hedge the variable component of certain heat-rate based power products used to serve customer load.

~~Options~~ - forward physical and financial purchases and sales of electric and gas option-type derivative instruments with the intent of optimizing the Company’s net generation position and to take advantage of existing market opportunities.

~~PGAC portion of options, swaps and hedges~~ ~~- forward financial and physical transactions to hedge a portion of PNM’s winter gas purchase portfolio.~~

~~PNMR~~

~~In addition to the commodity transactions that PNM and TNMP enter into as described below, two other subsidiaries of PNMR enter into commodity transactions.~~

~~Normal Sales and Purchases Transactions~~

PNMR’s subsidiary, First Choice, enters into physical energy contracts to meet the needs of its competitive and price-to-beat customer load. These contracts qualify for “normal” accounting designation pursuant to SFAS No. 133, ~~“Accounting for Derivative Instruments and Hedging Activities”~~ (“SFAS 133”), as the energy purchased is physically delivered and sold to First Choice customers within ERCOT. Expenses related to these purchases are recorded in cost of energy at the time of delivery.

~~PNMR’s subsidiary, Altura, at the time of acquisition of Twin Oaks (see Note 2), assumed an existing contract for the energy output~~future impact of the ~~Twin Oaks facility. This contract qualifies~~change in estimate.

PNM recognized an ineffectiveness loss on its fair value hedge of $0.9 million in the six months ended June 30, 2007, which is included in operating revenues. Ineffectiveness for ~~“normal” accounting designation pursuant to SFAS 133, as~~certain cash flow hedges was immaterial during the ~~energy sold is physically delivered within ERCOT to meet the needs of the purchaser's load requirements. Revenue related to this sale is recorded in electric revenues at the time of delivery.~~six months ended June 30, 2007.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Hedge Accounting Transactions~~

First Choice also enters into natural gas transactions to hedge the variable component of certain heat-rate 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 contracts qualify for hedge accounting treatment under SFAS 133 and there is no hedge ineffectiveness on these transactions because the underlying contract and the derivative instrument are both indexed to the NYMEX rates. Any market changes in valuation are recorded in other comprehensive income. The maximum length of time over which First Choice is hedging its exposure to the variability in future cash flows is December 2006.

Altura, at the time of the acquisition of Twin Oaks (see Note 2), assumed an existing forward contract for the energy output of the Twin Oaks facility. This forward physical contract is designated as a hedge of the cash flow risk associated with Altura’s forecasted excess generation. This hedge is effective in offsetting future cash flow volatility caused by changes in the forward price of electricity and qualifies for hedge accounting under SFAS 133. The value of the electricity hedge is recorded in other deferred charges. There is no hedge ineffectiveness on this transaction because the hedged transaction and the hedged item are based on the same forward curve. Any market changes in valuation are recorded in other comprehensive income. The length of time over which Altura is hedging its exposure to the variability in future cash flows is through September 2010.

~~Mark-to-Market Transactions~~

~~Electricity Contracts~~

First Choice enters 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” or “hedge” designation pursuant to SFAS 133, and are marked to market. The change in market valuation is recognized in earnings each period.

~~Gas Contracts~~

First Choice enters into various gas contracts to optimize market opportunities. These contracts are marked to market in accordance with SFAS 133. The change in market valuation is recognized in earnings each period.

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

PNMR

PNMR’s commodity derivative instruments are summarized as follows:


	June 30,			December 31,			June 30,			December 31,
	2007			2006			2007			2006
Type of Derivative	Mark-to-Market Instruments						Hedge Instruments
	(In thousands)
Current Assets
Energy contracts	$	26,686		$	17,773		$	1,489		$	7,208
Gas fixed-for-float swaps and futures		56,341			21,875			2,778			4,655
Options		4,294			4,032			12			—
PGAC portion of options, swaps and hedges		—			—			6,831			16,748

Total current assets		87,321			43,680			11,110			28,611


Deferred Charges
Energy contracts		4,335			2,666			—			26,991
Gas fixed-for-float swaps		17,521			7,288			2,943			1,872
Options		2,749			1,028			—			—
PGAC portion of options, swaps and hedges		—			—			—			3,337

Total deferred charges		24,605			10,982			2,943			32,200


Total Assets		111,926			54,662			14,053			60,811


Current Liabilities
Energy contracts		(37,286	)		(16,499	)		—			—
Gas fixed-for-float swaps		(51,499	)		(21,518	)		(1,339	)		(6,845	)
Options		(10,035	)		(4,003	)		(91	)		(109	)
PGAC portion of options, swaps and hedges		—			—			(6,831	)		(16,748	)

Total current liabilities		(98,820	)		(42,020	)		(8,261	)		(23,702	)


Long-term Liabilities
Energy contracts		(9,499	)		(7,472	)		(1,666	)		(154	)
Gas fixed-for-float swaps		(4,183	)		(862	)		(387	)		(1,915	)
Options		(3,898	)		(842	)		—			—
PGAC portion of options, swaps and hedges		—			—			—			(3,337	)

Total long-term liabilities		(17,580	)		(9,176	)		(2,053	)		(5,406	)


Total Liabilities		(116,400	)		(51,196	)		(10,314	)		(29,108	)


Net Total Assets and Liabilities	$	(4,474	)	$	3,466		$	3,739		$	31,703

June 30,

December 31,

June 30,

December 31,

2006

2005

2006

2005

Type of Derivative

Mark-to-Market Instruments

Hedge Instruments

(In thousands)
Current Assets

Energy Contracts $ 25,967 $ 11,650 $ 252 $ 6,616
Gas fixed for float swaps 11,231 6,488 3,990 10,465
Options 1,751 3,746 - 261
PGAC portion of options, swaps and hedges - - 3,412 7,528
Total Current Assets 38,949 21,884 7,654 24,870

Deferred Charges

Energy Contracts 2,477 3,477 6,090 -
Gas fixed for float swaps 768 12,459 2,056 13,614
Options 1,515 5,329 - -
PGAC portion of options, swaps and hedges - - 1,622 (5,906 )
Total Deferred Charges 4,760 21,265 9,768 7,708

Total Assets
$ 43,709 $ 43,149 $ 17,422 $ 32,578

Current Liabilities

Energy Contracts $ (23,815 ) $ (7,333 ) $ (209 ) $ (503 )
Gas fixed for float swaps (11,607 ) (7,151 ) (5,410 ) (3,970 )
Options (1,362 ) (3,293 ) (8,286 ) (844 )
PGAC portion of options, swaps and hedges - - (3,412 ) 3,942
Total Current Liabilities (36,784 ) (17,777 ) (17,317 ) (1,375 )

Long-Term Liabilities

Energy Contracts (2,623 ) (3,444 ) (1,008 ) -
Gas fixed for float swaps (354 ) (12,257 ) (221 ) -
Options (1,284 ) (5,143 ) - -
PGAC portion of options, swaps and hedges - - (1,622 ) (5,564 )
Total Long-Term Liabilities (4,261 ) (20,844 ) (2,851 ) (5,564 )

tTTotal Liabilities
$ (41,045 ) $ (38,621 ) $ (20,168 ) $ (6,939 )

Gains or losses are reclassified from accumulated other comprehensive income when the hedged transaction settles and impacts earnings. The amount which will be reclassified in the next twelve months represents the net of current assets and current liabilities, excluding the PGAC, in the above table.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Three Months Ended June 30,

Six Months Ended June 30,

2006

2005

2006

2005

(In thousands)
Amount realized on contracts delivered
during period $ (3,966 ) $ (322 ) $ (4,108 ) $ (254 )
Changes in fair value 308 211 2,244 1,066
Net change recorded as mark-to-market $ (3,658 ) $ (111 ) $ (1,864 ) $ 812

~~The net change in fair value on PNMR’s commodity derivative instruments designated as hedging instruments are summarized as follows:~~

Three Months Ended June 30,

Six Months Ended June 30,

2006

2005

2006

2005

Type of Derivative

Hedge Instruments

(In thousands)
Change in fair value of energy contracts $ 6,557 $ 1,127 $ (988 ) $ (2,194 )
Change in fair value of gas fixed for float swaps (6,133 ) 3,310 (19,694 ) 9,530
Change in the fair value of options (2,401 ) 583 (7,703 ) 583
Net change in fair value $ (1,977 ) $ 5,020 $ (28,385 ) $ 7,919

PNM

~~Normal Sales and Purchases Transactions~~

PNM enters into physical gas contracts to meet the needs of its gas retail sales-service customers. These contracts qualify for “normal” accounting designations pursuant to SFAS 133 as the gas is physically delivered and sold to end-use customers.

PNM also enters 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 enters into forward physical contracts for the purchase of retail needs, including reserves, when resource shortfalls exist. PNM generally accounts for these as normal sales and purchases as defined by SFAS 133. From time to time PNM makes forward purchases to serve its retail needs when the cost of purchased power is less than the incremental cost of its generation.

The operations of PNM, including both firm commitments and other wholesale sale activities, are managed primarily through a net asset-backed strategy, whereby PNM’s aggregate net open position is covered by its own excess generation capabilities. PNM is exposed to market risk if its generation capabilities were disrupted or if its retail load requirements were greater than anticipated. If PNM were required to cover all or a portion of its net open contract position, it would have to meet its commitments through market purchases.

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Hedge Accounting Transactions~~

~~PGAC~~

The NMPRC has authorized PNM to use financial instruments to hedge certain portions of natural gas supply contracts during the winter months to protect PNM’s sales-service gas customers from the risk of adverse price fluctuations in the natural gas market. PNM has elected to use call options and financial swaps to hedge certain portions of the physical gas purchase contracts used exclusively for resale to PNM’s sales-service gas customers. The contracts qualify for hedge accounting treatment under SFAS 133. Option premium expenses are deferred on PNM’s balance sheet as prepaid gas costs as incurred and amortized into the PGAC for recovery as a component of gas costs during the winter heating season. Option premium expense and hedge gains and losses from both types of instruments are passed through PNM’s PGAC with no income statement effect if deemed prudently incurred by the NMPRC.

PNM also enters into financial swaps to hedge the variable portion of its winter gas portfolio. PNM has hedged 13.2 million MMBtus utilizing the fixed-for-float strategy for 2006-2007 and the 2007-2008 winter heating season. Any settled fixed-for-float financial transactions are passed through PNM’s PGAC.

~~Gas Off-System Sales~~

PNM enters into physical and financial swaps to hedge the variable component of its physical natural gas purchases and sales. Both the hedges and the underlying contracts are indexed to the NYMEX rates, and the price movements in the financial transactions offset price movements in the underlying contracts. The hedges are based on prices for spot gas delivered to pipelines at basins within the state of New Mexico. The hedges are effective in offsetting future cash flow volatility caused by changes in natural gas prices. These hedges qualify as cash flow hedges pursuant to SFAS 133. The value of the natural gas hedges are recorded in other current assets. Valuation prior to settlement and eventual settled margins from these types of transactions are shared on a 70%/30% basis with PNM’s customers and PNM, respectively. The eventual settled margins from the 70% of these transactions are returned to PNM’s customers. The maximum length of time over which PNM is hedging its exposure to the variability in future cash flows is through December 2006.

~~Wholesale Electricity~~

PNM enters into various forward physical contracts to hedge the cash flow risk associated with PNM’s forecasted excess generation. These hedges are effective in offsetting future cash flow volatility caused by changes in the forward price of electricity and qualify for hedge accounting under SFAS 133. The value of the electricity hedges are recorded in other deferred charges. There is no hedge ineffectiveness on these transactions because the hedged transactions and the hedged item are based on the same forward curve. Any market changes in valuation are recorded in other comprehensive income. The maximum length of time over which PNM is hedging its exposure to the variability in future cash flows is through September 2008.

~~Wholesale Gas~~

PNM also enters into various fixed-for-float price swaps to manage the costs associated with running PNM’s gas generation units. The hedges are effective in offsetting future cash flow volatility caused by increases in natural gas prices. There is no hedge ineffectiveness on these transactions because the hedged transactions and the hedged item are based on the same forward curve. Any market changes in valuation are recorded in other comprehensive income. The maximum length of time over which PNM is hedging its exposure to the variability in future cash flows is through June 2016.

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Mark-to-Market Transactions~~

~~Wholesale Electricity~~

PNM enters 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” or “hedge” designation pursuant to SFAS 133, and are marked to market. The change in market valuation is recognized in earnings each period.

~~Wholesale Gas~~

PNM 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. 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. The change in market valuation is recognized in earnings each period.

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

PNM’s commodity derivative instruments are summarized as follows:


	June 30,			December 31,			June 30,			December 31,
	2007			2006			2007			2006
Type of Derivative	Mark-to-Market Instruments						Hedge Instruments
	(In thousands)
Current Assets
Energy contracts	$	13,803		$	16,374		$	1,489		$	1,057
Gas fixed-for-float swaps		17,908			1,950			2,755			1,615
Options		2,505			2,986			—			—
PGAC portion of options, swaps and hedges		—			—			6,831			16,748

Total current assets		34,216			21,310			11,075			19,420


Deferred Charges
Energy contracts		372			2,666			—			—
Gas fixed-for-float swaps		14,108			7,101			2,943			1,872
Options		2,414			825			—			—
PGAC portion of options, swaps and hedges		—			—			—			3,337

Total deferred charges		16,894			10,592			2,943			5,209


Total Assets		51,110			31,902			14,018			24,629


Current Liabilities
Energy contracts		(15,552	)		(10,928	)		—			—
Gas fixed-for-float swaps		(28,653	)		(6,440	)		(231	)		(2,872	)
Options		(5,709	)		(3,255	)		—			—
PGAC portion of options, swaps and hedges		—			—			(6,831	)		(16,748	)

Total current liabilities		(49,914	)		(20,623	)		(7,062	)		(19,620	)


Long-term Liabilities
Energy contracts		(4,865	)		(7,472	)		(1,666	)		(154	)
Gas fixed-for-float swaps		(877	)		(421	)		(387	)		(1,915	)
Options		(3,765	)		(801	)		—			—
PGAC portion of options, swaps and hedges		—			—			—			(3,337	)

Total long-term liabilities		(9,507	)		(8,694	)		(2,053	)		(5,406	)


Total Liabilities		(59,421	)		(29,317	)		(9,115	)		(25,026	)


Net Total Assets and Total Liabilities	$	(8,311	)	$	2,585		$	4,903		$	(397	)

June 30,

December 31,

June 30,

December 31,

2006

2005

2006

2005

Type of Derivative

Mark-to-Market Instruments

Hedge Instruments

(In thousands)
Current Assets

Energy Contracts $ 13,314 $ 6,126 $ 252 $ 6,616
Gas fixed for float swaps 1,037 2,074 3,990 9,150
Options 748 2,136 - -
PGAC portion of options, swaps and hedges - - 3,412 7,528
Total Current Assets 15,099 10,336 7,654 23,294

Deferred Charges

Energy Contracts 1,886 3,477 - -
Gas fixed for float swaps 535 12,459 2,056 13,614
Options 1,515 5,329 - -
PGAC portion of options, swaps and hedges - - 1,622 (5,906 )
Total Deferred Charges 3,936 21,265 3,678 7,708

Total Assets
$ 19,035 $ 31,601 $ 11,332 $ 31,002

Current Liabilities

Energy Contracts $ (14,628 ) $ (5,931 ) $ (209 ) $ (503 )
Gas fixed for float swaps (187 ) (351 ) (1,090 ) (1,255 )
Options (363 ) (2,217 ) - -
PGAC portion of options, swaps and hedges - - (3,412 ) 3,942
Total Current Liabilities (15,178 ) (8,499 ) (4,711 ) 2,184

Long-Term Liabilities

Energy Contracts (2,280 ) (3,444 ) (1,008 ) -
Gas fixed for float swaps - (12,257 ) (221 ) -
Options (1,284 ) (5,143 ) - -
PGAC portion of options, swaps and hedges - - (1,622 ) (5,564 )
Total Long-Term Liabilities (3,564 ) (20,844 ) (2,851 ) (5,564 )

tTTotal Liabilities
$ (18,742 ) $ (29,343 ) $ (7,562 ) $ (3,380 )

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(5) Earnings Per Share

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

Three Months Ended June 30,

Six Months Ended June 30,

2006

2005

2006

2005

(In thousands)
Amount realized on contracts delivered
during period $ (658 ) $ (322 ) $ (85 ) $ (254 )
Changes in fair value (1,811 ) 211 (1,880 ) 1,066
Net change recorded as mark-to-market $ (2,469 ) $ (111 ) $ (1,965 ) $ 812

~~The net change in fair value on PNM’s commodity derivative instruments designated as hedging instruments are summarized as follows:~~

Three months ended June 30,

Six months ended June 30,

2006

2005

2006

2005

Type of Derivative

Hedge Instruments

(In thousands)
Change in fair value of energy contracts $ 466 $ 1,127 $ (7,078 ) $ (2,194 )
Change in fair value of gas fixed for float swaps (2,019 ) 2,510 (16,774 ) 8,730
Net change in fair value $ (1,553 ) $ 3,637 $ (23,852 ) $ 6,536

~~TNMP~~

~~Normal Sales and Purchases Transactions~~

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 have been defined by SFAS 133. In accordance with SFAS 133, management has determined that its contracts for electricity qualify for the normal purchases and sales exception. Revenue related to sales of electricity is recorded in electric revenues at the time of delivery. Expenses related to purchases of electricity are recorded in cost of energy at the time of delivery.

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~(5)~~

~~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 Condensed Consolidated Statements of ~~Earnings. The following reconciliation illustrates~~Earnings of PNMR. Information regarding the ~~impact on the share amounts~~computation of ~~potential common shares and the~~ earnings per share ~~amounts:~~is as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
			(As				(As
			Restated,				Restated,
			See note 16)				See note 16)
	(In thousands, except per share amounts)

Net Earnings	$	20,240	$	15,983	$	49,906	$	41,984


Average Number of Common Shares Outstanding		76,695		68,852		76,677		68,819
Dilutive effect of common stock equivalents (a):
Stock options and restricted stock		659		520		680		492
Equity-linked units		1,439		61		1,089		38

Average Common and Common Equivalent Shares		78,793		69,433		78,446		69,349


Net Earnings per Share of Common Stock:
Basic	$	0.26	$	0.23	$	0.65	$	0.61

Diluted	$	0.26	$	0.23	$	0.64	$	0.61

Three Months Ended

Six Months Ended

June 30,

June 30,

2006

2005

2006

2005

(In thousands, except per share amounts)
Basic:

Net Earnings
$ 16,307 $ 1,541 $ 42,632 $ 32,050

Average Number of Common Shares Outstanding 68,852 65,534 68,819 63,057

Net Earnings per Share of

Common Stock (Basic)
$ 0.24 $ 0.02 $ 0.62 $ 0.51

Diluted:

Net Earnings
$ 16,307 $ 1,541 $ 42,632 $ 32,050

Average Number of Common Shares Outstanding 68,852 65,534 68,819 63,057
Dilutive Effect of Common Stock
Equivalents (a) 581 955 530 953
Average Common and Common
Equivalent Shares Outstanding 69,433 66,489 69,349 64,010

Net Earnings per Share of Common

Stock (Diluted)
$ 0.23 $ 0.02 $ 0.61 $ 0.50


(a)		Excludes the effect of average anti-dilutive common stock equivalents related to out-of-the-money stock options of ~~661,855~~zero and ~~4,154~~661,855 for the three months and ~~736,869~~zero and ~~232,006~~736,869 for the six months ended June 30, 2007 and 2006, ~~and 2005,~~ respectively. ~~Excludes the effect of anti-dilutive equity-linked units of 4,945,000 for the three and six months ended June 30, 2006 and 2005 (see Note 7).~~

~~(6)~~

~~Stock-Based Compensation~~

PNMR has various types of stock-based compensation programs, including stock options, restricted stock and performance shares granted under the PEP. PNMR also has an ESPP. 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. Readers should refer to Note 13 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K/A (Amendment No. 2) for the year ended December 31, 2005 for additional information on these plans.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(6) Stock-Based Compensation

~~Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),~~ ~~“Share-Based Payment~~~~” ("SFAS 123R"), utilizing the modified prospective approach. Prior~~Information concerning stock-based compensation plans is contained in Note 13 of Notes to the adoption of SFAS 123R, stock option grants, performance shares and ESPP issuances were accounted for in accordance with the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, ~~"Accounting for Stock Issued to Employees"~~ ("APB 25"), and accordingly, no compensation expense was recognized for these awards. Restricted stock was also accounted for under APB 25 and compensation expense was recognized for restricted stock awards prior to the adoption of SFAS 123R. “Restricted stock” is the name of these awards provided forConsolidated Financial Statements in the ~~PEP and refers to awards of stock subject to vesting. It does not refer to restricted shares with contractual post-vesting restrictions as defined in SFAS 123R.~~2006 Annual Reports on Form 10-K/A (Amendment No. 1).

Under the modified prospective approach, SFAS 123R applies to all new awards and to awards that were outstanding on January 1, 2006 that are subsequently modified, repurchased or cancelled. Compensation expense recognized in 2006 includes compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123, and compensation expense for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. Prior periods were not restated to reflect the impact of adopting the new standard.

The unearned stock-based compensation related to stock options and restricted stock awards is being amortized to compensation expense over the requisite vesting period, which is generally equally over three years. However, plan provisions provide that upon retirement, participants become 100% vested in stock options and restricted stock awards; therefore, in accordance with SFAS 123R, compensation expense for stock options and restricted stock awards to participants that are retirement eligible on the grant date is recognized immediately at the grant date and is not amortized over a period of time.

Total compensation expense for stock-based payment arrangements recognized by PNMR for the three and six months ended June 30, 2006 was $1.1 million and $5.5 million, respectively. Of this total expense, $0.9 million and $4.2 million was allocated to PNM for the three and six months ended June 30, 2006, respectively, and $0.2 million and $0.9 million was allocated to TNMP for the three and six months ended June 30, 2006, respectively. No compensation expense was recognized by PNMR, PNM or TNMP for the three or six months ended June 30, 2005.

The total tax benefit recognized by PNMR for the three and six months ended June 30, 2006 was $0.5 million and $2.2 million, respectively. At June 30, 2006, PNMR had approximately $6.0 million of unrecognized compensation expense related to stock-based payments that is expected to be recognized over a weighted-average period of 1.5 years.

PNMR receives a tax deduction for certain stock option exercises during the period the options are exercised, generally for the excess of the price at which the options are sold over the exercise prices of the options and a tax deduction for increases in the value of equity instruments issued under stock-based payment arrangements. Prior to the adoption of SFAS 123R, all tax benefits resulting from the exercise of stock options and stock-based payment arrangements were reported as operating cash flows in the Condensed Consolidated Statements of Cash Flows. In accordance with SFAS 123R, for the six months ended June 30, 2006, PNMR’s Condensed Consolidated Statements of Cash Flows presentation reports the tax benefits from the exercise of stock options and stock-based payments as financing cash flows. For the six months ended June 30, 2006, $0.9 million of tax benefits were reported as financing cash flows rather than operating cash flows in PNMR’s Condensed Consolidated Statements of Cash Flows.

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 is shares acquired on the open market, rather than newly issued shares. During 2006, PNMR expects to repurchase between 1,200,000 shares and 2,000,000 shares for these awards using an independent broker. The source of shares for the ESPP is primarily newly issued shares.

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~The following table illustrates the reduction to PNMR’s earnings and basic and diluted earnings per share due to the adoption of SFAS 123R for the three and six months ended June 30, 2006:~~

Three Months
Ended

Six Months
Ended

June 30, 2006

(In thousands, except per
share amounts)

Reduction - PNMR income from operations $ 807 $ 3,515
Reduction - PNMR income before income taxes $ 807 $ 3,515
Reduction - PNMR net earnings $ 492 $ 2,142
Reduction - PNMR earnings per share
Basic $ 0.01 $ 0.03
Diluted $ 0.01 $ 0.03

~~The following table illustrates the effect on PNMR’s net earnings and diluted earnings per share had PNMR accounted for stock-based compensation in accordance with SFAS No. 123,~~ ~~“Share-Based Payment~~~~” for the three and six months ended June 30, 2005:~~

Three Months
Ended

Six Months
Ended

June 30, 2005

(In thousands, except per
share amounts)

Net earnings $ 1,541 $ 32,050
Add: Stock compensation expense included
in reported income, net of related tax effects - -
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related tax effects (346 ) (693 )
Pro forma net earnings $ 1,195 $ 31,357

Earnings per share:
Basic - as reported $ 0.02 $ 0.51

Basic - pro forma $ 0.02 $ 0.50

Diluted - as reported $ 0.02 $ 0.50

Diluted - pro forma $ 0.02 $ 0.49

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Stock Options

~~The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards with the following weighted-average assumptions for the indicated periods:~~

Six Months Ended

June 30,

2006

2005

Dividend yield 3.33% 2.55%
Expected volatility 21.70% 24.29%
Risk-free interest rate 4.37% 3.79%
Expected life of option (years) 4.14 4.23

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

The following table represents stock option activity for the six months ended June 30, ~~2006:~~2007:

Weighted-

Weighted-

Average

Aggregate

Average

Exercise

Intrinsic

Remaining

Stock Options

Shares

Price

Value

Contract Life

(In thousands, except share and per share amounts)

Outstanding at beginning of period 3,016,549 $ 18.97

Granted 817,200 $ 24.07

Exercised (268,576 ) $ 15.59

Forfeited or expired (79,294 ) $ 21.53

Outstanding at end of period 3,485,879 $ 20.37 $ 16,000 7.44 Years

Options exercisable at end of period 2,057,966 $ 17.51 $ 15,331 6.29 Years

Options available for future grant 3,325,987

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


								Weighted-
				Weighted-		Aggregate		Average
				Average		Intrinsic		Remaining
				Exercise		Value		Contract Life
Options for PNMR Common Stock	Shares			Price		(In thousands)		(Years)

Outstanding at beginning of period		2,999,606		$	21.02
Granted		762,400		$	30.50
Exercised		(431,065	)	$	20.45
Forfeited		(19,837	)	$	27.18


Outstanding at end of period		3,311,104		$	23.24	$	15,063		7.35


Options exercisable at end of period		1,898,008		$	19.73	$	15,292		6.08


Options available for future grant		2,477,194

The following table ~~summarizes~~provides additional information concerning stock option activity for the six months ended June 30:


Options for PNMR Common Stock	2007		2006
	(In thousands,
	except per share amounts)

Weighted-average grant date fair value per share of options granted	$	4.70	$	3.87
Total intrinsic value of options exercised during the period	$	4,847	$	2,556

Stock Options

2006

2005

(In thousands,
except per share amounts)

Weighted-average grant date fair value of options granted $ 3.87 $ 5.41
Total fair value of options that vested during the period $ 4,632 $ 4,322
Total intrinsic value of options exercised during the period $ 2,556 $ 11,547

~~Restricted Stock~~

The PEP, described in Note 13 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K/A (Amendment No. 2) for the year ended December 31, 2005, allows for the issuance of restricted stock awards. As noted above, “restricted stock” is the name of these awards provided for in the PEP and refers to awards of stock subject to vesting. It does not refer to restricted shares with contractual post-vesting restrictions as defined in SFAS 123R. The compensation expense for these awards was determined based on the market price of PNMR stock on the date of grant reduced by the present value of future dividends applied to the total number of shares that were anticipated to fully vest and then amortized over the vesting period.

The Company estimates the fair value of restricted stock awards based on the market price of PNMR common stock on the date of grant reduced by the present value of estimated future dividends with the following weighted-average assumptions for the indicated periods:

	~~Six Months Ended~~
	~~June 30,~~
	~~2006~~	~~2005~~

~~Expected quarterly dividends per share~~	~~$0.20~~	~~N/A~~
~~Risk-free interest rate~~	~~4.64%~~	~~N/A~~

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Restricted Stock

The following table summarizes nonvested restricted stock activity for the six months ended June 30, ~~2006:~~2007:

				Weighted-
				Average					Weighted-
				Grant-Date					Average
Nonvested Restricted Stock	Shares			Fair Value
Nonvested Restricted									Grant-Date
PNMR Common Stock						Shares			Fair Value

Nonvested at beginning of period		109,044		$	24.92		161,769		$	24.55

Granted		105,400		$	21.86		102,400		$	28.78

Vested		(39,571	)	$	24.69		(69,551	)	$	23.35

Forfeited		(6,684	)	$	22.35

Nonvested at end of period		168,189		$	23.17		194,618		$	26.09

The ~~following table summarizes~~total fair value of shares of restricted stock ~~activity for the six months ended June 30:~~

Nonvested Restricted Stock

2006

2005

(In thousands,
except per share amounts)

Weighted-average grant date fair value of shares granted $ 21.86 $ 26.80
Total fair value of shares that vested during the period $ 977 $ 276

~~Performance Shares~~

The PEP allows for the issuance of performance share awards. Under the provisions of SFAS 123R, the compensation expense for these awards was determined based on the market price of PNMR common stock on the date of grant applied to the total numbers of shares that ~~were anticipated to be awarded.~~

~~ESPP~~

Under the ESPP, employees were allowed to purchase shares of PNMR’s common stock at a 15% discount of the lower of the market price of stock at the beginning of the offering period and end of each purchase period forvested during the six months ended June 30, ~~2006. Under the provisions of SFAS 123R, the compensation expense for the shares issued under the ESPP~~2007 was determined based on the fair value of PNMR's common stock using the Black-Scholes model. Beginning July 1, 2006, the discount rate was changed to 5%, and the look-back feature was eliminated; therefore, the plan is no longer considered compensatory.$1.6 million.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(7) Capitalization

Information concerning financing activities is contained in Note 6 of Notes to Consolidated Financial Statements in the 2006 Annual Reports on Form 10-K/A (Amendment No. 1).

~~(7)~~

~~Capitalization~~

~~PNMR~~

~~Long-Term~~Short-term Debt

~~See “PNM” below for details about the April 2006 remarketing of PNM’s pollution control revenue bonds.~~

~~Revolving and Other Credit Facilities~~

PNMR ~~has a $600.0 million unsecured~~and PNM have revolving credit ~~facility (the “PNMR Facility”). The PNMR Facility has an expiration date of August 15, 2010~~facilities for borrowings up to $600 million and ~~includes two one-year extension options~~$400 million, respectively, that are subject to approval by a majority of the lenders. At June 30, 2006, there were no outstanding borrowings under the PNMR Facility; however, $107.7 million of letters of credit are outstanding, which reduces the available capacity under the PNMR Facility.

~~At June 30, 2006, PNMR also had $15.0 million~~primarily expire in ~~local lines of credit. There were no outstanding borrowings under the~~2012 and local lines of credit ~~at June 30, 2006.~~

amounting to $15 million and $13.5 million, respectively. PNMR ~~has a~~and PNM also have commercial paper ~~program~~programs under which itthey may issue up to ~~$400.0~~$400 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 June 30, 2006, PNMR had $126.3~~$300 million of commercial paper, ~~outstanding.~~

~~At June 30, 2006, First Choice had up to $300.0 million of borrowing capacity under~~respectively. The revolving credit facilities serve as support for the ~~PNMR Facility. Any borrowings made by First Choice under~~commercial paper programs. Operationally, this ~~sublimit are guaranteed by PNMR. At June 30, 2006, First Choice had no outstanding~~means the aggregate borrowings under the commercial paper program and the revolving credit facility for each of PNMR ~~Facility. In addition, at June 30, 2006, First Choice had $5.5 million~~and PNM cannot exceed the maximum amount of ~~letters of~~the revolving 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~~

~~On April 18, 2006,~~facility for that entity. PNMR entered into a short-term bridge loan agreement for temporary financing of Twin Oaks. See Note 2. On April 17, 2007, PNMR repaid the ~~Twin Oaks acquisition (see Note 2). Under~~balance due on the ~~term~~bridge loan. To facilitate the repayment, PNMR borrowed $250.5 million under its revolving credit facility, which amount has been repaid as of June 30, 2007.

Short-term debt outstanding consists of:


	June 30,		December 31,
Short-term Debt	2007		2006
	(In thousands)

PNM
Commercial paper	$	188,370	$	251,300
Revolving credit facility		47,300		—
Local lines of credit		6,400		—

		242,070		251,300

PNMR
Commercial paper		317,600		263,550
Bridge loan		—		249,495


	$	559,670	$	764,345

At August 1, 2007, PNMR and PNM had $221.7 million and $141.8 million of availability under their respective revolving credit facilities and local lines of credit, including reductions of availability due to outstanding letters of credit and amounts outstanding under the commercial paper programs.

As of June 30, 2007, TNMP had outstanding borrowings of $27.2 million from PNMR under its intercompany loan ~~agreement, PNMR was permitted to borrow up to $480.0~~agreement.

Long-term Debt

On June 26, 2007, the City of Farmington, New Mexico issued $20.0 million ~~in a single draw on or after April 18, 2006,~~of its PCRBs to finance or reimburse PNM for expenditures incurred in connection with pollution control equipment at SJGS. PNMR is obligated to pay amounts equal to the ~~acquisition~~principal and interest on the PCRBs. In addition, PNM issued $20.0 million of ~~Twin Oaks~~senior unsecured notes to secure and ~~related expenses. Term loans made under this agreement~~guarantee the PCRBs. Both the PCRBs and the senior unsecured notes mature in 2037 and bear interest at ~~a base rate (the greater of~~5.15%. The proceeds from the ~~prime rate~~PCRBs were placed directly in ~~effect and~~trust with an independent trustee. As PNM incurs qualified expenditures, it receives reimbursement from the ~~Federal Funds rate plus ½ of 1%) or an adjusted Eurodollar rate (equal~~trustee. In the event PNM does not incur qualified expenditures at least equal to the British Bankers Association LIBOR rate plus an additional percentage based on PNMR’s then current long-term senior unsecured non-credit enhanced debt rating). On April 18, 2006, PNMR borrowed $480.0 million under the term loan agreement. PNMR used the proceeds of the ~~loan~~PCRBs, the amount remaining in the trust must be used by the trustee to ~~make capital contributions totaling $480.0~~redeem a portion of the PCRBs. As of June 30, 2007, PNM had received $7.6 million ~~to Altura through~~from the ~~two wholly owned subsidiaries that~~trust. The senior unsecured notes are ~~partners~~included in ~~Altura to provide~~long-term debt in the ~~funds~~Condensed Consolidated Balance Sheets of PNM and PNMR and the amount remaining in the trust is included in other investments since it is restricted for the acquisition of ~~Twin Oaks. PNMR must repay the loan by April 17, 2007, unless accelerated~~items that will be included in ~~accordance with the terms of the agreement or prepaid in whole or in part upon the issuance of certain additional equity or debt.~~utility plant.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Effective June 15, 2007, TNMP redeemed $100.0 million of its 6.125% Senior Notes Due 2008 at a redemption price of 100.50% of the principal amount redeemed, plus accrued interest. To facilitate the redemption, PNMR made a cash contribution, recorded as equity, of $101.2 million to TNP, which then made an equity contribution to TNMP in the same amount.

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 March 15, 2006, to a weighted average rate of 5.65%. The swaps are accounted for as fair-value hedges with a liability position of approximately ~~$6.0~~$3.5 million at June 30, ~~2006, recorded in other current liabilities~~2007, with a corresponding reduction of long-term debt. ~~There was no hedge ineffectiveness for the three and six months ended June 30, 2006 or June 30, 2005.~~

Stockholders’ Equity

~~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 with a termination date of November 15, 2009. Under these swaps, PNMR received a floating rate equal to the three month LIBOR rate on the notional principal amount which paid 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% to be reset every three months. As of the last adjustment date, the weighted average interest rate was 5.149%. From November 2004 through June 30, 2005, the swaps were accounted for as cash flow hedges against the PNMR Facility. Effective June 30, 2005, the swaps were de-designated as cash flow hedges. As such, changes in market valuations are marked-to-market and recorded as unamortized gains or losses in the appropriate period. Prior to the de-designation, the increase in fair market value of $0.4 million was recorded in accumulated other comprehensive income on PNMR’s Condensed Consolidated Balance Sheet at June 30, 2006 and December 31, 2005. For the three and six months ended June 30, 2006, $0.2 million and $1.4 million, respectively, was recognized in other income on PNMR’s Condensed Consolidated Statement of Earnings. No comparable amount was recognized for the three and six months ended June 30, 2005. These two interest rate swaps were sold on May 19, 2006. The current amount recorded in other comprehensive income will be recognized in income over a 3 year period ending in November 2009.

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, commissions and expenses, of approximately $101.0 million. In March 2005, PNMR also completed a public offering of 4,945,000 equity-linked units at 6.75%, yielding net proceeds after discounts, commissions and expenses of approximately $239.6 million. 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.

~~Pursuant to the terms of the PNM Direct Plan, PNMR began offering~~offers new shares of PNMR common stock through the ~~plan beginning June 1, 2006. PNMR may also waive the maximum investment limit upon request in individual cases pursuant to the terms of the plan.~~PNM Direct Plan and an equity distribution agreement. For the six months ended June 30, ~~2006, 371,725 new~~2007, PNMR sold a combined total of 47,049 shares of ~~PNMR~~its common stock ~~were sold~~through the PNMR Direct Plan and the equity distribution agreement for ~~total~~net proceeds of ~~$9.3~~$1.4 million. PNMR also issued 24,210 shares of its common stock for $0.7 million through its ESPP during the six months ended June 30, 2007.

~~PNM~~

~~Long-Term Debt~~

On April 1, 2006, PNM remarketed its $46.0 million 2003 Series A and $100.0 million Series B pollution control revenue bonds resulting in an interest rate fixed to maturity on April 1, 2033 of 4.875% annually.

~~Revolving~~(8) Pension and Other ~~Credit Facilities~~

PNM has a $400.0 million unsecured credit agreement (the “PNM Facility”). The PNM Facility was for a one-year term, which was to expire on August 17, 2006. On July 6, 2006, the NMPRC approved extending the maturity for this facility to August 17, 2010, which will become effective upon receipt of the NMPRC order by the agent bank. The PNM Facility also includes two one-year extension options, which were also approved by NMPRC. These additional extension options are still subject to approval by a majority of the lenders. There were no amounts outstanding under the PNM Facility as of June 30, 2006.

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

At June 30, 2006, 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 local lines of credit or the borrowing arrangement with PNMR at June 30, 2006; 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 June 30, 2006, PNM had $100.2 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 June 30, 2006, PNM had approximately $200.0 million of remaining unissued securities registered under its universal shelf registration statement.

~~TNMP~~

~~Revolving and Other Credit Facilities~~

TNMP is a borrower and can issue notes of up to $100.0 million under the PNMR Facility. Any borrowings made by TNMP under this sublimit are not guaranteed by PNMR. At June 30, 2006, TNMP had no outstanding borrowings under the PNMR Facility; however, TNMP had $2.4 million in letters of credit outstanding, which reduces the available capacity under the PNMR Facility.

~~(8)~~

~~Pension and Other Postretirement Benefit Plans~~

Postretirement Benefit Plans

PNMR and its subsidiaries ~~maintain~~(other than TNP, TNMP and First Choice) have 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~~is legally obligated for the benefits owed to participants under ~~these plans.~~the PNM Plans. TNP, TNMP ~~also maintains~~and First Choice have 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~~ Benefits were frozen 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~~for the PNM pension plan ~~up to a limit determined by age~~ and ~~service. The~~2005 for the TNMP pension ~~plan was frozen at December 31, 2005, with regard~~plan. Readers should refer to ~~new participants, salary levels and benefits.~~

~~The total net periodic benefit cost or income from the PNM Plans, in addition~~Note 12 of Notes to the ~~net periodic benefit cost from the TNMP Plans from the date of PNMR’s acquisition of TNP, or June 6, 2005, is included~~Consolidated Financial Statements in the ~~Condensed Consolidated Statements of Earnings of PNMR.~~2006 Annual Reports on Form 10-K/A (Amendment No. 1) for additional information on these plans.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

PNM Plans

The following ~~table presents~~tables present the components of the PNM Plans’ net periodic benefit ~~cost/~~cost (income) ~~recognized in the Condensed Consolidated Statements of Earnings:~~:


	Three Months Ended June 30,
							Other Postretirement						Executive Retirement
	Pension Plan						Benefits						Program
	2007			2006			2007			2006			2007		2006
	(In thousands)

Components of Net Periodic
Benefit Cost (Income)
Service cost	$	36		$	126		$	632		$	678		$	14	$	14
Interest cost		7,953			7,710			1,928			1,842			272		264
Expected long-term return on assets		(10,195	)		(10,139	)		(1,464	)		(1,355	)		—		—
Amortization of net loss		972			1,210			1,461			1,670			24		25
Amortization of prior service cost		79			79			(1,422	)		(1,422	)		3		3

Net periodic benefit cost (income)	$	(1,155	)	$	(1,014	)	$	1,135		$	1,413		$	313	$	306

Three Months Ended June 30,

Pension Plan

Other Postretirement Benefits

Executive Retirement Program

2006

2005

2006

2005

2006

2005

(In thousands)

Service cost $ 126 $ 477 $ 678 $ 645 $ 14 $ 16
Interest cost 7,710 7,567 1,842 1,648 264 295
Expected long-term return on assets (10,139 ) (10,042 ) (1,355 ) (1,318 ) - -
Amortization of net loss 1,210 892 1,670 1,490 25 43
Amortization of prior service cost 79 79 (1,422 ) (1,702 ) 3 34
Net periodic benefit cost/(income) $ (1,014 ) $ (1,027 ) $ 1,413 $ 763 $ 306 $ 388

	Six Months Ended June 30,
	Pension Plan						Other Postretirement Benefits						Executive Retirement Program				Six Months Ended June 30,
	2006			2005			2006			2005			2006		2005								Other Postretirement						Executive Retirement
							(In thousands)										Pension Plan						Benefits						Program
																	2007			2006			2007			2006			2007		2006
																	(In thousands)

Components of Net Periodic
Benefit Cost (Income)
Service cost	$	252		$	954		$	1,356		$	1,290		$	28	$	32	$	72		$	252		$	1,264		$	1,356		$	28	$	28
Interest cost		15,420			15,134			3,684			3,296			528		590		15,906			15,420			3,856			3,684			544		527
Expected long-term return on assets		(20,277	)		(20,084	)		(2,709	)		(2,636	)		-		-		(20,389	)		(20,277	)		(2,927	)		(2,709	)		—		—
Amortization of net loss		2,420			1,784			3,340			2,980			50		86		1,944			2,420			2,922			3,340			46		50
Amortization of prior service cost		158			158			(2,844	)		(3,404	)		6		68		158			158			(2,844	)		(2,844	)		6		6
Net periodic benefit cost/(income)	$	(2,027	)	$	(2,054	)	$	2,827		$	1,526		$	612	$	776

Net periodic benefit cost (income)																	$	(2,309	)	$	(2,027	)	$	2,271		$	2,827		$	624	$	611

For the three months ended June 30, ~~2006~~2007 and ~~2005,~~2006, PNM contributed ~~approximately $3.1~~$1.5 million and ~~$1.5~~$3.1 million, respectively, to trusts for other postretirement benefits. For the six months ended June 30, ~~2006~~2007 and ~~2005,~~2006, PNM contributed ~~approximately~~ $3.1 million and $3.1 million, respectively, to trusts for other postretirement benefits. PNM expects to make contributions totaling ~~$6.4~~$6.0 million during ~~2006~~2007 to trusts for other postretirement benefits. PNM does not anticipate making any contributions to the pension ~~plan~~or executive retirement plans during ~~2006.~~2007.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

TNMP Plans

The following tables present the components of the TNMP Plans’ net ~~pension cost/(income) recognized in the Condensed Consolidated Statements of Earnings:~~

Three Months Ended June 30,

Post-

Post-

Pre-

Acquisition

Acquisition

Acquisition

April 1-

June 6-

April 1-

June 30,

June 30,

June 6,

2006

2005

2005

(In thousands)

Service cost $ - $ 187 $ 343
Interest cost 1,085 345 759
Expected long-term rate of return on plan assets (1,754 ) (573 ) (966 )
Amortization of prior service cost - - (20 )
Net periodic pension benefit cost/(income) $ (669 ) $ (41 ) $ 116

Six Months Ended June 30,

Post-

Post-

Pre-

Acquisition

Acquisition

Acquisition

January 1-

June 6-

January 1-

June 30,

June 30,

June 6,

2006

2005

2005

(In thousands)

Service cost $ - $ 187 $ 848
Interest cost 2,170 345 1,875
Expected long-term rate of return on plan assets (3,508 ) (573 ) (2,387 )
Amortization of prior service cost - - (49 )
Net periodic pension benefit cost/(income) $ (1,338 ) $ (41 ) $ 287

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~The following tables present the components of TNMP postretirement~~periodic benefit cost ~~recognized in the Condensed Consolidated Statements of Earnings:~~(income):


	Three Months Ended June 30,
							Other Postretirement						Executive Retirement
	Pension Plan						Benefits						Program
	2007			2006			2007			2006			2007		2006
	(In thousands)

Components of Net Periodic
Benefit Cost (Income)
Service cost	$	—		$	—		$	98		$	106		$	—	$	—
Interest cost		1,057			1,085			165			178			19		19
Expected long-term return on assets		(1,710	)		(1,754	)		(114	)		(114	)		—		—
Amortization of net gain		(2	)		—			(39	)		—			—		—
Amortization of prior service cost		—			—			15			15			—		—

Net Periodic Benefit Cost (Income)	$	(655	)	$	(669	)	$	125		$	185		$	19	$	19

Three Months Ended June 30,

Post-

Post-

Pre-

Acquisition

Acquisition

Acquisition

April 1-

June 6-

April 1-

June 30,

June 30,

June 6,

2006

2005

2005

(In thousands)

Service cost $ 106 $ 40 $ 79
Interest cost 178 52 114
Expected long-term rate of return on plan assets (114 ) (33 ) (55 )
Amortization of transition obligation - - 55
Amortization of prior service cost 15 - -
Net periodic postretirement benefit cost $ 185 $ 59 $ 193

Six Months Ended June 30,

Post-

Post-

Pre-

Acquisition

Acquisition

Acquisition

January 1-

June 6-

January 1-

June 30,

June 30,

June 6,

2006

2005

2005

(In thousands)

Service cost $ 212 $ 40 $ 195
Interest cost 356 52 282
Expected long-term rate of return on plan assets (228 ) (33 ) (136 )
Amortization of transition obligation - - 136
Amortization of prior service cost 30 - -
Net periodic postretirement benefit cost $ 370 $ 59 $ 477

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~The following tables present the components of TNMP executive retirement program cost recognized in the Condensed Consolidated Statements of Earnings:~~

Three Months Ended June 30,

Post-

Post-

Pre-

Acquisition

Acquisition

Acquisition

April 1-

June 6-

April 1-

June 30,

June 30,

June 6,

2006

2005

2005

(In thousands)

Service cost $ - $ - $ 16
Interest cost 19 6 32
Amortization of net loss - - 18
Amortization of prior service cost - - (14 )
Net periodic executive retirement program cost $ 19 $ 6 $ 52

	Six Months Ended June 30,
								Six Months Ended June 30,
	Post-		Post-		Pre-									Other Postretirement						Executive Retirement
	Acquisition		Acquisition		Acquisition			Pension Plan						Benefits						Program
	January 1-		June 6-		January 1-			2007			2006			2007			2006			2007		2006
	June 30,		June 30,		June 6,			(In thousands)
	2006		2005		2005
	(In thousands)

Components of Net Periodic
Benefit Cost (Income)
Service cost	$	-	$	-	$	40		$	—		$	—		$	196		$	212		$	—	$	—
Interest cost		38		6		78			2,114			2,170			330			355			38		38
Amortization of net loss		-		-		45
Expected long-term return on assets									(3,420	)		(3,508	)		(228	)		(228	)		—		—
Amortization of net gain									(4	)		—			(78	)		—			—		—
Amortization of prior service cost		-		-		(35	)		—			—			30			30			—		—
Net periodic executive retirement program cost	$	38	$	6	$	128

Net Periodic Benefit Cost (Income)								$	(1,310	)	$	(1,338	)	$	250		$	369		$	38	$	38

For the three ~~months ended June 30, 2006~~ and ~~2005, TNMP contributed approximately $0.0 million and $0.3 million, respectively, for the other postretirement benefits. For the~~ six months ended June 30, ~~2006,~~2007, TNMP ~~did not make any contributions to trusts~~contributed $0.3 million for the other postretirement benefits. For the three and six months ended June 30, ~~2005,~~2006, TNMP ~~contributed $0.4 million~~made no contributions to trusts for other postretirement benefits. TNMP expects to make contributions totaling ~~$1.2~~$0.5 million during ~~2006~~2007 to trusts for other postretirement benefits. TNMP does not anticipate making any contributions to the pension ~~plan~~or executive retirement plans during ~~2006.~~2007.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

~~(9)~~

~~Commitments and Contingencies~~

(9) Commitments and Contingencies

OVERVIEW

There are various claims and lawsuits pending against the Company. The Company is also subject to federal, state and local environmental laws and regulations, and is currently participating in the investigation and remediation of numerous sites. In addition, the Company periodically enters into financial commitments in connection with its business operations. It is not possible at this time for the Company to determine fully the effect of all litigation and other legal proceedings on its results of operations or financial position. It is the Company’s policy to accrue for expected ~~legal~~ costs in accordance 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 of these items to be incurred is reasonably estimable. These estimates include costs for external counsel and other professional fees. The Company is also involved in various legal proceedings in the normal course of its business. The associated legal costs for these routine matters are accrued when the legal expenses are incurred. The Company does not expect that any known lawsuits, environmental costs and commitments will have a material adverse effect on its financial condition or results of operations, although the outcome of litigation, investigations and other legal proceedings is inherently uncertain.

COMMITMENTS AND CONTINGENCIES RELATED TO THE ENVIRONMENT

PNM

Renewable Portfolio Standard

The Renewable Energy Act of 2004 was enacted to encourage the development of renewable energy in New Mexico. As amended effective July 1, 2007, the act establishes a mandatory renewable energy portfolio standard requiring a utility to acquire a renewable energy portfolio equal to 5% of retail electric sales by January 1, 2006 and increasing to 10% by 2011, 15% by 2015 and 20% by 2020. The act provides for streamlined proceedings for approval of utilities’ renewable energy procurement plans, assures utilities recovery of costs incurred consistent with approved procurement plans and requires the NMPRC to establish a reasonable cost threshold for the procurement of renewable resources to prevent excessive costs being added to rates.

In August 2006, PNM filed its annual renewable energy portfolio report and 2007 renewable energy procurement plan. In its procurement plan, PNM stated that it would continue to procure renewable energy and RECs from wind and solar photovoltaic facilities and to capitalize the costs for recovery in its next rate case in accordance with a stipulation approved by the NMPRC in 2003. The procurement plan requested the NMPRC to amend PNM’s solar photovoltaic program to eliminate the annual ceiling on new customer subscriptions, to approve the procurement of renewable energy and RECs from a biomass facility under a 20-year PPA beginning in 2009 and to authorize recovery of the costs of procurement under the PPA, including costs related to imputed debt. The NMPRC issued a final order on December 14, 2006 which approved the amendment to the photovoltaic program, approved the procurement under the biomass PPA, and recognized a “disputable presumption” of the reasonableness of the costs of energy and capacity under the PPA. The NMPRC denied PNM’s request to recover imputed debt costs, but gave PNM leave to present the issue again in a rate case. On February 6, 2007, the NMPRC entered an order reopening the case with the limited purpose of reconsidering its determination that the act creates only a “disputable presumption” of the reasonableness of costs incurred under an approved procurement plan and invited briefs on that issue. PNM, the NMPRC staff, and the New Mexico Attorney General filed briefs. A decision is pending.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~PNM~~

The Clean Air Act

Regional Haze

~~Conflicts at San Juan Mine Involving Oil~~In 2005, the EPA issued the final rule addressing regional haze and ~~Gas Leaseholders~~

guidelines for BART determinations. The ~~SJCC, through leases with~~purpose of the regional haze regulations is to address regional haze visibility impairment in the United States’ national parks and wilderness areas. The rule calls for all states to establish goals and emission reduction strategies for improving visibility in these areas. In October 2006, the EPA issued the final BART alternatives rule which made revisions to the 2005 regional haze rules. In particular, the alternatives rule defines how an SO₂ emissions trading program developed by the Western Regional Air Partnership, a voluntary organization of western states, tribes and federal ~~government and the State of~~agencies, can be used by western states. New Mexico ~~owns coal interests with respect~~will be participating in the SO₂ program, which is a trading program that will be implemented if SO₂ reduction milestones, which are still being developed, are not met. The NMED had requested a BART analysis for nitrogen oxides and particulate be done for each of the four units at SJGS. The Company submitted the analysis to the ~~San Juan underground mine. Certain gas producers have leases~~NMED in early June 2007. The NMED is presently reviewing the ~~area~~analysis. Potentially, additional nitrogen oxide emission reductions could be required. The nature and cost of ~~the underground coal mine and have asserted claims against SJCC that its coal mining activities are interfering~~compliance with ~~gas production. The Company understands that SJCC has reached a settlement in principle with Western Gas for certain wells in the mine area. The Western Gas settlement however, does not resolve all~~these potential ~~claims by Western Gas 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~~requirements cannot ~~predict the outcome of any future disputes between SJCC and Western Gas or other gas leaseholders.~~be determined at this time.

~~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 had previously been dismissed with prejudice from all but two of the remaining cases. On May 25, 2006, the matter was dismissed with prejudice as to all claims due to plaintiffs' non-compliance with the case management order and failure to prosecute.

New Source Review Rules

In 2003, the EPA issued ~~its~~a rule ~~regarding RMRR,~~ clarifying what constitutes routine maintenance, repair, and replacement of damaged or worn equipment, subject to safeguards to assure consistency with the Clean Air Act. In March 2006, a panel of the Court of Appeals for the District of Columbia Circuit vacated this rule. The action by the court did not eliminate the NSR exclusion for routine maintenance, repair, and replacement work nor did the decision rule on what activities are physical changes. The EPA’s authority to write a rule based on the current NSPS hourly emission increase test remains in ~~place.~~place, although the U.S. Supreme Court agreed to hear an appeal of the Fourth U.S. Circuit Court of Appeals ruling in favor of Duke Energy Corp with respect to the hourly emission increase test being the appropriate method for calculating an emissions increase for PSD purposes. On April 2, 2007, the U.S. Supreme Court issued its decision. In a unanimous decision, the U.S. Supreme Court vacated the decision of the Fourth U.S. Circuit Court of Appeals and remanded for further proceedings consistent with the U.S. Supreme Court’s opinion. The decision precludes the use of an increase in the maximum hourly emission rate for determining an emissions increase for PSD purposes. The decision did not eliminate the NSR exclusion for routine maintenance, repair, or replacement, nor did it preclude the EPA from promulgating a regulation allowing an emission increase test for PSD purposes to be based on an increase in the maximum hourly emission rate. The EPA has announced that it will proceed with revision of the NSR rules to specify that only activities that increase an emitting unit’s hourly rate of emissions trigger a major modification. The Company is unable to determine the impact of this matter on its results of operations and financial position.

Citizen Suit Under the Clean Air Act

PNM reached an impasse with the Grand Canyon Trust and Sierra Club (“Plaintiffs”) and with the NMED with respect to certain matters under the Consent Decree of May 10, 2005. As a result, PNM filed petitions with the United States District Court for the District of New Mexico on October 6 and 12, 2006, seeking a determination that PNM had complied with the Consent Decree with respect to the matters at issue. The controversies related to PNM’s reports on NOX controls and demisters at SJGS. PNM reached an agreement with the Plaintiffs and the NMED concerning these issues which was set forth in a Stipulated Order. The Court entered the Stipulated Order approving the settlement on December 27, 2006. The settlement does not require any additional material expenditures with respect to the implementation of the Consent Decree. Counsel for Plaintiffs has submitted statements to PNM for payment of attorneys fees and costs incurred with respect to post-decree administration and disputes. The parties have settled the fee request for a nominal amount.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The Consent Decree includes a provision whereby stipulated penalties are assessed for non-compliance with specified emissions limits. Stipulated penalty amounts are placed in escrow on a quarterly basis pending review of SJGS’s emissions performance for each quarter. For the years 2005 and 2006, PNM has placed $1.2 million into escrow as potential stipulated penalties. By letter dated March 20, 2007, the NMED and Plaintiffs requested information concerning PNM’s calculation of potential stipulated penalty amounts and the amounts held in escrow. PNM submitted its response to NMED on May 23, 2007.

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 13.0% 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 October 1995, the Four Corners participants filed a lawsuit in the District Court of the Navajo Nation, Window Rock District, challenging the applicability of the Navajo Acts as to Four Corners. The District Court stayed these proceedings pursuant to a request by the parties and the parties are seeking to negotiate a settlement.

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

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

The Company cannot currently predict the outcome of these matters.

Four Corners Federal Implementation Plan Litigation

In September 1999, the EPA proposed a FIP to set air quality standards at certain power plants, including Four Corners. On July 26, 2006, ~~the Rio Grande Chapter of~~ the Sierra Club sued the EPA ~~in Federal District Court in New Mexico~~ in an attempt to force the EPA to ~~adopt~~issue a ~~federal implementation plan~~final FIP to limit emissions at the Four Corners. On September 12, 2006, the EPA proposed a revised FIP to establish air quality standards at Four Corners.

APS, the Four Corners operator, intervened in the proceeding as a defendant in order to protect the interests of the participants. The Sierra Club and the EPA reached a settlement over the timing of the issuance of the FIP and a Consent Decree was lodged with the Court on December 13, 2006 and notice of the lodging of the Consent Decree was published in the March 15, 2007 Federal Register. Under the terms of the proposed Consent Decree, the EPA, on April 30, 2007, issued the final FIP for Four Corners. The ~~relief sought by~~FIP essentially federalizes the requirements contained in the New Mexico State Implementation Plan, which Four Corners has historically followed. In the case of sulfur dioxide, the FIP includes an emission limit that Four Corners has achieved following a successful program to determine if additional reductions could be made with the existing controls. The FIP also includes a requirement to control fugitive dust within 18 months after the FIP becomes effective. APS filed a Petition for Review on July 2, 2007 in the United States Circuit Court of Appeals for the Tenth Circuit seeking revisions to the FIP in order to clarify certain requirements and allow operational flexibility. The Sierra Club ~~in part, is~~also filed a Petition for ~~an order directing~~Review with the ~~EPA to issue a final federal implementation plan for Four Corners~~Tenth Circuit Court on July 6, 2007, challenging whether the FIP complies with ~~all expedition, but in no event later than 60 days. APS owns three units at~~ the ~~power plant, while~~requirements of the ~~two other units are owned in varying percentages by Southern California Edison, APS, PNM, Salt River Project, Tucson Electric Power and EPE.~~Clean Air Act. The Company is unable to ~~predict~~determine the ~~outcome~~impact of ~~this matter at this time.~~

~~SESCO Matter~~

~~TCEQ is conducting a site investigation~~these matters on its results of ~~SESCO, a former electrical equipment repair~~operations and sales company located in San Angelo, Texas 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 tofinancial position.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In addition, on August 21, 2006, the EPA proposed a FIP to implement “minor New Source Review” on Tribal reservations. The FIP, if finalized, would apply to Four Corners and would require preconstruction review and permitting of plant projects that meet specified criteria. PNM does not currently expect this FIP to have a material adverse effect on its financial position, results of operations, cash flows or liquidity.

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.

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 ~~classified as a de minimis potentially responsible party.~~ not able to assess the duration of this project.

PNM 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. The settlement offer is contingent upon final approvalbeen verbally informed that the Superfund Oversight Section of the ~~administrative order~~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.

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.

NRC Matters

In October 2006, the NRC conducted an inspection of the PVNGS emergency diesel generators after a Palo Verde Unit 3 generator started but did not provide electrical output during routine inspections on July 25 and September 22, 2006. On February 22, 2007, the NRC issued a “white” finding (low to moderate safety significance) for this matter. Under the NRC’s Action Matrix, this finding, coupled with a previous NRC “yellow” finding relating to a 2004 matter involving PVNGS’s safety injection systems, resulted in PVNGS Unit 3 being placed in the “multiple/repetitive degraded cornerstone” column of the NRC’s Action Matrix, which has resulted in an enhanced NRC inspection regimen. On June 21, 2007, the NRC issued a confirmatory action letter confirming APS’ commitments, as operator, regarding specific actions APS will take to improve Palo Verde’s performance. APS continues to implement its plan to improve PVNGS’s performance.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

On November 9, 2006, APS notified the NRC that a senior reactor operator at PVNGS had attempted to cover up a mistaken entry the operator had made in a PVNGS operations verification log. The senior reactor operator resigned shortly thereafter. By letter dated July 12, 2007, the NRC notified APS that, based upon the results of its investigation of the matter, the NRC is considering an escalated enforcement action against PVNGS due to the willfulness of the senior reactor operator’s actions. The NRC noted in its letter that the safety significance of the matter was very low. In accordance with NRC procedures, APS has requested alternative dispute resolution with the NRC in an attempt to resolve this issue. PNM cannot predict the outcome of this matter.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

OTHER COMMITMENTS AND CONTINGENCIES

PNM

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 ~~TCEQ.~~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 is subject to an annual limit of $15.0 million per reactor per incident. 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 $4.6 million. 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.

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. 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 determine 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 ~~this time. As discussed below, TNMP is also involved~~San Juan Mine Involving Oil and Gas Leaseholders

SJCC, through leases with the federal government and the State of New Mexico, owns coal interests with respect to the San Juan underground mine. Certain gas producers have leases in the ~~SESCO matter.~~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 with Western Gas for certain wells in the mine area. The Western Gas settlement however, does not resolve all of Western Gas’ potential claims in the larger San Juan underground mine area. Discussions are ongoing with Western Gas’ successor, Anadarko Petroleum Corporation, for settlement of additional claims. 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.

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 proceedings relating to the Company are summarized below.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 FERC ALJ issued the Proposed Findings on California Refund Liability, in which it determined that the Cal ISO and Cal PX had, for the most part, correctly calculated the amounts of the potential refunds owed by most sellers and identified ~~ballpark figures~~approximations 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, which had the effect of increasing the refund amounts owed by most sellers. 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 revenue shortfall for their transactions during the refund ~~period.~~period (October 2, 2000 through June 20, 2001). Included in ~~PNM's~~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 certain 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. In February 2006, PNM filed a petition for rehearing requesting FERC to reconsider its order and allow PNM to include a return on equity. While PNM believes it has meritorious legal arguments, 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.~~

As previously reported, there have been a number of additional appeals pending before the United States Court of Appeals for the Ninth Circuit ~~(“Ninth Circuit”)~~ with regard to FERC’s orders issued in the various California market refund dockets and PNM has participated in various appeals as one of the members of the ~~competitive sellers group. One such case, involved the issues regarding the scope~~Competitive Sellers Group. The Ninth Circuit has held a number of ~~transactions subject to refund~~mediation conferences in these, and the ~~timeframe~~multiple other appeals pending before it, to assess the opportunities for settlement, in which ~~FERC could~~PNM has participated. The Ninth Circuit issued an order ~~refunds~~declaring a 45-day time out period to allow parties the opportunity to assess the recent court decisions and the potential for ~~sales into the CAISO and CalPX markets. On August 2,~~settlement of cases. In October 2006, the Ninth Circuit extended the time out period in several of the cases. In September 2006, a mediation conference was convened at the California Public Utilities Commission to assess the potential settlement of the refund proceedings. The conference was attended by, among others, PNM, the other buyers and sellers, FERC personnel, a settlement judge and mediator from the Ninth Circuit, and a former FERC ALJ (whose help was enlisted by the Ninth Circuit) to aid in the mediation process. Representatives of PNM continue to attend and participate in the mediation sessions being hosted by the Ninth Circuit. By notice issued in January 2007, the parties to the appeals were advised that the former FERC ALJ will no longer participate in the mediation efforts. In June 2007, the Ninth Circuit further extended the time-out period for settlement discussions to continue until August 13, 2007. The Company cannot predict the ultimate outcome of FERC proceedings that may result from the decisions in these appeals, or whether PNM will be ultimately directed to make any additional future refunds as the result of these court decisions, or whether settlement will be reached in the case.

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 ~~decision~~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. Oral argument in the case was held on January 8, 2007. 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.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 engaged in a gaming practice that violated either 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 itPNM 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'~~parties’ request to ~~include bilateral energy transactions, i.e., those that took place outside~~keep the ~~established CAISO~~docket open as to PNM and ~~CalPX organized markets, as those eligible for refund in~~terminated the ~~refund proceedings at FERC. The court’s decision did grant, however, requests by~~PNM docket. Subsequently, the California parties ~~to include transactions of greater than 24 hours and energy exchange transactions as eligible~~filed their petition for ~~refund in~~rehearing at the ~~refund proceedings (such transactions were previously excluded). The California parties had also sought to have~~ FERC apply the mitigated price remedy to transactions in the May-September 2000 time period, based on allegations of pervasive tariff violations. The court concluded that FERC did not provide a reasoned responseobjecting to the ~~arguments raised by~~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 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. In January 2007, the Enron matter went to hearing on certain contested matters. In June 2007, the FERC administrative law judge issued its initial decision, which has no impact on PNM. The parties will now have the opportunity to file exceptions before the matter goes to FERC. PNM cannot predict the final outcome of this proceeding.

California Power Exchange and Pacific Gas and Electric Bankruptcies

In 2001, Southern California Edison Company 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.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 has required FERC to reconsider whether to order remedies for transactions resulting from tariff violations that occurred prior to October 2, 2000.~~Circuit. The ~~court order remands the matter to FERC to further consider these arguments on the merits. Additionally, as previously reported, in September 2004, the~~ Ninth Circuit issued ~~its~~a decision ~~in the anothercase in which the Ninth Circuit upheld~~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

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

remanded the case back to the FERC for further proceedings, including a determination as to whether additional refunds are appropriate. In December 2006, PNM ~~participated with other competitive~~joined a group of sellers ~~requesting rehearing~~in filing a petition for writ of certiorari in the United States Supreme Court challenging the decision by the Ninth ~~Circuit of its decision. At~~Circuit. On June 18, 2007, the ~~end of July 2006, the Ninth Circuit~~U.S. Supreme Court denied the Petition for Certiorari filed by various competitive ~~sellers’ petition for rehearing.~~sellers, including PNM. The Company cannot predict the ultimate outcome of the FERC ~~proceedings that may result from the decisions in these appeals,~~proceeding on remand, or whether PNM will be ultimately directed to make any additional ~~future~~ refunds as the result of ~~these court decisions.~~the decision.

California Antitrust Litigation

In May 2005, the California Attorney General filed a lawsuit in California state court against PNM, PowerEx, 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. In April 2006, the Federal District Court issued its decision denying the California Attorney General’s motion to remand the case back to the state court, and granted PNM’s and PowerEx’s motions to dismiss the case. The California Attorney General has appealed the case to the Ninth ~~Circuit Court of Appeals.~~Circuit. Briefs have been filed in the case by the parties, but oral argument has not yet been scheduled. The Company cannot predict the final outcome of this litigation nor whether PNM will be required to make refunds or pay damages under these claims.

Regional Transmission Issues

~~Generation Market Power Filings~~

Transmission Services

In its order on PNM’s 2001 triennial market-based rate filing, the FERC initiated an investigation 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 determined that rates reviewed under this proceeding for transactions completed in the Northern New Mexico and EPE control areas would be subject to refund effective March 6, 2005. In its July 2005, compliance filing at the FERC, PNM 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 April 2006,~~ the FERC issued an order terminating its ~~order~~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. On May 18, 2006, FERC issued a NOPR to reform its pro forma OATT. FERC emphasized that its purpose for the NOPR was not to create new market structures, redesign approved RTO or ISO markets, require transmission owners to divest control over transmission, impinge on state jurisdiction, or weaken the protection of native load customers. Core OATT elements were retained, including comparability requirements, protection of native load, state’s jurisdiction over bundled retail load, functional unbundling to address undue discrimination, and reciprocity. PNM and TNMP have filed Comments and Supplemental Comments in this proceeding. In February 2007, FERC issued Order 890 setting out the new OATT rule, which ~~it determined that PNM rebutted the presumption of market power~~became effective in its home control area and terminated the investigation regarding PNM’s home control area and terminated the refund period; therefore, PNM can continue to charge market-based rates in its home control area in central and northern New Mexico. The FERC also determined that PNM’s analysis could rebut the presumption of market power in EPE’s control area, but that it needed additional information regarding periodsMay 2007. Order 890 addressed several elements of transmission ~~constraint. The FERC order gave PNM 60 days~~service, including: (1) requiring greater consistency and transparency in calculating available transfer capacity for transmission; (2) requiring transparent transmission planning and customer access to ~~file additional information regarding market power during periods~~transmission plans; (3) reform of rollover rights; and (4) clarification of various ambiguities in transmission rights under the new OATT. Order 890 also required numerous compliance filings to be made by transmission providers. Order 890 also attempted to clarify certain elements of transmission ~~constraint or, alternatively, propose cost-based mitigation measures~~service utilized for network generation resources, but still left uncertain the ~~EPE control area during periods of~~ transmission ~~constraint. In June 2006,~~used for such resources that pre-dated transmission open access. PNM filed a ~~proposed cost-based mitigated rate proposal~~petition for

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

rehearing seeking clarification of this issue in regards to ~~apply~~one such generation resource that PNM has under contract. Numerous other entities also filed petitions for rehearing and/or clarification. Additionally, a number of entities, including EEI, have requested extensions of time for making several of the compliance filings due under the order issued in the ~~EPE control area during periods of transmission constraints. No comments have been filed objecting to PNM's filing. PNM's filing~~NOPR. Order 890 is still pending before the FERC. The Company is awaiting FERC action on rehearing requests. The Company’s transmission group has been working to prepare the numerous FERC compliance filings required by Order 890. On May 30, 2007, the Company posted its compliance filing and its transmission planning proposal on its website. In June 2007, FERC held a technical conference regarding transmission planning proposals, including the WestConnect proposal, in which PNM participated. PNM will continue making compliance filings. PNM will participate in FERC’s technical conference on Order 890 reliability standards. The Company cannot predict what impact the ~~outcome of this proceeding at this time.~~final rule will have on its operations.

FERC Office of Market Oversight and Investigations

In November 2005, PNM received notice that the FERC Division of Operational Audits of the Office of Enforcement formerly known as the Office of Market Oversight and Investigations would perform a compliance audit of ~~PNM.~~the Company. The audit covers the period from January 2004 to the present and will examine ~~PNM’s~~the Company’s compliance with the FERC standards of conduct and OASIS requirements, compliance of ~~PNM’s~~the Company’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.

On May 29, 2007, PNM received the FERC’s draft final report. PNM reviewed the draft report and requested several corrections, which FERC agreed to make. The draft report identified three areas of non-compliance related to Standards of Conduct and OATT requirements: (1) Marketing’s access to non-public transmission information citing three examples; (2) off-OASIS communications and exercise of discretion regarding scheduling transmission; and (3) failing to make postings when shared services employees shared facilities with marketing. PNM sent a written response to staff’s draft report indicating it did not identify matters within the draft audit report that required PNM to formally contest the audit findings. PNM also indicated its plan to implement the FERC staff’s recommendations. In June 2007, PNM received the final audit letter from the FERC’s audit staff mirroring the draft audit report as revised. PNM made its compliance filing in July 2007, and will ~~issue its~~make periodic reports every quarter thereafter per the staff’s recommendation. There were no significant findings ~~upon conclusion~~in the final audit report and PNM has no further action required in this matter.

Natural Gas Royalties Qui Tam Litigation

In 1999, a private relator served a complaint alleging violations of the ~~audit,~~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 joined 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. On October 20, 2006, the United States District Court for the District of Wyoming issued an order granting the motion and dismissing some of the defendants, including the Company. The relator has appealed to the U.S. Court of Appeals for the Tenth Circuit.

The Company has executed a settlement agreement with the private relator pursuant to which ~~could take~~the relator agreed to dismiss his appeal, the Company agreed to forego any efforts to seek attorney fees, costs and expenses, and the parties provided mutual releases. Upon the motion of the relator, on April 23, 2007 the U.S. Court of Appeals for the Tenth Circuit issued an order dismissing the appeal against the Company. Upon the motion of the Company and some of the other defendants, on July 19, 2007, the United States District Court for the District of Wyoming issued an order dismissing their claims for attorney fees, costs and expenses. The settlement agreement has now been fully implemented. As a result, the Company has no further potential liability from ~~six months to a year, or more to complete.~~this litigation.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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. In preparation for a second on-site visit by OMOI, the Company discovered an additional computer system path 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 its discovery to OMOI and disabled the path. 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.

Biomass Project

PNM has ~~been cooperating,~~entered into a 20-year contract for the purchase of 35 MW of capacity from a renewable biomass power generation facility in central New Mexico to commence in 2009. The purchase power agreement is contingent upon the satisfaction of certain conditions precedent as outlined in the purchase power agreement. The contract contains several conditions that must be met, including obtaining permits, completion of financial closing by April 2, 2007 and ~~will continue to cooperate, fully with~~ the ~~FERC~~start of construction by July 2, 2007. The biomass project owner was unable to complete the ~~audit.~~financial closing on April 2, 2007. As a result, PNM delivered a Remediable Event of Default letter to the biomass project owner. The operator has declared a force majeure over failure to obtain an air permit. On June 18, 2007, PNM sent a letter to the operator conditionally accepting the notice of force majeure. The operator is required to remedy the condition within 180 days of the notice dated May 25, 2007. A hearing is scheduled for August 20, 2007 on the owner’s appeal of the denial of the air permit.

Valencia Energy Facility

On April 18, 2007, PNM entered into a power purchase agreement to purchase all of the electric capacity and energy from the Valencia Energy Facility, a proposed natural gas-fired power plant to be constructed near Albuquerque, New Mexico. A third-party will build, own and operate the facility while PNM will be the sole purchaser of the electricity generated. The total projected construction cost for the facility is from $100 million to $105 million. The term of the power purchase agreement is for 20 years beginning June 1, 2008, with the full output of the plant estimated up to an average of 148 MW. PNM will have the option to purchase and own up to 50% of the plant after it reaches commercial operation. PNM estimates that the plant will typically operate during peak periods of energy demand in summer (less than 18% of the time on an annual basis). The Company ~~cannot predict~~is evaluating the ~~outcome~~accounting treatment of this PPA.

On May 31, 2007, the office of the ~~audit or~~New Mexico Attorney General and the Utility Staff of the NMPRC filed a Petition For Formal Review requesting the NMPRC to investigate the power purchase agreement and related transactions relating to the Valencia Energy Facility to determine, among other things, whether the ~~FERC will make any adverse findings related to PNM’s compliance~~transactions are prudent, appropriate and consistent with ~~the FERC’s~~NMPRC rules, and ~~regulations.~~

~~TNMP~~

~~SESCO Matter~~

~~As discussed above~~to establish the ratemaking treatment of the power purchase agreement. On June 21, 2007, the NMPRC ordered PNM to respond to the Petition so that the NMPRC could ascertain PNM’s position on the matters raised before proceeding further with processing the Petition. In its Response, filed July 11, 2007, PNM described the terms of the agreement and process used to select this resource, stated that an investigation was not warranted and joined in the ~~PNM “SESCO Matter,” TNMP is classified as a de minimis potentially responsible party in this matter. TNMP has agreed to settle~~Staff and Attorney General’s request 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. The settlement offer is contingent upon final approvaldetermination of the ~~administrative order by~~ratemaking treatment for the ~~TCEQ. TNMP is unable to predict~~agreement. To date, the ~~outcome at this time.~~NMPRC has taken no further action on the petition.

(10) Regulatory and Rate Matters

~~(10)~~

~~Regulatory and Rate Matters~~

PNMR

~~PNMR~~

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 price-to-beat base rate case was consolidated with TNMP’s 60-day rate review (see “60-Day Rate Review” below). First Choice requested that the PUCT recognize in its new price-to-beat base rates the TNMP rate reduction and the synergy savings credit provided for in the TNP acquisition stipulation. In May 2006, TNMP, First Choice, the PUCT ~~Staff~~staff and other parties filed a non-unanimous settlement ~~agreement. The parties have presented evidence and briefs related to approval of the settlement.~~agreement (“NUS”). On July 20, 2006, the ALJ reopened the record to accept argument concerning the provisions for accumulated deferred federal income taxes and the carrying charges on stranded costs. IfSubsequently, on August 24, 2006, the ~~settlement is~~ALJ issued a Proposal For Decision urging the PUCT to reject the NUS. After the parties filed exceptions to the Proposal For Decision, the PUCT unanimously rejected the ALJ’s proposal and approved ~~new rates will be effective with energy delivered October 1,~~the NUS on November 2, 2006. The ~~Company is unable~~PUCT made First Choice’s new price-to-beat base rates effective on December 1, 2006, as First Choice had requested. As price-to-beat rates expired on December 31, 2006, the approved rates are no longer applicable. In January 2007, TNMP’s 60-Day Rate Review proceeding, and the underlying NUS, were appealed by various Texas cities to ~~predict~~ the ~~outcome of this matter at this time.~~district court, in Austin, Texas. TNMP and FCP have intervened and will defend the PUCT’s Final Order approving the NUS.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 2006. Additionally, Constellation has agreed to supply power in certain transactions under the agreement beyond the date when that commitment ~~expires.~~

expired.

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-~~

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~market~~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~~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~~Constellation’s credit exposure to FCPSP beyond a limit based on ~~Constellation's~~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. The existing pricing mechanism under the Constellation power supply agreement ~~expires~~expired on December 31, ~~2006, and~~2006. In addition, Constellation has agreed to supply power in certain transactions under the PSA beyond the date when that commitment expired. The obligations of Constellation to act as a qualified scheduling entity continue until the expiration of the agreement on December 31, 2007.

FCPSP may terminate the agreement upon 30 ~~days'~~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.

PNM

~~PNM~~

Gas Rate Case

On May 30, 2006, PNM filed a general gas rate case that asked the ~~PRC~~NMPRC to approve an increase in the service fees charged to its 481,000 natural gas customers. The proposal would increase the set monthly fee, the charge tied to monthly usage, and miscellaneous on-demand service fees. Those fees are separate from the cost of gas charged to customers. The monthly cost of gas charge would not be affected by the fee increase. The petition ~~requests~~requested an increase in base gas service rates of ~~$20.5~~$22.6 million and an increase in miscellaneous on-demand service rates of approximately $0.2 million. The request iswas designed to provide PNM’s gas utility an opportunity to earn an 11% return on equity, which is consistent with the average return allowed ten comparable natural gas utilities. The petition also ~~requests~~requested approval of a line item that provides a true-up mechanism for operational costs when system-wide gas consumption is lower or higher than what is designed in the rates. ~~PNM anticipates that a~~A hearing on the case ~~will be~~was conducted before a hearing examiner in December 2006.

~~Transmission Rate Case~~

~~In March 2005,~~ On June 29, 2007 the NMPRC unanimously approved an increase in annual revenues of approximately $9 million for PNM. The NMPRC based the new rates on a revenue requirement needed to earn a 9.53% return on equity. The NMPRC did not approve PNM’s request for the true-up mechanism for operational costs based on system-wide gas consumption. PNM filed a ~~notice~~Notice of Appeal with the ~~FERC~~New Mexico Supreme Court on July 27, 2007 and has until August 27, 2007 to ~~increase its wholesale electric transmission revenues. If approved, the rate increase would apply to all of PNM's wholesale electric transmission service customers,~~file which includes other utilities, electric co-operatives and entities, including Wholesale, that purchase wholesale transmission service from PNM. 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. In April 2006, PNM and parties in the case filed an uncontested settlement agreement with the FERC settlement judge that, if approved, would result in an increase in electric transmission revenues of approximately $4.6 million annually. The FERC staff took issue with one element of settlement regarding the standard by which the FERC or a non-party to the settlement could challenge the settlement. PNM responded to the FERC staff’s expression of its issue and identified that the FERC had previously approved settlements containing the standard of review language reflected in PNM’s settlement. In June 2006, the FERC ALJ certified the settlement to the FERC as a contested settlement. The settlement is now pending for action before the FERC. PNM cannot predict the outcome of this proceeding at this time.components will be appealed.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Electric Rate Case

On February 21, 2007, PNM filed a general electric rate case requesting the NMPRC to approve an increase in service fees to all of PNM’s retail customers except those formerly served by TNMP. The application requests an annual increase in electric service revenues of $68.9 million effective January 1, 2008, an increase of approximately 12.3% over test period revenues. The request is designed to provide PNM’s electric utility an opportunity to earn a 10.75% return on equity. The application also requests authorization to implement a Fuel and Purchased Power Adjustment Clause through which changes in the cost of fuel and purchased power, above or below the costs included in base rates, will be passed through to customers on a monthly basis. The NMPRC initially suspended operation of the proposed new rates through December 23, 2007, but subsequently extended the suspension through February 21, 2008. A hearing is scheduled to begin October 1, 2007. A recommended decision of the hearing examiner is due by December 31, 2007.

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 cost adjustment clause, SPS has been overcharging PNM for deliveries of energy under three contracts, and continues to do ~~so.~~so under the remaining contracts. PNM requested that the FERC investigate these charges ~~from SPS under its fuel clause~~ for the period 2001 through ~~2004.~~2004, and going forward. PNM had previously intervened in the Golden Spread Electric Coop complaint case against SPS for the same matter. The hearing was held in that case and in May 2006, the ALJ issued an initial decision in that proceeding recommending that SPS make refunds to customers, including PNM, for misapplication of charges in its fuel cost adjustment clause. The parties in that proceeding filed their exceptions to the initial decision, which has gone to the FERC for review. Fuel cost charges for 2005 and 2006 are being addressed as part of the finding in the Golden Spread Electric Coop fuel charge adjustment clause case pending before the FERC, in which PNM is an intervenor. PNM’s complaint also alleges that SPS’ demand charge rates for interruptible power sales are excessive and requested that the FERC set a refund effective date of September 13, 2005 for these rates. Settlement conferences were held before a FERC settlement judge throughout the first quarter of 2006. Upon the failure of the parties to reach a settlement, the judge recommended the case proceed to hearing. Fuel cost charges for 2005 and 2006 are being addressed in a separate fuel charge adjustment clause case currently pending before the FERC, in which PNM is an intervenor. The hearing has been held in that case and in May 2006, the ALJ issued an initial decision in that proceeding recommending that SPS make refunds to customers, including PNM, for misapplication of charges in its fuel cost adjustment clause. The parties in that proceeding are currently filing their exceptions to the initial decision, which will go to the FERC for review. Additionally, in November 2005, SPS filed an electric ~~transmission~~ rate case proposing to unbundled and raise rates charged to customers effective July 2006. PNM ~~has~~ intervened in the case and objected to the proposed rate increase. ~~While~~In September 2006, PNM and SPS ~~continue~~filed a settlement agreement at FERC in which PNM settled its issues in the complaint proceeding, as well as its concerns with SPS’ proposed rate increases in the SPS rate case. On October 10, 2006, interested parties and FERC Trial Staff filed comments on the proposed settlement. Only one party opposed the settlement, which was supported or not opposed by the remaining active parties and the FERC Trial Staff. On October 19, 2006, PNM, SPS and FERC Trial Staff each filed reply comments contending that opposition was without merit. The Settlement Judge and the Administrative Law Judge have certified the contested partial settlement and sent it to ~~engage~~the FERC for final approval. The settlement must be approved by the FERC before it may be effective. The settlement has no impact on the initial decision of the ALJ in ~~settlement discussions~~the fuel cost adjustment clause case or the pending petitions for rehearing in ~~this~~that docket. In July 2007, the FERC open meeting agenda indicated the Golden Spread Electric Coop complaint case initial decision was on the docket for consideration by the FERC. SPS and Golden Spread Electric Coop filed a motion to delay the FERC action on the initial decision to provide additional opportunity for the parties to reach settlement. PNM filed its opposition to the motion requesting the FERC to proceed to issue an order on the initial decision. Then the FERC removed the Golden Spread item from its agenda. PNM cannot predict if the settlement will be ~~reached in~~approved by the ~~SPS rate case docket~~FERC or what the outcome of the ~~remaining SPS proceedings~~fuel cost adjustment clause proceeding at the ~~FERC.~~FERC will be.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

TNMP

TNMP Competitive Transition Charge True-Up Proceeding

The purpose of the true-up proceeding was to quantify and reconcile the amount of stranded costs that TNMP may recover from its transmission and distribution customers. A 2004 PUCT decision established $87.3 million as TNMP’s stranded costs.

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. TNMP was limited under GAAP 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 June 30, 2006, the debt-related portion totaled $37.9 million and is included in Carrying Charges on Stranded Costs in TNMP’s Condensed Consolidated Balance Sheet. As of June 30, 2006, the equity-related portion of carrying costs totaled $29.5 million. TNMP expects to collect its total carrying costs from customers.

In July 2005, the PUCT issued a final order confirming the calculation of carrying costs and the amount of stranded costs allowed for recovery. TNMP and other parties appealed the July PUCT order. On July 24, 2006, the district court in Austin, Texas affirmed the PUCT order. TNMP ~~is considering an appeal~~has appealed that decision to the Texas Third Court of ~~that decision. Additionally,~~Appeals in Austin, Texas and has filed its briefs. Oral argument occurred May 9, 2007 and the ~~PUCT has adopted an amended rule that will reduce~~Court took the ~~amount of carrying charges recognized in earnings by TNMP~~matter under advisement.

Interest Rate for Calculating Carrying Charges on ~~a prospective basis.~~ TNMP’s Stranded Cost

The PUCT approved an amendment to the true-up rule at ~~the~~its June 29, 2006 open meeting. The amendment will result in a lower interest rate that TNMP is allowed to collect on the unsecuritized true-up balance through a ~~Competition Transition Charge (CTC).~~stranded cost. The ~~Commission~~PUCT concluded that the correct rate at which a utility should accrue carrying costs through a ~~CTC~~stranded cost is the weighted average of an adjusted form of its marginal cost of debt and its unadjusted historical cost of debt, with the weighting based on the utility’s most recently authorized capital structure. The marginal cost of debt will be based upon the average yield for long-term public utility bonds of the utility's credit rating published in Moody's Credit Perspectives, and will be grossed-up to account for the effects of federal income taxes. The new rate ~~is yet to be determined, but this change~~ will ~~effect~~affect TNMP by lowering the ~~current~~previously approved ~~interest~~carrying cost rate of 10.93%. This change in carrying charges will affect the rates set in ~~TNMP's CTC~~TNMP’s stranded cost filing. The rule went into effect on July 20, 2006, and TNMP ishas made its compliance filing. Because the PUCT staff disagreed with TNMP’s calculation of the interest rate, the matter was referred to SOAH for a hearing on the merits. The parties filed and submitted testimony. Initial briefs were filed on April 6, 2007 with reply briefs filed on April 16, 2007. On June 18, 2007, the ALJ issued a proposed order approving an interest rate of 8.06%. As this calculation differs from TNMP’s methodology and result, TNMP filed exceptions on July 2, 2007. At the July 20th open meeting, the PUCT unanimously rejected the proposed order regarding the calculation of TNMP’s on-going interest rate for the CTC. The PUCT approved the 8.31% interest rate proposed by TNMP and the PUCT Staff. The PUCT will issue a signed final order, and then TNMP will be required to make a compliance filing ~~within thirty days.~~to implement new rates.

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. As noted above, TNMP’s 60-day rate review, along with First Choice’s price-to-beat rate reset filing, were consolidated. See ~~"Price-To-Beat~~“Price-To-Beat Base Rate ~~Reset"~~Reset” above for further updates. On November 2, 2006, the PUCT issued a signed order which would allow TNMP to begin collecting its true-up balance, which includes carrying charges, over a 14 year period. The order also allows TNMP to collect expenses associated with several cases over a three-year period. The PUCT allowed TNMP to begin collecting its competition transition charge and its rate case expenses on December 1, 2006. In January 2007, this proceeding was appealed by various Texas cities to the district court, in Austin, Texas. TNMP and First Choice have intervened and will defend the PUCT’s Final Order in this proceeding.

(11) EnergyCo Joint Venture

In January 2007, PNMR and ECJV, a wholly owned subsidiary of Cascade, created EnergyCo, a joint venture, to serve expanding U.S. markets throughout the Southwest, Texas and the West. PNMR and ECJV each have a 50 percent ownership interest in EnergyCo, a limited liability company. In February 2007, EnergyCo formed ECMT as a subsidiary that is expected to perform future marketing and trading activity for the joint venture. To fund startup expenses of EnergyCo, both members contributed $2.5 million to EnergyCo in the three months ended March 31, 2007.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

PNMR accounts for its investment in EnergyCo using the equity method of accounting because PNMR’s ownership interest results in significant influence, but not control, over EnergyCo and its operations. PNMR records as income its percentage share of earnings or loss and distributions of EnergyCo and carries its investment at cost, adjusted for its share of undistributed earnings or losses. The difference between PNMR’s book value of its investment in EnergyCo and its proportionate share of EnergyCo’s equity is being amortized into results of operations over the useful lives of the underlying assets and contractual periods of the liabilities that resulted in the difference.

~~(11)~~

~~Variable Interest Entities~~

On June 1, 2007, PNMR contributed its ownership of Altura to EnergyCo at fair value of $549.6 million (after the working capital adjustment described below), ECJV made a cash contribution to EnergyCo equal to 50% of the fair value amount, and EnergyCo distributed that cash to PNMR. PNMR accounted for this transaction by (1) removing the assets and liabilities transferred to EnergyCo from its consolidated financial statements; (2) recording an additional investment in EnergyCo for an amount equal to 50% of the net carrying value of the Altura assets and liabilities transferred, reflecting that 50% of the items transferred are in effect still owned by PNMR; and (3) reflecting in results of operations the difference between the cash received and 50% of the net carrying value of the items transferred that in effect were sold to ECJV, which resulted in a pre-tax loss of $3.6 million being reflected in energy production costs. As provided under the contribution agreement, subsequent to June 1, 2007, an adjustment to the contribution amounts was made for changes in components of working capital between the date for which fair value was determined and closing. The result of this adjustment is a payment by PNMR of $2.1 million.

EnergyCo has entered into a bank financing arrangement with a term of five years which includes a revolving line of credit. This facility also provides for bank letters of credit to be issued as credit support for certain contractual arrangements entered into by EnergyCo. Cascade has guaranteed EnergyCo’s obligations on this facility and, to secure EnergyCo’s obligation to reimburse Cascade for any payments made under the guaranty, has a first lien on all assets of EnergyCo and its subsidiaries. In June 2007, EnergyCo borrowed $181 million of long-term debt under this facility. From this borrowing, $87.5 million was distributed to each of PNMR and ~~PNM~~ECJV.

~~PNM has evaluated its PPAs under~~Effective August 1, 2007, EnergyCo completed the ~~provisions of FASB Interpretation No. 46,~~ ~~“Consolidation of Variable Interest Entities”~~ (Revised December 2003) (“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 operatoracquisition of the ~~entity supplying power~~CoGen Lyondell Power Generation Facility (now known as Altura Cogen, LLC), a 614 MW natural gas-fired cogeneration plant, located near Houston, Texas. The purchase price of approximately $467.5 million was funded through cash contributions of $42.5 million from each of PNMR and ECJV and the remaining amount was financed through borrowings under EnergyCo’s credit facility.

On August 2, 2007, PNMR announced that EnergyCo has agreed with NRG Energy, Inc. to jointly develop a 550 MW combined-cycle natural gas unit at the ~~PPA. The operator cited legal and competitive reasons for refusing to provide~~existing NRG Cedar Bayou Generating Station near Houston. EnergyCo anticipates the ~~information.~~

~~This variable interest PPA is a contract under an operating lease to purchase 132~~construction of the project will be completed in the summer of 2009, at which time 275 MW of ~~capacity and energy expiring in June 2020. The contract contains a fixed capacity charge, a fixed O&M charge, and a variable energy charge that subjects PNM~~electricity will be available for sale by EnergyCo. EnergyCo expects to the changes in the cost of fuel and O&M. For the three months ended June 30, 2006 and 2005, the capacity and O&M charge was $1.9 million and $1.6 million, respectively, and the energy charges were $0.5 million and $0.2 million, respectively. For the six months ended June 30, 2006 and 2005, the capacity and O&M charge was $3.7 million and $3.3 million, respectively, and the energy charges were $0.4 million and $0.6 million, respectively. 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 June 30, 2006, that PNM could be required to record infund its Condensed Consolidated Statement of Earnings as a result of these arrangements totals approximately $4.6 million. The creditors of these variable interest entities do not have recourse to the general credit of PNM or PNMR in excessportion of the ~~aggregate maximum loss exposure.~~Cedar Bayou construction with borrowings under its existing credit facility. Once the project is complete, EnergyCo expects to arrange permanent financing of an appropriate mix of debt and equity. PNMR does not anticipate making significant capital contributions to EnergyCo in connection with this project.

Other than as described above, PNMR has no commitments or guarantees with respect to EnergyCo.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

~~(12)~~

~~Related Party Transactions~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Summarized financial information for EnergyCo is as follows:


	Three Months		Six Months
	Ended		Ended
	June 30, 2007
	(In thousands)

Operating revenues	$	14,366	$	14,366
Operating expenses		10,990		12,314

Net earnings	$	3,376	$	2,052


50 percent of net earnings	$	1,688	$	1,026
Amortization of basis difference in EnergyCo		584		584

PNMR equity in net earnings of EnergyCo	$	2,272	$	1,610


	As of June 30,
	2007
	(In thousands)

Current assets	$	38,074
Deferred assets		52,537
Net utility plant		573,508

Total assets		664,119


Current liabilities		55,877
Long-term liabilities		210,440

Total liabilities		266,317


Owners’ equity	$	397,802


50 percent of owners’ equity	$	198,901
Less unamortized PNMR basis difference in EnergyCo		757

PNMR equity investment in EnergyCo	$	198,144

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(12) Related Party Transactions

PNMR, PNM, TNMP, and ~~TNMP~~EnergyCo are considered related parties as defined in SFAS ~~No. 57, “~~~~Related Party Disclosures~~~~.” TNMP became a related party effective on the date of PNMR’s acquisition of TNP.~~

57. PNMR Services Company provides corporate services to PNMR, ~~and~~ its subsidiaries, ~~including PNM, Avistar, TNP,~~and EnergyCo. Additional information concerning the Company’s related party transactions is contained in Note 20 of the Notes to Consolidated Financial Statements in the 2006 Annual Reports on Form 10-K/A (Amendment No. 1).

See Note 11 for information concerning EnergyCo and Note 14 for information concerning the transfer of operations from TNMP ~~First Choice~~to PNM. The table below summarizes the nature and ~~Altura in accordance with shared services agreements. These services are billed at cost on a monthly basis and allocated to the subsidiaries. In addition,~~amount of other related party transactions of PNMR, ~~pays certain expenses for~~ PNM and ~~TNMP that are then reimbursed to PNMR.~~TNMP:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
	(In thousands)
Electricity, transmission and related services billings:
PNM to TNMP	$	—	$	12,677	$	126	$	27,909
TNMP to PNMR		16,873		17,880		33,386		33,167

Shared services billings from PNMR to:
PNM		23,697		30,759		49,595		62,376
TNMP		4,587		8,948		10,117		18,288

Services billings from PNMR to EnergyCo		2,344		—		3,414		—

Income tax sharing payments from:
PNM to PNMR	$	—	$	—	$	—	$	—
TNMP to PNMR		—		—		—		—

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. These agreements provide 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 three and six months ended June 30, 2006, PNM and TNMP made no tax-sharing payments to PNMR. For the three and six months ended June 30, 2005, PNMR made $18.2 million of tax-sharing payments to PNM. For the period June 6 through June 30, 2005, TNMP made no tax-sharing payments to PNMR.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(13) New Accounting Pronouncements

Note 21 of Notes to Consolidated Financial Statements in the 2006 Annual Reports on Form 10-K/A (Amendment No. 1) contains information regarding recently issued accounting pronouncements that could have a material impact on the Company. No accounting pronouncements issued since that report are expected to have a material impact on the Company’s Consolidated Financial Statements. See Note 15 for discussion concerning the adoption of FIN 48 as of January 1, 2007.

(14) Discontinued Operations

In ~~February 2006,~~connection with the ~~Board approved affiliate borrowing arrangements between PNMR~~acquisition of TNP and its principal subsidiaries, TNMP and First Choice, the NMPRC stipulated that all TNMP’s New Mexico operations would ~~authorize each subsidiary~~transfer to ~~borrow up~~the ownership of PNM. This transfer took place on January 1, 2007 when TNMP transferred its New Mexico operational assets and liabilities to ~~$50.0 million from PNMR. Neither PNM nor~~PNMR through redemption of TNMP’s common stock. PNMR contemporaneously contributed the TNMP ~~has any amounts outstanding under this borrowing agreement~~New Mexico operational assets and liabilities to PNM.

In accordance with SFAS 144 and EITF 03-13, the Company determined that the New Mexico operations component of TNMP is required to be reported as discontinued operations in the TNMP Condensed Consolidated Statements of Operations for the period January 1, 2006 through June 30, ~~2006~~2006. Due to the fact the net assets were distributed to TNMP’s parent, PNMR, the assets and ~~December 31, 2005.~~

~~PNM~~liabilities were considered “held 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 and certain shared planning and design services billed to TNMP from PNM. Transactions between affiliates are reported separately on their financial statements, but are eliminated in the consolidation of PNMR’s financial statements.

~~PNM~~

Pursuant to an affiliate borrowing 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 June 30, 2006 and 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.~~

~~The tables below describe the nature and amount of material transactions PNM has with PNMR and TNMP. TNMP became a related party effective on~~used” up until the date of ~~PNMR’s acquisition~~transfer and, according to SFAS 144, are not classified as “held for sale” within TNMP’s Consolidated Balance Sheet at December 31, 2006. No gain or loss or impairments were recognized on the disposition due to the fact the transfer was among entities under common control. Furthermore, the TNMP New Mexico operations are subject to traditional rate of ~~TNP, or June 6, 2005; therefore,~~return regulation. Subsequent to the ~~related party transaction~~transfer, the NMPRC regulates these operations in the same manner as prior to the transfer. Under SFAS 71, the assets and liabilities were recorded by PNM at TNMP’s carrying amounts, ~~between PNMR,~~which represent their fair value within the regulatory environment.

Under SFAS 154, the asset transfer did not meet the definition of a “change in reporting entity” since PNM’s financial statement composition remained unchanged after the transfer. The assets and operations transferred from TNMP are in the same line of business as PNM and ~~TNMP~~ are ~~reported after that date.~~immaterial to both PNM’s assets and net earnings.

The following table summarizes the results classified as discontinued operations in TNMP’s Condensed Consolidated Statements of Earnings:

Three Months Ended

Six Months Ended

June 30,

June 30,

2006

2005

2006

2005

(In thousands)
PNMR Transactions with PNM

Shared services billings from PNMR to PNM $ 30,759 $ 25,754 $ 62,376 $ 51,290

PNM Transactions with TNMP

Electricity & energy-scheduling
billings to TNMP $ 12,358 $ 2,904 $ 27,371 $ 2,904


	Three Months			Six Months
	Ended			Ended
	June 30, 2006
	(In thousands)

Operating revenues	$	21,760		$	48,897
Operating expenses and other income		20,149			45,812

Earnings from discontinued operations before income tax		1,611			3,085
Income tax expense		(16	)		987

Earnings from discontinued operations	$	1,627		$	2,098

June 30, 2006

December 31, 2005

(In thousands)
PNM payable to PNMR $61,274 $50,070

PNM receivable from TNMP net of transmission purchases $ 8,613 $ 4,130

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANYAND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~TNMP~~

~~Effective with~~The following table summarizes 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.

~~TNMP purchases all the electricity for its~~ New Mexico ~~customers’ needs (except for one major customer)~~assets and ~~energy-scheduling services under the long-term wholesale power contract with PNM described above.~~liabilities transferred to PNM:


	January 1,
	2007
	(In thousands)
Current assets	$	15,444
Other property and investments		12
Utility plant, net		96,610
Goodwill		102,601
Deferred charges		1,794

Total assets transferred to PNM		216,461


Current liabilities		17,313
Long-term debt		1,065
Deferred credits and other liabilities		31,060

Total liabilities transferred to PNM		49,438


Net assets transferred between entities	$	167,023

~~TNMP sells transmission services to First Choice.~~(15) Income Taxes

The tables below describe the nature and amount of transactions TNMP has with PNMR and PNM. TNMP became a related party effective on the date of PNMR’s acquisition of TNP, or June 6, 2005; therefore, the related party transaction amounts between TNMP, PNMR and PNM are reported after that date.

Three Months Ended

Six Months Ended

June 30,

June 30,

2006

2005

2006

2005

(In thousands)
TNMP Transactions with PNMR

Shared services billings from PNMR $ 8,948 $ 1,145 $ 18,288 $ 1,145

TNMP Transactions with PNM

Electricity & energy-scheduling billings from PNM $ 12,358 $ 2,904 $ 27,371 $ 2,904

TNMP Transactions with First Choice

Transmission service billing to First Choice $ 17,880 $ 7,502 $ 33,167 $ 7,502

June 30, 2006

December 31, 2005
(In thousands)
TNMP payable to PNMR $ 8,932 $3,043

TNMP payable to PNM net of transmission sales $ 8,613 $4,130

TNMP receivable from First Choice $10,809 $9,565

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~

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

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~(13)~~

~~New Accounting Pronouncements~~

In July 2006, the FASB issued ~~Interpretation No.~~FIN 48, “~~Accounting for Uncertainty in Income Taxes~~~~” (“FIN 48”). FIN 48~~which requires that the Company recognize only the impact of tax positions that, based on their technical merits, are more likely than not to be sustained upon ~~IRS audit. It also requires expanded financial statement disclosure of such positions.~~an audit by the taxing authority. FIN 48 also specifies standards for recognizing interest income and expense.

The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, PNMR established a liability under FIN 48 of $33.9 million, reduced its previously recorded tax liabilities by $39.9 million, increased the January 1, 2007 balance of retained earnings by $1.6 million, increased interest payable by $3.2 million, and decreased goodwill by $1.2 million. PNM established an asset under FIN 48 of $3.6 million, reduced its previously recorded tax liabilities by $3.6 million, increased the January 1, 2007 balance of retained earnings by $0.6 million, and increased interest receivable by $0.6 million. TNMP established no liability under FIN 48, recorded interest receivable of $3.3 million, increased the January 1, 2007 balance of retained earnings by $2.0 million, and decreased goodwill by $1.3 million.

As of January 1, 2007 under FIN 48, PNMR had $33.9 million of unrecognized tax benefits, all of which would affect the effective tax rate if recognized; PNM had $3.6 million of unrecognized tax expense, none of which would affect the effective tax rate if recognized; and TNMP had no unrecognized tax benefits. PNMR has received notice that its agreement with the IRS regarding substantially all of the unrecognized tax benefits has been returned from the Joint Committee on Taxation with no changes and the issue is considered settled. As a result, PNMR has recognized approximately $16.0 million of income tax benefit in June 2007. Including this benefit, PNMR’s effective tax rates were (277.5)% and 5.5% for the three and six months ended June 30, 2007. Without this non-recurring benefit, PNMR’s effective tax rates would have been 19.7% and 35.7% for the three and six months ended June 30, 2007.

During the three months ended June 30, 2007, ~~fiscal year.~~PNMR established a liability of $13.9 million for additional unrecognized tax benefits, which was offset by deferred income taxes and had no effect on earnings. At June 30, 2007, PNMR had $16.0 million of unrecognized tax benefits, PNM had $3.5 million of unrecognized tax expense, and TNMP had no unrecognized tax benefits. While it cannot be assured, it is anticipated that approximately $.5 million of unrecognized tax expense of PNMR and $3.3 million of unrecognized tax expense of PNM will be reversed by June 30, 2008. The Company is unable to make reasonably reliable estimates of the period of cash settlement of the remaining unrecognized tax benefits and expenses.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Estimated interest income related to refunds expected to be received is included in Other Income and estimated interest expense and penalties are included in Interest Expense in the Condensed Consolidated Statements of Operations. Interest income under FIN 48 for the six months ended June 30, 2007 was $0.1 million for PNMR. Due to the settlement discussed above, during for the three months ended June 30, 2007, PNMR reversed interest expense of $4.8 million previously recorded. At June 30, 2007, PNMR had accumulated accrued interest receivable of $4.3 million and accumulated accrued interest payable of $2.1 million; PNM had accumulated interest receivable of $0.3 million and accumulated interest payable of $0.1 million; and TNMP had accumulated interest receivable of $4.0 million.

The Company files a federal consolidated and several consolidated and separate state income tax returns. The tax years prior to 2001 are closed to examination by either federal or state taxing authorities. The years 2001-2004 are currently ~~evaluating~~under federal income tax examination. Additionally, the reporting years 2003-2006 are currently under Texas franchise tax examination. Based on the status and the process involved in finalizing these examinations, it is not possible to estimate the impact, ~~of FIN 48,~~ if any, upon the Company’s previously recorded uncertain tax positions.

(16) Restatement

Subsequent to the issuance of the Quarterly Report on ~~its financial statements.~~

~~In February~~Form 10-Q for the quarterly period ended June 30, 2006, the ~~FASB issued SFAS No. 155,~~~~“Accounting~~management of PNMR and PNM determined that the deferred gains related to certain sale-leaseback transactions had not been amortized over the correct period.

In 1985 and 1986, PNM entered into 11 separate transactions through which it sold all of its interest in Units 1 and 2 of the PVNGS and related common facilities to institutional investors. At the same time, PNM entered into agreements to lease back the facilities that were sold. These transactions resulted in gains, which in accordance with GAAP were deferred and amortized over the lives of the leases, approximately 30 years.

In 1990, the New Mexico Public Service Commission (“NMPSC”), the predecessor to the NMPRC, ordered that the portion of the gain on the sale-leasebacks attributable to PNM’s New Mexico customers was to reduce electric rates over 15 years. Accordingly, under GAAP, the amortization period for ~~Certain Hybrid Instruments," (an Amendment~~the portion of ~~FASB Statements No. 133~~the gain on the sale-leasebacks remaining at that time and ~~140)”~~ ~~(“SFAS 155”).~~attributable to New Mexico customers should have been changed to match the rate-making treatment, which would have resulted in that portion of the gain being completely amortized by 2001. However, PNM continued to amortize the gain over the lives of the leases for financial reporting purposes, which was longer than the 15 years determined by the NMPSC. The ~~standard allows financial instruments that have embedded derivatives~~portion of the gain not attributable to PNM’s New Mexico customers was not affected by the NMPSC order and has continued to be ~~accounted for as a whole, eliminating~~amortized over the ~~need to bifurcate~~lives of the ~~derivative from its host, if~~leases in accordance with GAAP.

In connection with the ~~holder elects to account~~above, PNMR and PNM have restated the Condensed Consolidated Statements of Earnings, Condensed Consolidated Statements of Cash Flows and Condensed Consolidated Statements of Comprehensive Income (Loss) for the ~~whole instrument on a fair value basis. SFAS 155 also establishes a requirement~~three months and six months ended June 30, 2006 included herein and the Notes to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. The standard is effectivethe Condensed Consolidated Financial Statements for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company is currently evaluating the effect that the adoption of SFAS 155 will have on its results of operations and financial condition, butsuch periods, as appropriate. This restatement does not ~~expect it will have~~impact the Condensed Consolidated Financial Statements of TNMP.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following is a ~~material impact.~~summary of the corrections described above:

PNMR


	Three Months Ended June 30, 2006				Six Months Ended June 30, 2006
	As Previously				As Previously
	Reported		As Restated		Reported			As Restated
	(In thousands, except per share amounts)				(In thousands, except per share amounts)

Consolidated Statements of Earnings
Energy production costs	$	43,714	$	44,038	$	81,301		$	81,949
Net earnings*		16,307		15,983		42,632			41,984
Net earnings per share
Basic		0.24		0.23		0.62			0.61
Diluted		0.23		0.23		0.61			0.61

Consolidated Statements of Cash Flows
Deferred credits**						(9,816	)		(9,168	)

Consolidated Statements of Comprehensive Income (Loss)
Total comprehensive income		13,740		13,416		35,053			34,405


*		Net earnings also appears in the Consolidated Statements of Cash Flows and Consolidated Statements of Comprehensive Income (Loss)

**		Deferred credits was combined into other liabilities in the June 30, 2006 Form 10-Q, as originally filed

PNM


	Three Months Ended June 30, 2006				Six Months Ended June 30, 2006
	As Previously				As Previously
	Reported		As Restated		Reported			As Restated
	(In thousands)				(In thousands)

Consolidated Statements of Earnings
Energy production costs	$	42,080	$	42,404	$	79,667		$	80,315
Net earnings*		3,320		2,996		33,748			33,100
Net earnings available for common stock**		3,188		2,864		33,484			32,836

Consolidated Statements of Cash Flows
Deferred credits***						(9,309	)		(8,661	)

Consolidated Statements of Comprehensive Income (Loss)
Total comprehensive income		1,098		774		29,049			28,401


*		Net earnings also appears in the Consolidated Statements of Cash Flows

**		Net earnings available for common stock also appears in the Consolidated Statements of Comprehensive Income (Loss)

***		Deferred credits was combined into other liabilities in the June 30, 2006 Form 10-Q, as originally filed

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations for PNMR ~~PNM and TNMP~~ is presented ~~both~~ on a combined basis, including information applicable to PNM and TNMP. The MD&A for PNM and TNMP only includes a narrative analysis of results of operations as ~~applicable, and on a separate basis.~~permitted by Form 10-Q General Instruction H (2). For discussion purposes, this report will use the term “Company” when discussing matters of common applicability to PNMR, PNM and TNMP. 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 2 refers to the accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) included in Item 1.

~~RESULTS OF OPERATIONS - EXECUTIVE SUMMARY~~

~~During the first six months of 2006, the Company experienced higher earnings from the prior year primarily due~~1, unless otherwise specified. MD&A gives effect to the TNP and Twin Oaks acquisitions. However, 2006 results were impacted by plant outages at PVNGS, the last phase of a 2003 agreed upon retail electric rate reduction, higher purchased power costs, consumer conservationrestatement discussed in response to high natural gas prices and charges for financing. Strong performance at PNM's SJGS and Four Corners plants helped to offset the impact of the Unit 1 extended outage at PVNGS. The TNP acquisition was accretive to earnings during the first full year of operation after the transaction was completed. Twin Oaks contributed $5.2 million, net of income taxes year-to-date. The Company cannot predict what impact the increase in market prices for power and natural gas will have on its future results of operations.Note 16.

MD&A FOR PNMR

~~PVNGS Operations~~BUSINESS AND STRATEGY

PNM is a participant of PVNGS, of which APS is the operating agent. APS operated PVNGS Unit 1 at reduced power levels from December 25, 2005 through March 18, 2006, due to a vibration in the PVNGS Unit 1 shutdown cooling lines. As a result, PNM received approximately 24 MW of power from PVNGS Unit 1 of capacity rated load of 130 MW during this period, based on its 10.2% undivided interest in PVNGS. On March 18, 2006, APS shut down PVNGS Unit 1 completely to perform inspections and tests, after which APS determined that certain work could be performed to assure that PVNGS Unit 1 will be operating during the peak summer months. APS moved the valve which was vibrating closer to the reactor vessel. APS then restarted the unit and performed testing documenting that the vibrations were no longer a problem. Tests also confirmed that the new fuel load was performing as designed, that the new steam generators were operating satisfactorily, and that the new low-pressure steam turbine internals were performing safely. APS reconnected Unit 1 to the electrical grid on July 7, 2006. The Unit achieved full power on July 16, 2006.

The operation of PVNGS not only affected PNM’s ability to make off-system sales, but also caused PNM to purchase power to serve its retail electric customers. PNM estimates that the shut-down of PVNGS Unit 1 resulted in a reduction in consolidated gross margin, or operating revenues minus cost of energy sold, of $22.5 million before income taxes for the six months ended June 30, 2006.

~~Business and Strategy~~

Overview

The Company is positioned as a merchant utility, ~~primarily~~ operating as a regulated energy service provider and a competitive wholesale and retail electricity service provider. The Company is engaged in the sale and marketing of electricity in the regulated electric and competitive wholesale energy ~~marketplace.~~marketplaces. In addition, through First Choice, ~~the Company~~PNMR is a retail electric provider in Texas under legislation that established retail competition. PNM also provides natural gas services on both a sales and transportation basis. PNM and TNMP are under the jurisdiction of the FERC. PNM is under the jurisdiction of the NMPRC while TNMP operates under the jurisdiction of the PUCT in Texas.

PNMR, primarily through EnergyCo, 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. PNMR also plans to increase long-term sales contracts in tandem with increases in its generation capacity. PNMR will continue a disciplined approach to any acquisition, to match acquisitions to demand and to hedge capacity with long-term contracts.

EnergyCo Joint Venture

The EnergyCo joint venture with ECJV is an unregulated energy company that will serve expanding U.S. markets throughout the Southwest, Texas and the ~~NMPRC in New Mexico.~~

~~The Company intends to develop both its retail and wholesale business by expanding its current operations and by acquiring additional value-enhancing assets. On April 18, 2006, PNMR’s~~West. ECJV is a wholly owned subsidiary of Cascade, which is a large PNMR shareholder.

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

	•		Competitive retail energy sales;

	•		Development, operation and ownership of diverse generation assets; and

	•		Wholesale marketing and trading to optimize its assets.

On June 1, 2007, PNMR contributed its ownership of Altura ~~purchased~~to EnergyCo at fair value of $549.6 million, as adjusted to reflect changes in working capital. ECJV made a cash contribution to EnergyCo equal to 50% of the fair value amount and EnergyCo distributed that cash to PNMR. EnergyCo has entered into a bank financing arrangement under which it borrowed $181 million on a long-term basis from which it distributed $87.5 million to each of PNMR and ECJV. PNMR utilized amounts distributed from EnergyCo to reduce debt. Subsequent to June 30, 2007, EnergyCo completed the acquisition of one electric generating plant and announced plans to co-develop another generating unit.

TNMP Asset Transfer to PNM

In connection with the acquisition of TNP, the NMPRC approved a stipulation that called for the integration of TNMP’s New Mexico assets into PNM. The asset transfer occurred as of January 1, 2007 at which time the transferred New Mexico assets and operations became reportable under the PNM Electric segment rather than TNMP Electric.

RESULTS OF OPERATIONS

Executive Summary

A summary of PNMR’s net earnings is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
	(In thousands, except per share amounts)

Net earnings	$	20,240	$	15,983	$	49,906	$	41,984
Average common and common equivalent shares		78,793		69,433		78,446		69,349
Net earnings per diluted share	$	0.26	$	0.23	$	0.64	$	0.61

The major causes of changes in net earnings were the recognition of income tax benefit for a settlement with the IRS regarding previously unrecognized tax benefits; increased plant performance at SJGS and PVNGS, offset by decreased performance at Four Corners; increases due to regulated load growth and weather impacts; changes in First Choice earnings, excluding mark-to-market impacts; changes in Wholesale marketing activity; mark-to-market losses; higher coal costs; non-recurring costs related to Twin Oaks ~~a 305 MW coal-fired power plant located 150 miles south~~and EnergyCo for the costs of ~~Dallas, Texas, from subsidiaries~~forming EnergyCo, the loss due to the impairment of ~~Sempra for $480.0 million~~intangible assets, and the loss on the contribution of Altura to EnergyCo; and higher financing costs. The after-tax impacts of these items on net earnings in ~~cash.~~ 2007 compared to 2006 are as follows:


	Three Months Ended			Six Months Ended
	June 30, 2007			June 30, 2007
	(In millions)
After-tax impacts
IRS settlement	$	16.0		$	16.0
Plant performance		7.2			10.9
Regulated load growth and weather		1.0			7.3
First Choice (excluding mark-to-market)		(5.7	)		2.4
Wholesale marketing activity		0.2			(6.3	)
Mark-to-market		(8.6	)		(9.3	)
Coal costs		(2.6	)		(4.8	)
Twin Oaks and EnergyCo		(6.0	)		(6.8	)
Financing		(0.8	)		(3.5	)
Other		3.6			2.0

Net change in net earnings	$	4.3		$	7.9

The ~~Twin Oaks purchase agreement also includes~~increase in the ~~development rights for a possible 600 MW expansion~~number of common and common equivalent shares is primarily due to new issuances of PNMR common stock in 2006 and an increase in the dilutive effect of the plant. The necessary permits for the expansion are being obtained, which are expected 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 if and when Altura begins construction of the expansion. PNMR has not made a decision regarding the Twin Oaks expansion, but it is considering a variety of options, including self development or sale to a third party.equity-linked units.

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

Also in April 2006, construction of Luna, a combined-cycle power plant near Deming, New Mexico was completed and the plant became operational. PNM owns one-third of the plant and managed the construction project. Luna will operate as a PNM merchant facility and PNM's 190 MW share of its power will be sold into the wholesale market.

PNM reached agreement in July 2006 with an unaffiliated supplier to purchase up to 32 MW of renewable power and energy from a biomass-fueled generating plant to be constructed in New Mexico. The contract for purchasing power extends for 20 years. Biomass fuel consists of resources such as agricultural waste, woody vegetation and small diameter timber. The agreement is subject to approval by the NMPRC.

Segment Information

The following discussion is based on the segment methodology that ~~the Company’s~~PNMR’s management uses for making operating decisions and assessing performance of its various business ~~activities; therefore, operating results for each segment~~activities. Unusual and non-recurring items are ~~presented without regard~~included in the Corporate and Other segment. References to 2006 amounts in the ~~effect~~following discussion are to 2006 information as previously reported and have not been adjusted to reflect the transfer of ~~accounting or regulatory changes and similar other items not related to normal operations.~~TNMP’s New Mexico operations that are discussed above. See Note 3 for ~~a detailed description of the Company’s~~more information on PNMR’s operating segments.

Income taxes, interest charges, and non-operating items are discussed for PNMR in total.

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

~~RESULTS OF OPERATIONS - PNMR~~

~~THREE MONTHS ENDED JUNE 30, 2006~~

~~COMPARED TO THREE MONTHS ENDED JUNE 30, 2005~~

PNMR’s net earnings for the three months ended June 30, 2006 were $16.3 million, or $0.23 per diluted share of common stock, compared to $1.5 million or $0.02 per diluted share of common stock for the three months ended June 30, 2005. The Company experienced higher earnings primarily due to First Choice operations, which PNMR did not have until the TNP acquisition in June 2005 and the addition of Twin Oaks, which PNMR acquired in April 2006. Earnings were negatively impacted by below normal levels of plant performance due to the outages at PVNGS which reduced the amount of electricity PNM could sell into the wholesale market and forced PNM to purchase power to meet its jurisdictional and contractual wholesale needs. Also affecting PNMR's earnings was the last phase of an agreed upon 2003 rate reduction which went into effect September 2005 and charges for financing. The Company expects to request an increase in current PNM electric rates, to become effective January 1, 2008.

As noted above, the following discussion is based on the segment methodology that management uses for making operating decisions and assessing performance of its various business activities. In addition, adjustmentsAdjustments related to EITF 03-11 are ~~excluded from the Wholesale segment and are instead~~ included in ~~the~~ Corporate and ~~Other segment. This accounting pronouncement~~Other. EITF 03-11 requires a net presentation of all realized gains and losses ~~for certain non-trading derivatives.~~on non-normal derivative transactions that do not physically deliver and that are offset by similar transactions during settlement. Management evaluates Wholesale operations on a gross presentation basis due to its primarily ~~net-asset-backed~~net asset-backed marketing strategy and the importance it places on ~~PNM’s~~the ability to repurchase and remarket previously sold capacity. ~~The other segments are not affected by EITF 03-11.~~

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 Condensed Consolidated Financial Statements.

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

Regulated Operations

PNM Electric

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


	Three Months Ended June 30,										Six Months Ended June 30,
	2007		2006		Change			%			2007			2006		Change			%
			(In millions)											(In millions)
Total operating revenues	$	171.1	$	146.3	$	24.8			17.0		$	341.3		$	285.1	$	56.2			19.7
Cost of energy		65.9		43.3		22.6			52.1			132.4			88.8		43.6			49.1
Intersegment energy transfer		3.6		8.5		(4.9	)		(57.4	)		(2.0	)		3.3		(5.3	)		(160.7	)

Gross margin		101.6		94.5		7.1			7.5			210.9			193.0		17.9			9.3
Operating expenses		73.5		66.9		6.6			10.0			146.2			134.4		11.8			8.8
Depreciation and amortization		16.4		14.3		2.1			14.5			32.8			29.3		3.5			11.9

Operating income	$	11.7	$	13.3	$	(1.6	)		(12.3	)	$	31.9		$	29.3	$	2.6			8.8

Three Months Ended

June 30,

2006

2005

Variance

(In thousands)
Operating revenues

$
146,336

$
138,781

$
7,555

Less: Cost of energy 43,308 44,998 (1,690 )
Intersegment energy transfer 8,524 (3,412 ) 11,936
Gross margin

94,504

97,195

(2,691
)
Energy production costs 30,874 31,800 (926 )
Transmission and distribution O&M 8,723 7,240 1,483
Customer related expense 4,228 4,679 (451 )
Administrative and general (1,054 ) 2,723 (3,777 )
Total non-fuel O&M

42,771

46,442

(3,671
)
Corporate allocation 18,515 14,753 3,762
Depreciation and amortization 14,316 17,495 (3,179 )
Taxes other than income taxes 5,278 4,591 687
Income taxes 1,852 2,155 (303 )
Total non-fuel operating expenses

82,732

85,436

(2,704
)
Operating income

$
11,772

$
11,759

$
13

The table below summarizes the significant changes to operating revenues, gross margin and operating income:


	Three Months Ended June 30, 2007									Six Months Ended June 30, 2007
	Total			Gross			Operating			Total			Gross			Operating
	Revenues			Margin			Income			Revenues			Margin			Income
	(In millions)									(In millions)
Transfer of assets from TNMP	$	21.8		$	6.3		$	1.6		$	48.9		$	12.7		$	3.0
Weather		(3.1	)		(1.6	)		(1.6	)		(0.2	)		(0.1	)		(0.1	)
Customer/load growth		6.1			1.9			1.9			6.9			3.0			3.0
Plant performance		—			4.9			4.4			—			8.1			6.7
Coal costs		—			(3.6	)		(3.6	)		—			(6.8	)		(6.8	)
General operational increases		—			—			(1.7	)		—			—			(2.5	)
Other		—			(0.8	)		(2.6	)		0.6			1.0			(0.7	)

Total increase (decrease)	$	24.8		$	7.1		$	(1.6	)	$	56.2		$	17.9		$	2.6

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


	Three Months Ended June 30,										Six Months Ended June 30,
	2007		2006		Change			%			2007		2006		Change		%
	(In millions, except customers)										(In millions, except customers)
Residential	$	58.4	$	52.0	$	6.4			12.3		$	126.2	$	107.4	$	18.8		17.6
Commercial		73.1		65.6		7.5			11.5			137.8		122.7		15.1		12.4
Industrial		25.8		15.6		10.2			65.4			49.2		30.3		18.9		62.3
Transmission		8.0		7.2		0.8			11.6			16.9		14.2		2.7		18.6
Other		5.8		5.9		(0.1	)		(3.2	)		11.2		10.5		0.7		4.9

	$	171.1	$	146.3	$	24.8			17.0		$	341.3	$	285.1	$	56.2		19.7

Average customers (thousands)		488.1		428.6		59.5			13.9			487.6		427.3		60.3		14.1

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

PNM Electric ~~Revenues~~

Three Months Ended

June 30,

2006

2005

Variance

(In thousands, except customers)
Residential $ 52,026 $ 50,044 $ 1,982
Commercial 65,572 63,723 1,849
Industrial 15,588 15,340 248
Transmission 7,193 4,574 2,619
Other 5,957 5,100 857
$ 146,336 $ 138,781 $ 7,555

Average customers 428,626 416,231 12,395

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

~~The following table shows electric~~GWh sales by customer class:


	Three Months Ended June 30,										Six Months Ended June 30,
	2007		2006		Change			%			2007		2006		Change			%
	(Gigawatt hours)										(Gigawatt hours)
Residential		704.9		647.4		57.5			8.9			1,525.6		1,335.9		189.7			14.2
Commercial		992.6		929.2		63.4			6.8			1,869.5		1,732.9		136.6			7.9
Industrial		494.2		332.6		161.6			48.6			964.5		646.6		317.9			49.2
Other		63.4		71.6		(8.2	)		(11.4	)		119.8		126.4		(6.6	)		(5.3	)

		2,255.1		1,980.8		274.3			13.9			4,479.4		3,841.8		637.6			16.6

Effective January 1, 2007, TNMP’s New Mexico operations were transferred to PNM, which increased PNM Electric’s sales volumes, average customers, and income statement line items. Information concerning the TNMP New Mexico operations included in the TNMP Electric ~~Sales~~segment in 2006 is as follows:


	Three Months Ended		Six Months Ended
	June 30, 2006		June 30, 2006
	(Dollars in millions)
Total revenues	$	21.8	$	48.9
Cost of energy		15.5		36.2

Gross margin		6.3		12.7
Operating Expenses		3.2		6.6
Depreciation and amortization		1.5		3.1

Operating income	$	1.6	$	3.0


Sales volumes (GWhs)		308.4		590.7
Average customers (thousands)		49.6		49.6

The following discussion of results will exclude variances due to the transfer of New Mexico operations from TNMP on January 1, 2007, that are shown above.

Three Months Ended

June 30,

2006

2005

Variance

(Megawatt hours)
Residential 647,422 606,419 41,003
Commercial 929,221 872,242 56,979
Industrial 332,579 317,672 14,907
Other 71,558 62,147 9,411
1,980,780 1,858,480 122,300
During the second quarter of 2007, cooler temperatures resulted in decreased sales volume, as cooling degree-days decreased 31.4% from the second quarter of 2006. Year-to-date 2007, the impact of weather is minimal, as reduced usage in the second quarter was offset by increased usage during the heating season in the early part of the year. During both the second quarter of 2007 and year-to-date 2007, an increase in average customer counts and load growth resulted in increases in sales volumes and operating revenues.

~~Operating revenues increased $7.6 million, or 5.4%,~~Higher coal costs at SJGS and Four Corners have decreased gross margin and operating income for the ~~three months ended June 30, 2006~~second quarter and year-to-date 2007.

During the second quarter of 2007, improved performance over the prior year at PVNGS resulted in a $6.7 million increase to gross margin. However, O&M costs related to outages at jurisdictional units (Units 1 and 2) increased by $1.6 million during the second quarter of 2007. Improved performance at SJGS over the prior year increased gross margin by $1.6 million for the second quarter and also decreased O&M costs by $1.9 million. Decreased performance at Four Corners compared to ~~the same period of 2005. Retail electricity sales increased 6.6%, to 1.98 million MWh in~~ the second quarter of 2006 resulted in a $3.4 million decrease to gross margin and a $0.8 million increase to O&M costs.

Year-to-date 2007 compared to ~~1.86~~2006, PVNGS performance resulted in a $12.4 million ~~MWh for~~increase to gross margin and a $1.3 million increase in O&M costs. SJGS performance resulted in a $0.4 million increase to gross margin and a $0.9 million decrease to O&M costs. Decreased Four Corners performance resulted in a $4.7 million decrease to gross margin and a $1.0 million increase to O&M costs.

For the ~~same period in 2005. Customer growth was 3.0% quarter over~~second quarter and ~~weather-normalized retail electric load growth~~year-to-date 2007, increases in general operational expenses include costs for materials and supplies, as well as shared services, employee labor, pension and benefit costs.

TNMP Electric

The table below summarizes the operating results for TNMP Electric:


	Three Months Ended June 30,										Six Months Ended June 30,
	2007		2006		Change			%			2007		2006		Change			%
			(In millions)										(In millions)
Total operating revenues	$	43.5	$	61.5	$	(18.0	)		(29.2	)	$	84.5	$	124.1	$	(39.6	)		(32.0	)
Cost of energy		7.2		22.7		(15.5	)		(68.1	)		14.4		49.8		(35.4	)		(71.1	)

Gross margin		36.3		38.8		(2.5	)		(6.4	)		70.1		74.3		(4.2	)		(5.7	)
Operating expenses		17.7		21.0		(3.3	)		(15.5	)		36.4		42.4		(6.0	)		(14.4	)
Depreciation and amortization		7.0		7.8		(0.8	)		(10.1	)		14.0		15.6		(1.6	)		(9.8	)

Operating income	$	11.6	$	10.0	$	1.6			15.4		$	19.7	$	16.3	$	3.4			20.9

The table below summarizes the significant changes to operating revenues, gross margin and operating income:


	Three Months Ended June 30, 2007									Six Months Ended June 30, 2007
	Total			Gross			Operating			Total			Gross			Operating
	Revenues			Margin			Income			Revenues			Margin			Income
	(In millions)									(In millions)
Transfer of assets to PNM	$	(21.8	)	$	(6.3	)	$	(1.6	)	$	(48.9	)	$	(12.7	)	$	(3.0	)
Weather		(1.8	)		(1.8	)		(1.8	)		(0.4	)		(0.4	)		(0.4	)
Customer/load growth		0.6			0.6			0.6			1.5			1.5			1.5
PUCT order		4.1			4.1			3.1			7.9			7.9			6.0
Transmission prices		0.3			0.3			0.3			0.7			—			—
Other		0.6			0.6			1.0			(0.4	)		(0.5	)		(0.7	)

Total increase (decrease)	$	(18.0	)	$	(2.5	)	$	1.6		$	(39.6	)	$	(4.2	)	$	3.4

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


	Three Months Ended June 30,										Six Months Ended June 30,
	2007		2006⁽¹⁾		Change			%			2007		2006⁽¹⁾		Change			%
	(In millions, except customers)										(In millions, except customers)
Residential	$	15.6	$	20.7	$	(5.1	)		(24.3	)	$	30.4	$	39.9	$	(9.5	)		(23.9	)
Commercial		17.7		21.9		(4.2	)		(18.9	)		33.7		42.5		(8.8	)		(20.7	)
Industrial		1.8		9.3		(7.5	)		(80.9	)		3.5		22.7		(19.2	)		(84.4	)
Other		8.4		9.6		(1.2	)		(12.5	)		16.9		19.0		(2.1	)		(11.7	)

	$	43.5	$	61.5	$	(18.0	)		(29.2	)	$	84.5	$	124.1	$	(39.6	)		(32.0	)

Average customers (thousands)⁽²⁾		225.3		272.2		(46.9	)		(17.2	)		225.3		271.7		(46.4	)		(17.1	)


(1)		The customer class revenues and the average customer count have been reclassified to be consistent with the current year presentation.

(2)		Under TECA, customers of TNMP Electric in Texas have the ability to choose First Choice or any other REP to provide energy. The average customers reported above include 130,762 and 146,549 customers of TNMP Electric for the three months ended June 30, 2007 and 2006 and 133,235 and 147,782 customers for the six months ended June 30, 2007 and 2006 who have chosen First Choice as their REP. These customers are also included in the First Choice segment.

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


	Three Months Ended June 30,										Six Months Ended June 30,
	2007		2006⁽²⁾		Change			%			2007		2006⁽²⁾		Change			%
	(Gigawatt hours⁽¹⁾)										(Gigawatt hours⁽¹⁾)
Residential		579.9		710.4		(130.5	)		(18.4	)		1,118.3		1,238.3		(120.0	)		(9.7	)
Commercial		563.7		774.4		(210.7	)		(27.2	)		1,022.9		1,255.0		(232.1	)		(18.5	)
Industrial		473.9		462.0		11.9			2.6			881.2		1,018.1		(136.9	)		(13.4	)
Other		23.9		31.8		(7.9	)		(24.4	)		48.1		60.7		(12.6	)		(20.7	)

		1,641.4		1,978.6		(337.2	)		(17.0	)		3,070.5		3,572.1		(501.6	)		(14.0	)


(1)		The GWh sales reported above include 487.3 and 635.1 GWhs for the three months ended June 30, 2007 and 2006 and 960.3 and 1,110.0 GWhs for the six months ended June 30, 2007 and 2006 used by customers of TNMP Electric respectively, who have chosen First Choice as their REP. These GWhs are also included below in the First Choice segment.

(2)		The customer class sales have been reclassified to be consistent with current year presentation.

Effective January 1, 2007, TNMP’s New Mexico operations were transferred to PNM. As a result, TNMP Electric’s sales volumes, average customers, and income statement line items for Electric above have decreased as set forth under PNM Electric above. The following discussion of results will exclude variances due to the transfer of New Mexico operations to PNM on January 1, 2007.

During the second quarter of ~~2006~~2007, cooler temperatures resulted in decreased sales volume, as cooling degree-days decreased 20.4% from the second quarter of 2006. The reduced usage in the second quarter resulting from the cooler weather was 5.5%. Customer load growth, when normalized for the impact of weather, increased revenues by $6.2 million. Increased usage due to warmer weather increased revenues $1.6 million. In addition, increased transmission revenues, primarily from point-to-point customers, increased revenues $2.4 million. These revenue increases were partiallymostly offset by ~~a decrease in revenues of $3.4 million due to a 2.5% rate reduction that was effective beginning September 2005.~~

The gross margin, or operating revenues minus cost of energy sold and intersegment energy transfer, decreased $2.7 million, or 2.8%, for the three months ended June 30, 2006 primarily due to the reduction in power plant availability and the rate decrease. Plant outages at PVNGSincreased usage during the heating season in the early part of the year. During both the second quarter ~~created~~of 2007 and year-to-date 2007, an increase in ~~purchased power expense to serve load. These decreases were partially offset by increased revenues associated with retail load growth~~average customer counts has resulted in increases in sales volumes and ~~warmer weather.~~operating revenues.

~~Total non-fuel O&M expenses decreased $3.7 million, or 7.9%, for the three months ended June 30,~~The PUCT issued a signed order on November 2, 2006 ~~compared~~related to the ~~same period~~stranded costs incurred by TNMP as part of ~~2005. Energy production costs decreased $0.9 million, or 2.9%~~the deregulation of the Texas energy market and the associated carrying charges. The details of this order are discussed in the TNMP 2006 Annual Report on Form 10-K/A (Amendment No. 1). ~~Reduced plant outages at SJGS, Four Corners and Reeves decreased expenses $2.1 million. These decreases were partially offset by plant outage costs at PVNGS which increased expenses $1.1~~This PUCT order resulted in a net increase to revenue of $4.1 million in the second quarter of 2006. Transmission and distribution O&M expenses increased $1.5 million or 20.5% primarily due to increased maintenance costs for outage restoration and reliability purposes. Customer related expenses decreased $0.5 million or 9.6% primarily due to a transfer of employees to the corporate level (and allocated through the corporate allocation). Administrative and general expenses decreased $3.8 million due to higher capitalized costs of $2.2 million for increased construction activity, lower legal and consulting costs of $0.8 million related to routine business matters, and several immaterial items.

~~Depreciation and amortization decreased $3.2 million, or 18.2% primarily due to~~2007 that was partially offset by an increase in amortization expense of $0.9 million. Year-to-date, a $7.9 million net increase in revenues related to the ~~estimated useful life at SJGS. Taxes~~same PUCT order was partially offset by an increase in amortization expense of $1.9 million.

Increased transmission prices caused an increase in revenues in both the second quarter of 2007 and year-to-date 2007. In the second quarter, this increase to revenues also had a favorable impact on operating income. Year-to-date, the increase in revenues was completely offset by an increase in transmission costs paid to other ~~than income increased $0.7 million or 15.0% primarily due to adjustments to reflect the property values in 2005.~~utilities.

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

~~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 2005 are not presented.~~

PNM Gas

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

Three Months Ended

For the Period

June 30,

June 6 - June 30,

2006

2005

(In thousands)
Operating revenues

$
61,456

$
19,235

Less: Cost of energy 22,652 6,702
Gross margin

38,804

12,533

Transmission and distribution O&M 5,399 1,150
Customer related expense 1,396 302
Administrative and general (114 ) 288
Total non-fuel O&M

6,681

1,740

Corporate allocation 8,404 1,461
Depreciation and amortization 7,831 2,085
Taxes other than income taxes 5,872 1,885
Income taxes 1,239 1,175
Total non-fuel operating expenses

30,027

8,346

Operating income

$
8,777

$
4,187

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

~~TNMP Electric Revenues~~

Three Months Ended

For the Period

June 30,

June 6 - June 30,

2006

2005

(In thousands, except customers)
Residential $ 20,651 $ 7,857
Commercial 22,661 6,522
Industrial 8,576 2,607
Other 9,568 2,249
$ 61,456 $ 19,235

Average customers * 262,268 258,251

* 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 146,549 and 157,813 customers of TNMP Electric at June 30, 2006 and 2005, respectively, 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.

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

~~The following table shows electric sales by customer class:~~

TNMP Electric Sales *

Three Months
Ended

For the Period

June 30,

June 6 - June 30,

2006

2005

(Megawatt hours)
Residential 806,148 275,271
Commercial 931,064 189,767
Industrial 401,524 144,791
Other 31,756 8,590
2,170,492 618,419

* The MWh reported above include 635,125 and 257,770 MWh used by customers of TNMP Electric at June 30, 2006 and 2005, respectively, 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 $38.8 million for the three months ended June 30, 2006. The significant factors that impacted gross margin include a decrease in revenues due to rate reductions in both Texas and New Mexico, lower revenues due to a reduction in operations of a major customer in New Mexico and increased transmission costs. These decreases were partially offset by customer growth and weather impacts.

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

~~PNM Gas~~

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


	Three Months Ended June 30,										Six Months Ended June 30,
	2007			2006			Change		%		2007		2006		Change		%
				(In millions)									(In millions)
Total operating revenues	$	75.2		$	69.0		$	6.2		9.0	$	291.7	$	276.5	$	15.2		5.5
Cost of energy		45.1			42.2			2.9		6.9		206.8		199.9		6.9		3.5

Gross margin		30.1			26.8			3.3		12.3		84.9		76.6		8.3		10.8
Operating expenses		25.9			25.9			—		0.2		51.6		51.0		0.6		1.1
Depreciation and amortization		6.1			6.0			0.1		1.2		12.2		11.9		0.3		2.8

Operating income	$	(1.9	)	$	(5.1	)	$	3.2		62.7	$	21.1	$	13.7	$	7.4		53.8

Three Months Ended

June 30,

2006

2005

Variance

(In thousands)
Operating revenues

$
68,961

$
82,384

$
(13,423
)
Less: Cost of energy 42,168 53,292 (11,124 )
Gross margin

26,793

29,092

(2,299
)
Energy production costs 615 569 46
Transmission and distribution O&M 7,186 6,672 514
Customer related expense 4,609 5,038 (429 )
Administrative and general (233 ) 1,384 (1,617 )
Total non-fuel O&M

12,177

13,663

(1,486
)
Corporate allocation 11,559 8,514 3,045
Depreciation and amortization 5,994 5,596 398
Taxes other than income taxes 2,145 2,057 88
Income taxes (3,236 ) (1,442 ) (1,794 )
Total non-fuel operating expenses

28,639

28,388

251

Operating income/(loss)

$
(1,846
)
$
704

$
(2,550
)
The table below summarizes the significant changes to operating revenues, gross margin and operating income:


	Three Months Ended June 30, 2007									Six Months Ended June 30, 2007
	Total			Gross			Operating			Total			Gross		Operating
	Revenues			Margin			Income			Revenues			Margin		Income
	(In millions)									(In millions)
Gas prices	$	3.5		$	—		$	—		$	(16.9	)	$	—	$	—
Weather		8.5			1.9			1.9			32.2			6.0		6.0
Customer growth/usage		(2.2	)		(0.2	)		(0.2	)		6.2			1.3		1.3
Mark-to-market gains		0.7			0.7			0.7			0.5			0.5		0.5
Off-system activities		(4.7	)		0.3			0.3			(7.0	)		0.1		0.1
Other		0.4			0.6			0.5			0.2			0.4		(0.5	)

Total increase (decrease)	$	6.2		$	3.3		$	3.2		$	15.2		$	8.3	$	7.4

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


	Three Months Ended June 30,										Six Months Ended June 30,
	2007		2006		Change			%			2007		2006		Change			%
	(In millions, except customers)										(In millions, except customers)
Residential	$	48.4	$	38.5	$	9.9			25.7		$	200.7	$	180.2	$	20.5			11.4
Commercial		15.5		13.4		2.1			15.7			60.6		57.4		3.2			5.7
Industrial		0.4		1.5		(1.1	)		(70.7	)		1.0		2.3		(1.3	)		(54.4	)
Transportation⁽¹⁾		3.4		2.8		0.6			19.2			8.4		7.5		0.9			12.0
Other		7.5		12.8		(5.3	)		(41.1	)		21.0		29.1		(8.1	)		(28.4	)

	$	75.2	$	69.0	$	6.2			9.0		$	291.7	$	276.5	$	15.2			5.5

Average customers (thousands)		490.5		480.5		10.0			2.1			491.2		480.6		10.6			2.2


(1)		Customer-owned gas.

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

PNM Gas ~~Revenues~~

Three Months Ended

June 30,

2006

2005

Variance

(In thousands, except customers)
Residential $ 38,514 $ 43,350 $ (4,836 )
Commercial 13,363 13,418 (55 )
Industrial 1,514 282 1,232
Transportation* 2,827 3,129 (302 )
Other 12,743 22,205 (9,462 )
$ 68,961 $ 82,384 $ (13,423 )

Average customers 480,502 469,797 10,705

*Customer-owned gas.

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

~~The following table shows gas~~ throughput by customer class:


	Three Months Ended June 30,										Six Months Ended June 30,
	2007		2006		Change			%			2007		2006		Change			%
	(Thousands of Decatherms)										(Thousands of Decatherms)
Residential		3,827		3,058		769			25.1			17,771		15,020		2,751			18.3
Commercial		1,515		1,391		124			8.9			6,149		5,557		592			10.7
Industrial		50		195		(145	)		(74.4	)		113		267		(154	)		(57.7	)
Transportation⁽¹⁾		10,149		9,371		778			8.3			20,949		20,402		547			2.7
Other		500		1,501		(1,001	)		(66.7	)		1,826		3,067		(1,241	)		(40.5	)

		16,041		15,516		525			3.4			46,808		44,313		2,495			5.6

~~PNM Gas Throughput~~


(1)		Customer-owned gas.

Three Months Ended

June 30,

2006

2005

Variance

(Thousands of decatherms)
Residential 3,058 3,946 (888 )
Commercial 1,391 1,576 (185 )
Industrial 195 45 150
Transportation* 9,371 9,102 269
Other 1,501 3,194 (1,693 )
15,516 17,863 (2,347 )

*Customer-owned gas.

Operating revenues decreased $13.4 million, or 16.3%, for the three months ended June 30, 2006, compared to the same period of 2005, primarily due to decreased sales volumes due to warmer weather and customer conservation resulting from higher natural gas prices. These decreases were partially offset by higher natural gas prices and customer growth. PNM Gas purchases natural gas in the open market and resells it at no profit 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 13.1% and customer growth increased 2.3% quarter over quarter.~~

~~The~~ gross margin or operating income of PNM Gas. Increases or decreases to gross margin caused by changes in sales-service volumes represent margin earned on the delivery of gas to customers based on regulated rates. Changes in gas prices resulted in a $3.5 million increase in total revenues ~~minus cost~~during the second quarter and a $16.9 million decrease year-to-date 2007. On May 30, 2006, PNM filed for an increase in base gas service rates of ~~energy sold,~~$22.6 million. On June 29, 2007 the NMPRC approved an increase in annual revenues of approximately $9 million for PNM, which included a 9.53% return on equity. PNM filed a Notice of Appeal with the New Mexico Supreme Court on July 27, 2007 and has until August 27, 2007 to file which components will be appealed.

Cooler weather throughout the year resulted in increased revenues and operating income for both the second quarter of 2007 and year-to-date 2007. The year-to-date impact was much larger as cooler weather in the heating season resulted in higher sales volumes in the first quarter of 2007. Year-to-date heating degree-days increased 19.2%.

During the second quarter of 2007, an overall increase in the number of average customers was more than offset by a shift to more lower usage customers. The year-to-date impact of the shift in customers was more than offset by the overall increase in customers and reduced customer conservation.

Both the second quarter of 2007 and year-to-date 2007 saw increased revenue and operating income as a result of mark-to-market gains, which did not occur in 2006.

Reduced off-system activity decreased ~~$2.3 million, or 7.9%,~~revenues, but has slightly positive impact to margin and operating income, as the decreases in revenues were more than offset by the decreases in costs for the three months ended June 30, 2006 compared to the same period of 2005. Warmer weather reduced customer usage, which caused gross margin to decrease $1.8 million and conservation reduced usage $1.7 million. These decreases were offset by customer growth, which increased margin $1.5 million.transactions.

Total non-fuel O&M expenses decreased $1.5 million, or 10.9%, for the three months ended June 30, 2006 compared to the same period of 2005. Administrative and general expenses decreased $1.6 million primarily due to higher capitalized costs resulting from higher construction activity.

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

Unregulated Operations

Wholesale

The table below ~~sets forth~~summarizes the operating results for Wholesale:


	Three Months Ended June 30,												Six Months Ended June 30,
	2007			2006			Change			%			2007		2006			Change			%
	(In millions)												(In millions)
Total operating revenues	$	194.1		$	154.5		$	39.6			25.6		$	328.6	$	334.0		$	(5.4	)		(1.6	)
Cost of energy		165.6			119.9			45.7			38.2			242.0		262.7			(20.7	)		(7.9	)
Intersegment energy transfer		(3.5	)		(8.5	)		5.0			57.4			2.0		(3.3	)		5.3			160.7

Gross margin		32.0			43.1			(11.1	)		(25.7	)		84.6		74.6			10.0			13.4
Operating expenses		19.2			18.3			0.9			4.6			45.0		30.2			14.8			48.9
Depreciation and amortization		6.2			7.2			(1.0	)		(13.5	)		13.9		10.3			3.6			35.2

Operating income	$	6.6		$	17.6		$	(11.0	)		(62.3	)	$	25.7	$	34.1		$	(8.4	)		(24.6	)

Three Months Ended

June 30,

2006

2005

Variance

(In thousands)
Operating revenues

$
154,494

$
142,282

$
12,212

Less: Cost of energy 119,869 119,653 216
Intersegment energy transfer (8,524 ) 3,412 (11,936 )
Gross margin

43,149

19,217

23,932

Energy production costs 12,238 7,447 4,791
Transmission and distribution O&M 31 13 18
Customer related expense 304 104 200
Administrative and general 1,853 1,689 164
Total non-fuel O&M

14,426

9,253

5,173

Corporate allocation 1,882 1,016 866
Depreciation and amortization 7,155 4,041 3,114
Taxes other than income taxes 2,072 811 1,261
Income taxes 3,219 44 3,175
Total non-fuel operating expenses

28,754

15,165

13,589

Operating income

$
14,395

$
4,052

$
10,343

The table below summarizes the significant changes to operating revenues, gross margin and operating income:


	Three Months Ended June 30, 2007									Six Months Ended June 30, 2007
	Total			Gross			Operating			Total			Gross			Operating
	Revenues			Margin			Income			Revenues			Margin			Income
	(In millions)									(In millions)
Twin Oaks	$	(4.2	)	$	(2.9	)	$	(3.6	)	$	32.6		$	21.7		$	4.1
Mark-to-market gains (losses)		9.7			(13.3	)		(13.3	)		(17.5	)		(9.7	)		(9.7	)
Marketing activity		30.5			0.3			0.3			(25.7	)		(10.4	)		(10.4	)
Plant performance		3.6			5.8			7.5			5.1			9.3			11.3
Coal costs		—			(0.6	)		(0.6	)		—			(1.1	)		(1.1	)
General operational increases		—			—			0.1			—			—			(1.1	)
Other		—			(0.4	)		(1.4	)		0.1			0.2			(1.5	)

Total increase (decrease)	$	39.6		$	(11.1	)	$	(11.0	)	$	(5.4	)	$	10.0		$	(8.4	)

The following table shows Wholesale operating revenues by type of sale, including intersegment revenues, and average number of customers:

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


	Three Months Ended June 30,								Six Months Ended June 30,
	2007		2006		Change		%		2007		2006		Change			%
	(In millions)								(In millions)
Long-term sales	$	77.5	$	73.9	$	3.6		4.8	$	153.0	$	105.2	$	47.8			45.5
Short-term sales		116.6		80.6		36.0		44.7		175.6		228.8		(53.2	)		(23.2	)

	$	194.1	$	154.5	$	39.6		25.6	$	328.6	$	334.0	$	(5.4	)		(1.6	)

The following table shows ~~revenues~~Wholesale GWh sales by ~~customer class:~~type:


	Three Months Ended June 30,								Six Months Ended June 30,
	2007		2006		Change		%		2007		2006		Change			%
	(Gigawatt hours)								(Gigawatt hours)
Long-term sales		1,184.4		1,102.4		82.0		7.4		2,346.6		1,680.9		665.7			39.6
Short-term sales		1,700.4		1,569.1		131.3		8.4		3,140.8		3,789.9		(649.1	)		(17.1	)

		2,884.8		2,671.5		213.3		8.0		5,487.4		5,470.8		16.6			0.3

The Twin Oaks power plant was included in the Wholesale ~~Revenues~~segment from the time it was purchased on April 18, 2006 through May 31, 2007 when it was contributed to EnergyCo. The Wholesale segment income statement includes Twin Oaks during this period as shown in the following table:


	For the Period										For the Period
	April 1-		April 18 -								January 1-		April 18 -
	May 31,		June 30,								May 31,		June 30,
	2007		2006		Change			%			2007		2006		Change		%
	(Dollars in millions)										(Dollars in millions)
Total operating revenues	$	28.6	$	32.8	$	(4.2	)		(12.7	)	$	65.4	$	32.8	$	32.6		99.6
Cost of energy		9.9		11.2		(1.3	)		(10.9	)		22.1		11.2		10.9		98.6

Gross margin		18.7		21.6		(2.9	)		(13.6	)		43.3		21.6		21.7		100.2
Operating expenses		5.0		3.4		1.6			46.8			17.3		3.4		13.9		401.9
Depreciation and amortization		3.1		4.0		(0.9	)		(22.4	)		7.7		4.0		3.7		93.9

Operating income	$	10.6	$	14.2	$	(3.6	)		(25.8	)	$	18.3	$	14.2	$	4.1		28.8

Sales Volumes (GWhs)		427.9		492.4		(64.5	)		(13.1	)		915.9		492.4		423.5		86.0

Three Months Ended

June 30,

2006

2005

Variance

(In thousands)
Long-term contracts $ 73,924 $ 37,897 $ 36,027
Short-term sales 80,570 104,385 (23,815 )
$ 154,494 $ 142,282 $ 12,212

The following ~~table shows sales by customer class:~~discussion of results will exclude variances due to the timing of PNMR’s ownership of the Twin Oaks power plant that are shown above.

~~Wholesale Sales~~

Three Months Ended

June 30,

2006

2005

Variance

(Megawatt hours)
Long-term contracts 1,102,365 563,482 538,883
Short-term sales 1,569,151 1,949,416 (380,265 )
2,671,516 2,512,898 158,618

~~Operating revenues increased $12.2 million, or 8.6%,~~Changes in mark-to-market positions had a positive impact on revenue for the ~~three months ended June 30, 2006, compared~~second quarter of 2007, driven by an increase in short-term revenues of $18.6 million; however, this increase was more than offset by increased costs, which resulted in decreases to both gross margin and operating income. Mark-to-market changes also decreased year-to-date gross margin and operating income, as lower revenues were partially offset by lower costs.

Wholesale marketing activity, which includes long-term contract growth, sales of SO₂ credits, as well as other activities, increased revenue for the ~~same period~~second quarter of ~~2005,~~2007, but the increase in revenue was almost completely offset by an increase in costs associated with these activities, resulting in a slight increase to gross margin and operating income. Operating income year-to-date was decreased by marketing activity primarily due to the ~~acquisition~~absence of ~~Twin Oaks. Twin Oaks~~market opportunities that allowed for the forward sale of first quarter 2006 excess resources.

During the second quarter of 2007, improved performance over the prior year at PVNGS resulted in a $7.3 million increase to gross margin and a $1.5 million decrease to O&M costs. Improved performance at SJGS over the prior year increased ~~revenue~~gross margin by ~~$32.8 million of which $15.7 million related to an existing power agreement and $16.9~~$1.7 million for the ~~amortization of the fair value of a sales contract existing as of the date of the acquisition (see Note 2). Wholesale sold 2.67 million MWh of electricity in~~second quarter, but increased O&M costs by $0.1 million. Decreased performance at Four Corners compared to the second quarter of 2006 resulted in a $3.2 million decrease to gross margin and a $0.3 million decrease to O&M costs.

Year-to-date 2007 compared to ~~2.51~~2006, PVNGS performance resulted in an $11.9 million ~~MWh for the same period in 2005, an~~ increase ~~of 6.3%. These increases were partially offset by~~to gross margin and a $2.0 million decrease in ~~short-term sales of $23.8~~O&M costs. SJGS performance resulted in a $1.2 million ~~resulting from decreased marketing activity due~~increase to ~~reduced plant availability.~~

~~The~~ gross margin ~~or operating revenues minus cost of energy sold~~ and ~~intersegment energy transfer, increased $23.9 million for the three months ended June 30, 2006 compared to the same period of 2005 primarily due to the addition of Twin Oaks.~~

The long-term sales margin increased $19.6 million for the three months ended June 30, 2006, compared to the same period of 2005, due to the addition of Twin Oaks, which increased margin $21.6 million. This increase was partially offset by plant outage costs of $1.6 million. Short-term margin increased $4.4 million due to a decrease in purchase prices, partially offset by lower plant availability and increased retail loads, which caused a decrease in energy available to sell in the wholesale market. PNM Wholesale's mark-to-market position decreased $2.4 million in the second quarter of 2006, from a $0.1 million decrease ~~for the same period in 2005.~~

~~Total non-fuel~~to O&M costs. Decreased Four Corners performance resulted in a $3.7 million decrease to gross margin and a $0.2 million increase to O&M costs.

Increased coal costs at SJGS and Four Corners have decreased gross margin and operating income for both the second quarter and year-to-date 2007.

For the second quarter and year-to-date 2007, increases in general operational expenses ~~increased $5.2 million, or 55.9%,~~include costs for ~~the three months ended June 30, 2006. Energy production costs increased $4.8 million, or 64.3%, primarily due to PVNGS increased outage costs of $3.0 million~~materials and ~~the addition of Twin Oaks costs of $1.6 million~~supplies as well as shared service, employee labor, pension and ~~Luna costs of $0.8 million, which the Company did not have in 2005. These increases were partially offset by the elimination of a regulatory liability, which decreased expenses $0.6 million.~~benefit costs.

Depreciation and amortization increased $3.1 million, or 77.1%, for the three months ended June 30, 2006 primarily due to the addition of Twin Oaks, which increased expense $4.0 million, partially offset by changes in the depreciation rates at the Afton and Lordsburg plants, which decreased expense $0.6 million. Taxes other than income increased $1.3 million primarily due to the addition of Twin Oaks.

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

First Choice

~~PNMR acquired TNP on June 6, 2005, and results in this section are presented from the acquisition date forward only. Comparable results from 2005 are not presented.~~

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


	Three Months Ended June 30,										Six Months Ended June 30,
	2007		2006		Change			%			2007		2006		Change			%
	(In millions)										(In millions)
Total operating revenues	$	150.0	$	154.9	$	(4.9	)		(3.1	)	$	285.6	$	260.0	$	25.6			9.8
Cost of energy		125.8		118.1		7.7			6.6			236.7		208.4		28.3			13.6

Gross margin		24.2		36.8		(12.6	)		(34.4	)		48.9		51.6		(2.7	)		(5.2	)
Operating expenses		13.0		15.3		(2.3	)		(15.7	)		28.1		28.6		(0.5	)		(1.5	)
Depreciation and amortization		0.5		0.5		—			(7.8	)		0.9		1.0		(0.1	)		(6.6	)

Operating income	$	10.7	$	21.0	$	(10.3	)		(48.8	)	$	19.9	$	22.0	$	(2.1	)		(9.8	)

Three Months Ended

For the Period

June 30,

June 6 - June 30,

2006

2005

(In thousands)
Operating revenues
$ 154,908 $ 43,031
Less: Cost of energy 118,073 34,083
Gross margin

36,835

8,948

Customer related expense 2,411 466
Administrative and general 8,444 1,089
Total non-fuel O&M

10,855

1,555

Corporate allocation 3,156 1,130
Depreciation and amortization 510 105
Taxes other than income taxes 1,356 512
Income taxes 7,363 2,020
Total non-fuel operating expenses

23,240

5,322

Operating income

$
13,595

$
3,626

The following table summarizes the significant changes to operating revenues, gross margin and operating income:


	Three Months Ended June 30, 2007									Six Months Ended June 30, 2007
	Total			Gross			Operating			Total			Gross			Operating
	Revenues			Margin			Income			Revenues			Margin			Income
	(In millions)									(In millions)
Weather	$	(10.2	)	$	(3.0	)	$	(3.0	)	$	(4.2	)	$	(1.0	)	$	(1.0	)
Customer mix/price		6.7			(8.8	)		(7.7	)		34.3			2.8			4.8
Mark-to-market positions		(2.1	)		(1.6	)		(1.6	)		(5.8	)		(5.8	)		(5.8	)
Bad debt expense		—			—			(1.7	)		—			—			(1.9	)
Incentive-based compensation		—			—			1.9			—			—			0.7
Other operating expenses		—			—			1.4			—			—			(0.2	)
Other		0.7			0.8			0.4			1.3			1.3			1.3

Total increase (decrease)	$	(4.9	)	$	(12.6	)	$	(10.3	)	$	25.6		$	(2.7	)	$	(2.1	)

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


	Three Months Ended June 30,										Six Months Ended June 30,
	2007		2006⁽¹⁾		Change			%			2007			2006⁽¹⁾		Change			%
	(In millions, except customers)										(In millions, except customers)
Residential	$	88.4	$	89.2	$	(0.8	)		(0.8	)	$	174.0		$	148.8	$	25.2			16.9
Mass-market		18.0		23.7		(5.7	)		(24.3	)		34.1			42.5		(8.4	)		(19.8	)
Mid-market		37.8		33.9		3.9			11.7			68.4			53.3		15.1			28.2
Mark-to-market⁽⁴⁾		1.7		3.8		(2.1	)		(55.1	)		(0.3	)		5.5		(5.8	)		(104.7	)
Other		4.1		4.3		(0.2	)		(5.8	)		9.4			9.9		(0.5	)		(4.1	)

	$	150.0	$	154.9	$	(4.9	)		(3.1	)	$	285.6		$	260.0	$	25.6			9.8

Actual customers (thousands)^(2,3)		249.5		230.1		19.4			8.4			249.5			230.1		19.4			8.4

~~First Choice Electric Revenues~~


(1)		The customer class revenues and the customer counts have been reclassified to be consistent with the current year presentation.

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

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

(4)		Includes financial gas trading.

Three Months Ended

For the Period

June 30,

June 6 - June 30,

2006

2005

(In thousands, except customers)
Residential $ 89,181 $ 29,265
Mass-market 23,789 6,615
Mid-market 33,866 5,864
Other 8,072 1,287
$ 154,908 $ 43,031

Average customers * 217,162 215,965

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

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


	Three Months Ended June 30,										Six Months Ended June 30,
	2007		2006⁽²⁾		Change			%			2007		2006⁽²⁾		Change			%
	(Gigawatt hours⁽¹⁾)										(Gigawatt hours⁽¹⁾)
Residential		638.0		636.7		1.3			0.2			1,252.9		1,064.2		188.7			17.7
Mass-market		110.8		160.6		(49.8	)		(31.0	)		210.7		281.6		(70.9	)		(25.2	)
Mid-market		329.7		308.4		21.3			6.9			589.6		486.1		103.5			21.3
Other		8.0		13.6		(5.6	)		(41.6	)		17.2		26.6		(9.4	)		(35.3	)

		1,086.5		1,119.3		(32.8	)		(2.9	)		2,070.4		1,858.5		211.9			11.4

First Choice Electric Sales *

Three Months Ended

For the Period

June 30,

June 6 - June 30

2006

2005

(Megawatt hours)
Residential 636,662 246,332
Mass-market 161,019 55,424
Mid-market 308,420 67,420
Other 13,183 2,949
1,119,284 372,125


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

(2)		The customer class sales have been reclassified to be consistent with current year presentation.

Cooler weather throughout 2007 resulted in lower sales volumes and reduced operating income for both the second quarter and year-to-date 2007. The cooler weather had a large impact on the second quarter as cooling degree-days are down 20.4% compared to the second quarter of 2006.

For the second quarter of 2007, an overall increase in customers and increased sales prices increased revenues, but were more than offset by an increase in purchase prices and a shift in the ~~TNMP Electric segment discussion about the impact~~mix of ~~TECA.~~

~~First Choice’s~~overall customers to include more lower margin customers, resulting in a decrease to gross margin and operating income. Year-to-date 2007, the increase in sales prices was ~~$36.8~~greater than the increase in purchase prices, resulting in an increase to margin and operating income. However, the increase in total customers was more than offset by the shift in the mix of customers to lower margin customers.

A mark-to-market gain of $1.7 million during the second quarter of 2007, and a loss of $0.3 million year-to-date, compared to gains of $3.3 million and $5.5 million for the ~~three months ended~~second quarter and year-to-date 2006 resulted in reduced income compared to last year.

Bad debt expense has increased in 2007, primarily in the second quarter, compared to 2006, resulting in a decrease to operating income. A reduction in incentive-based compensation as a result of lower than projected earnings in 2007 has decreased operating expenses for both the second quarter and year-to-date 2007. Other operating expenses were reduced for the second quarter and year-to-date 2007 by the outsourcing of customer service operations. Year-to-date 2007, these savings were offset by an increase in marketing expenses to support growth in the business.

EnergyCo

Upon the contribution of Altura to EnergyCo, EnergyCo became a separate segment for PNMR effective June 1, 2007. Subsequent to June 30, ~~2006. The significant factors~~2007, EnergyCo completed the acquisition of one electric generating plant and announced plans to co-develop an additional generating unit. See Notes 2 and 11. PNMR accounts for its investment in EnergyCo using the equity method of accounting. A summary of EnergyCo’s results of operations for the month of June 2007 is as follows:


	For the
	Period of June 1
	- June 30, 2007
	(In thousands)

Operating revenue	$	14,366
Cost of energy		4,561

Gross margin		9,805
Operating expenses		2,767
Depreciation and amortization		1,528

Operating income		5,510
Other income		24
Net interest charges		(818	)

Net earnings	$	4,716


50 percent of net earnings	$	2,358
Amortization of basis difference in EnergyCo		584

PNMR equity in net earnings of EnergyCo	$	2,942

Corporate and Other

Operating revenues decreased along with an offsetting decrease in cost of energy for both the second quarter and year-to-date was a result of eliminations made at the corporate level for transactions between PNM Electric and TNMP’s New Mexico operations that ~~impacted gross margin included~~are no longer necessary as these assets were transferred to PNM Electric on January 1, 2007.

Operating expenses increased $5.9 million for the second quarter of 2007 and $8.2 million year-to-date 2007. These increases ~~in price margins~~were primarily driven by ~~increased competitive~~costs associated with the formation of the EnergyCo joint venture, an impairment loss on intangible assets, and ~~price~~the loss on the contribution of Altura to ~~beat sales prices~~EnergyCo of $10.0 million for the second quarter and $11.2 million year-to-date 2007. Costs were also decreased by depreciation costs that were allocated through the corporate allocation driven by the construction of a new data center and additional shared service software and an increase in ~~mark-to-market gains.~~legal reserves for year-to-date 2007. These ~~increases~~costs were partially offset by ~~customer attrition~~costs in 2006 related to TNP and ~~amortization~~Twin Oaks acquisition integration costs of the fair value of sales and purchase contracts existing as of the date of the acquisition. As part of the acquisition of TNP, PNMR determined the fair value of a First Choice contractual obligation to purchase power and an obligation to sell power that are being amortized over the contract lives, or approximately three years.

~~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 $9.3 million, or 26.6%, to $44.3$1.8 million for the ~~three months ended June 30,~~second quarter and $2.8 million year-to-date, costs that were allocated to EnergyCo in 2007, which did not exist in 2006, ~~compared~~and the absence of severance and other costs in 2006 related to the ~~same period of 2005. This increase was primarily due to $5.7 million in additional expenses for insurance, benefits and corporate support activities for~~ TNP ~~which PNMR did not incur until the~~ acquisition of ~~TNP in June 2005. Wages and benefit costs increased $3.8~~$0.8 million ~~due to a transfer of employees to corporate and increases in projected payout of employee incentive programs. Maintenance fees~~ for software increased $2.1 million. Legal and consulting expenses increased $1.1 million for routine business matters. Stock-based compensation expense increased $0.6 million, primarily due to the adoption of SFAS 123R (see Note 6). These increases were partially offset by a decrease of $3.3 million of acquisition related costs.

~~Depreciation Expense~~

~~Corporate and other depreciation expense decreased $4.2 million, or 66.0%, to $2.1 million, primarily due to the write-off of software costs in~~ the second quarter ~~of 2005.~~and $1.0 million year-to-date.

~~Taxes Other Than Income~~

~~Corporate and other taxes other than income~~Depreciation expense increased ~~$0.8 million to $1.5 million~~ primarily due to an increase in ~~payroll taxes resulting from~~asset base as a ~~transfer~~result of ~~employees~~new software implementation and completion of a data center for shared services. These expenses were allocated to the business segments through the corporate ~~and a higher tax base from the TNP acquisition.~~allocation.

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

PNMR Consolidated

~~Other Income and Deductions~~

Interest income decreased $2.7 million, or 23.3%, for the three months ended June 30, 2006 due primarily to interest earned on the investment of proceeds related to the sale of hybrid income term securities invested from March 31, 2005 until the TNP acquisition on June 6, 2005.

~~Other income decreased $0.7 million or 27.0% from the prior year quarter~~in 2007 primarily due to lower ~~returns~~interest income of $1.0 million for the second quarter and $1.3 million year-to-date resulting from lower PGAC balances, as well as lower interest income of $0.5 million for the second quarter and $1.1 million year-to-date earned on ~~investments.~~the PVNGS lessor notes due to lower principal balances, which were partially offset by increased interest income of $0.3 million for the second quarter and $0.5 million year-to-date from higher cash balances at First Choice.

~~Carrying~~Other income and deductions decreased in 2007 primarily due to the decrease of $2.0 million for the second quarter and $4.0 million year-to-date in carrying charges on regulatory assets ~~were $2.0~~as a result of the absence of interest income earned on TNMP stranded costs in 2006 based on the collection of costs ordered by the PUCT, as discussed in the TNMP Electric segment. Other income and deductions also decreased as a result of the amortization of $2.5 million for the ~~three months ended June 30, 2006. This represents interest income~~second quarter and year-to-date for a wind energy investment in other deductions. These decreases were partially offset by increased realized gains on ~~TNMP regulatory assets.~~

~~Other deductions increased approximately $1.0 million or 61.9% for~~investments held by the ~~three months ended June 30, 2006 due primarily to an increase in investment losses.~~

~~Interest Charges~~

NDT.

PNMR’s consolidated interest charges ~~increased~~decreased primarily due to interest effects of the settlement with the IRS regarding previously unrecognized tax benefits (See Note 15), which reduced interest expense by ~~$15.0~~$5.5 million for the ~~three months ended June 30, 2006, compared to~~second quarter and year-to-date, and increased capitalized interest on construction of Afton and AFUDC on the ~~same period~~SJGS environmental project of ~~2005, primarily due to $5.1~~$1.4 million for the second quarter and $1.9 million year-to-date. These decreases were partially offset by increased interest of $2.5 million for the second quarter and $6.1 million year-to-date on short-term borrowings, increased interest ~~charges related to debt from the TNP acquisition, which PNMR did not incur until the acquisition~~expense of ~~TNP in June 2005, interest and refinancing costs of $1.3~~$1.0 million year-to-date related to the ~~equity-linked units issued~~refinancing of PCRBs, and interest expense on a wind energy investment that began in ~~March and October of 2005, $5.7 million of interest charges related to the~~late 2006. The bridge loan associated with the Altura purchase of Twin Oaks ~~which occurred on April 18,~~decreased interest expense for the quarter but increased expense for the year, as that loan was outstanding for only one-half of a month during the second quarter of 2007 compared to two and one-half months of the same period of 2006, but for three and ~~$4.4 million~~one-half months of ~~interest charges related~~2007 year-to-date, compared to ~~commercial paper borrowings. These increased charges were partially offset by $0.8 million~~two and one-half months for the same period of ~~interest capitalized in connection with capital construction projects.~~

~~Income Taxes~~

2006.

PNMR’s consolidated income tax expense ~~was $10.0~~decreased primarily as a result of the settlement with the IRS regarding previously unrecognized tax benefits (See Note 15), which had a $16.0 million non-recurring impact on income taxes for both the ~~three months ended June 30, 2006, compared to $1.3 million for~~second quarter and year-to-date of 2007. In addition, 2007 income taxes were reduced by a decrease in pre-tax earnings, which were partially offset by a change in taxation by the ~~same period~~State of ~~2005.~~Texas that resulted in Texas margin taxes being included in income tax expense in 2007 versus Texas franchise tax being included in taxes other than income in 2006. PNMR’s effective ~~operating income~~ tax rates for the three months and six months ended June 30, ~~2006~~2007 were (277.5%) and ~~2005 were 38.4%~~5.5%, respectively, compared to 38.3% and ~~40.5%, respectively. PNMR’s~~37.5% for the three months and six months ended June 30, 2006. Excluding the non-recurring impact to income taxes related to the IRS settlement, the effective ~~non-operating income~~ tax rates for the three months and six months ended June 30, ~~2006~~2007 would have been 19.7% and ~~2005~~35.7%. PNMR’s effective tax rates for the three months and six months ended June 30, 2007 were ~~37.1% and 35.3%, respectively.~~also impacted by a reduction in the effective rate applicable to non-operating income primarily due to the impacts of tax credits from a wind energy investment.

LIQUIDITY AND CAPITAL RESOURCES

Statements of Cash Flows

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

~~RESULTS OF OPERATIONS - PNMR~~

~~SIX MONTHS ENDED JUNE 30, 2006~~

~~COMPARED TO SIX MONTHS ENDED JUNE 30, 2005~~

The changes in PNMR’s ~~net earnings~~cash flows for the six months ended June 30, ~~2006 were $42.6 million, or $0.61 per diluted share of common stock,~~2007 compared to ~~$32.1 million or $0.50 per diluted share~~2006 are summarized as follows:


	Six Months Ended June 30,
	2007			2006			Variance
	(In millions)

Net cash flows from operating activities	$	87.2		$	111.5		$	(24.3	)
Net cash flows from investing activities		172.4			(596.2	)		768.6
Net cash flows from financing activities		(325.0	)		490.4			(815.4	)

Net change in cash and cash equivalents	$	(65.4	)	$	5.7		$	(71.1	)

The change in PNMR’s cash flows from operating activities is a result of ~~common stock for the six months ended June 30, 2005 primarily due to the~~PNM’s higher load growth in 2007 offset by higher coal costs, lower plant performance, and lower wholesale activity. In addition, First Choice operations and the addition of Twin Oaks. As discussed above, PNM experienced below normal levels of plant performance due to unexpected plant outages 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. Also affecting PNMR's earnings was the last phase of an agreed upon 2003 rate reduction which went into effect September 2005 and charges for financing.

As noted above, the following discussion is based on the segment methodology that management uses for making operating decisions and assessing performance of its various business activities. In addition, adjustments related to EITF 03-11 are excluded from the 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 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 EITF 03-11.

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

~~Regulated Operations~~

~~PNM Electric~~

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

Six Months Ended

June 30,

2006

2005

Variance

(In thousands)
Operating revenues

$
285,114

$
272,963

$
12,151

Less: Cost of energy 88,782 92,401 (3,619 )
Intersegment energy transfer 3,346 (17,535 ) 20,881
Gross margin

192,986

198,097

(5,111
)
Energy production costs 60,117 60,281 (164 )
Transmission and distribution O&M 16,368 14,625 1,743
Customer related expense 7,958 8,700 (742 )
Administrative and general 1,637 5,290 (3,653 )
Total non-fuel O&M

86,080

88,896

(2,816
)
Corporate allocation 36,163 30,209 5,954
Depreciation and amortization 29,288 35,053 (5,765 )
Taxes other than income taxes 11,475 10,018 1,457
Income taxes 4,924 6,654 (1,730 )
Total non-fuel operating expenses

167,930

170,830

(2,900
)
Operating income

$
25,056

$
27,267

$
(2,211
)

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

~~PNM Electric Revenues~~

Six Months Ended

June 30,

2006

2005

Variance

(In thousands, except customers)
Residential $ 107,354 $ 104,058 $ 3,296
Commercial 122,651 119,889 2,762
Industrial 30,329 30,543 (214 )
Transmission 14,238 9,038 5,200
Other 10,542 9,435 1,107
$ 285,114 $ 272,963 $ 12,151

Average customers 427,273 415,028 12,245

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

~~The following table shows electric sales by customer class:~~

~~PNM Electric Sales~~

Six Months Ended

June 30,

2006

2005

Variance

(Megawatt hours)
Residential 1,335,894 1,260,512 75,382
Commercial 1,732,921 1,639,618 93,303
Industrial 646,587 633,488 13,099
Other 126,421 114,016 12,405
3,841,823 3,647,634 194,189

Operating revenues increased $12.2 million, or 4.5%, for the six months ended June 30, 2006 compared to the same period of 2005. Retail electricity sales increased 5.3%, to 3.84 million MWh in the first six months of 2006 compared to 3.65 million MWh for the same period in 2005. Customer growth was 3.0% year over year and weather-normalized retail electric load growth for the first six months of 2006 was 4.8%. Customer load growth, when normalized for the impact of weather, increased revenues by $11.7 million. Increased usage due to warmer weather increased revenues $1.5 million. In addition, increased transmission revenues, primarily from point-to-point customers, increased revenues $5.2 million. These revenue increases were partially offset by a decrease in revenues of $6.9 million due to a 2.5% rate reduction which was effective beginning September 2005.

The gross margin, or operating revenues minus cost of energy sold and intersegment energy transfer, decreased $5.1 million, or 2.6%, for the six months ended June 30, 2006 primarily due to the reduction of power plant availability and the rate decrease. Plant outages at PVNGS during the first six months created an increase in purchased power requirements to serve load. These decreases were partially offset by increased revenues associated with retail load growth.

Total non-fuel O&M expenses decreased $2.8 million, or 3.2%, for the six months ended June 30, 2006 compared to the same period of 2005. Energy production costs were relatively unchanged in the second quarter of 2006. Reduced plant outages at Reeves ($1.6 million), Four Corners ($0.6 million), and SJGS ($0.2 million), were mostly offset by increased plant outage costs of $1.3 million at PVNGS. In addition, a new water sharing agreement at SJGS with the Jicarilla Apache Tribe, which started in January 2006, increased energy production costs by $0.3 million. Transmission and distribution O&M expenses increased $1.7 million or 11.9% primarily due to increased maintenance costs for outage restoration and reliability purposes. Customer related expenses decreased $0.7 million, or 8.5%, primarily due to a transfer of employees to the corporate level and allocated through the corporate allocation. Administrative and general expenses decreased $3.7 million, or 69.1%, due toPower had higher ~~capitalized costs of $2.1 million and lower legal and consulting costs of $1.2 million related to routine business matters.~~

Depreciation and amortization decreased $5.8 million, or 16.4%, primarily due to an increase in the estimated useful life at SJGS, partially offset by asset additions placed in service during 2005. Taxes other than income increased $1.5 million or 14.5% due to a general increase in property taxes from various taxing authorities.

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

~~TNMP Electric~~

~~PNMR acquired TNP, the parent of TNMP, on June 6, 2005, and results in this section are presented for 2006 only, comparable results from 2005 are not presented.~~

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

Six Months Ended

For the Period

June 30,

June 6 - June 30,

2006

2005

(In thousands)
Operating revenues

$
124,141

$
19,235

Less: Cost of energy 49,823 6,702
Gross margin

74,318

12,533

Transmission and distribution O&M 10,112 1,150
Customer related expense 2,600 302
Administrative and general 284 288
Total non-fuel O&M

12,996

1,740

Corporate allocation 18,014 1,461
Depreciation and amortization 15,563 2,085
Taxes other than income taxes 11,479 1,885
Income taxes 566 1,175
Total non-fuel operating expenses

58,618

8,346

Operating income

$
15,700

$
4,187

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

~~TNMP Electric Revenues~~

Six Months Ended

For the period

June 30,

June 6 - June 30,

2006

2005

(In thousands, except customers)
Residential $ 39,931 $ 7,857
Commercial 43,507 6,522
Industrial 21,640 2,607
Other 19,063 2,249
$ 124,141 $ 19,235

Average customers * 261,602 258,251

* 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 147,782 and 157,813 customers of TNMP Electric at June 30, 2006 and 2005, respectively, 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.

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

~~The following table shows electric sales by customer class:~~

TNMP Electric Sales *

Six Months Ended

For the period

June 30,

June 6 - June 30,

2006

2005

(Megawatt hours)
Residential 1,334,494 275,271
Commercial 1,426,121 189,767
Industrial 942,643 144,791
Other 60,715 8,590
3,763,973 618,419

* The MWh reported above include 1,109,966 and 257,770 MWh used by customers of TNMP Electric at June 30, 2006 and 2005, respectively, 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 $74.3 million for the six months ended June 30, 2006. The significant factors that impacted gross margin include a decrease in revenues due to rate reductions in both Texas and New Mexico, lower revenues due to a reduction in operations of a major customer in New Mexico and increased transmission costs. These decreases were partially offset by customer growth ~~year over year.~~

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

~~PNM Gas~~

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

Six Months Ended

June 30,

2006

2005

Variance

(In thousands)
Operating revenues

$
276,486

$
247,670

$
28,816

Less: Cost of energy 199,859 167,727 32,132
Gross margin

76,627

79,943

(3,316
)
Energy production costs 1,103 1,197 (94 )
Transmission and distribution O&M 13,854 13,367 487
Customer related expense 8,147 9,313 (1,166 )
Administrative and general 1,268 2,561 (1,293 )
Total non-fuel O&M

24,372

26,438

(2,066
)
Corporate allocation 22,314 17,881 4,433
Depreciation and amortization 11,914 11,172 742
Taxes other than income taxes 4,285 4,006 279
Income taxes 3,030 5,787 (2,757 )
Total non-fuel operating expenses

65,915

65,284

631

Operating income

$
10,712

$
14,659

$
(3,947
)

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

~~PNM Gas Revenues~~

Six Months Ended

June 30,

2006

2005

Variance

(In thousands, except customers)
Residential $ 180,151 $ 151,619 $ 28,532
Commercial 57,384 45,349 12,035
Industrial 2,251 925 1,326
Transportation* 7,486 7,117 369
Other 29,214 42,660 (13,446 )
$ 276,486 $ 247,670 $ 28,816

Average customers 480,579 470,066 10,513

*Customer-owned gas.

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

~~The following table shows gas throughput by customer class:~~

~~PNM Gas Throughput~~

Six Months Ended

June 30,

2006

2005

Variance

(Thousands of decatherms)
Residential 15,020 16,704 (1,684 )
Commercial 5,557 5,885 (328 )
Industrial 267 130 137
Transportation* 20,402 17,252 3,150
Other 3,067 5,985 (2,918 )
44,313 45,956 (1,643 )

*Customer-owned gas.

Operating revenues increased $28.8 million, or 11.6%, for the six months ended June 30, 2006, compared to the same period of 2005, primarily due to higher natural gas prices in 2006. PNM Gas purchases natural gas in the open market and resells it at no profit 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 3.6% primarily due to customer conservation resulting from higher natural gas prices and warmer weather in 2006. Customer growth increased 2.2% year over year.

The gross margin, or operating revenues minus cost of energy sold, decreased $3.3 million, or 4.1%, for the six months ended June 30, 2006 compared to the same period of 2005. Reduced customer usage resulting from customer conservation caused gross margin to decrease $5.6 million and warmer weather reduced margin $1.6 million. These decreases were offset by customer growth discussed above, which increased margin $4.1 million.

Total non-fuel O&M expenses decreased $2.1 million, or 7.8% for the six months ended June 30, 2006 compared to the same period of 2005. Customer related expenses decreased $1.2 million, or 12.5%, primarily due to a reduction in labor costs, which were charged to the business segments in 2005 but were recorded at the corporate level (and allocated through the corporate allocation) in 2006. Administrative and general expenses decreased $1.3 million primarily due to higher capitalized costs resulting from an increase in construction activity.

~~Depreciation and amortization increased $0.7 million, or 6.6%, primarily due to asset and software additions placed in service during 2005.~~

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

~~Unregulated Operations~~

~~Wholesale~~

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

Six Months Ended

June 30,

2006

2005

Variance

(In thousands)
Operating revenues

$333,982

$ 274,286

$ 59,696

Less: Cost of energy 262,746 208,965 53,781
Intersegment energy transfer (3,346 ) 17,535 (20,881 )
Gross margin

74,582

47,786

26,796

Energy production costs 20,136 14,402 5,734
Transmission and distribution O&M 50 21 29
Customer related expense 562 382 180
Administrative and general 3,294 3,383 (89 )
Total non-fuel O&M

24,042

18,188

5,854

Corporate allocation 3,075 2,053 1,022
Depreciation and amortization 10,316 8,028 2,288
Taxes other than income taxes 3,048 1,727 1,321
Income taxes 8,233 3,875 4,358
Total non-fuel operating expenses

48,714

33,871

14,843

Operating income

$
25,868

$
13,915

$
11,953

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

~~The following table shows revenues by customer class:~~

~~Wholesale Revenues~~

Six Months Ended

June 30,

2006

2005

Variance

(In thousands)
Long-term contracts $ 105,158 $ 75,372 $ 29,786
Short-term sales 228,824 198,914 29,910
$ 333,982 $ 274,286 $ 59,696

~~The following table shows sales by customer class:~~

~~Wholesale Sales~~

Six Months Ended

June 30,

2006

2005

Variance

(Megawatt hours)
Long-term contracts 1,680,909 1,288,885 392,024
Short-term sales 3,789,903 4,074,439 (284,536 )
5,470,812 5,363,324 107,488

Operating revenues increased $59.7 million, or 21.8%, for the six months ended June 30, 2006 compared to the same period of 2005. This increase in wholesale electric sales was primarily due to increased short-term sales of $29.9 million, or 15.0%, resulting from a 15.9% increase in average short-term prices in 2006 compared to 2005. In addition, long-term contracts increased $29.8 million, or 39.5%, primarily due to the acquisition of Twin Oaks. Twin Oaks increased revenue by $32.8 million of which $15.7 million related to an existing power agreement and $16.9 million for the amortization of the fair value of a sales contract existing as of the date of the acquisition (see Note 2). Wholesale sold 5.47 million MWh of electricity in 2006 compared to 5.36 million MWh in 2005, an increase of 2.0%. These increases were partially offset by a decrease in revenues from PNM long-term contracts of $3.0 million in 2006 due primarily to the expiration of a customer contract in March 2005, partially offset by growth in other long-term contracts and increases in contract pricing.

The gross margin, or operating revenues minus cost of energy sold and intersegment energy transfer, increased $26.8 million, or 56.1%, for the six months ended June 30, 2006, compared to the same period of 2005, primarily due to the addition of Twin Oaks, which increased margin $21.6 million. In addition, margin increased due to the forward sale of first quarter 2006 excess resources in September 2005 when market prices were high. When prices fell in early 2006, PNM Wholesale covered the forward sales with lower-priced market purchases and utilized the excess resources to create additional sales opportunities. This strategy resulted in an increase in gross margin of approximately $10.8 million. This increase was offset by a $9.7 million decrease due to reduced plant availability and increased retail load, which reduced the availability of less expensive excess energy for sale in the wholesale market. In addition, the net loss of a customer contract caused a decrease of $1.5 million in gross margin.

The long-term sales margin increased $16.4 million for the six months ended June 30, 2006, compared to the same period of 2005, due to the addition of Twin Oaks margin of $21.6 million, partially offset by plant outage costs of $3.9 million. Short-term margin increased $10.4 million primarily due to the forward sale discussed above and higher market prices, partially offset by lower plant availability and increased retail loads, which caused a decrease in energy available to sell in the Wholesale market. PNM Wholesale's mark-to-market position decreased $2.0 million in 2006, from a $0.8 million increase in 2005.

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

Total non-fuel O&M expenses increased $5.9 million, or 32.2%, for the six months ended June 30, 2006. Energy production costs increased $5.7 million, or 39.8%, due primarily to increased planned outage costs of $3.9 million at PVNGS Unit 3 and the addition of Twin Oaks costs of $1.6 million and Luna cost of $0.8 million, which the Company did not have in 2005. These increases were partially offset by the write-off of a regulatory liability, which decreased expenses $0.6 million.

Depreciation and amortization increased $2.3 million, or 28.5% for the six months ended June 30, 2006 primarily due to the addition of Twin Oaks and depreciation expense for assets placed in service during 2005, partiallypricing offset by changes in ~~the depreciation rates~~customer mix. There were also higher incentive based compensation payouts in 2007 and higher interest charges that were a result of higher short-term borrowings in 2007. Higher than normal gas and market prices at the ~~Afton and Lordsburg plants. Taxes other than income increased $1.3 million or 76.5% primarily due~~end of 2005 contributed to ~~the addition of Twin Oaks.~~

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

~~First Choice~~

~~PNMR acquired TNP on June 6, 2005, and results~~higher receivable collections in ~~this section are presented from the acquisition date forward only.~~

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

Six Months Ended

For the Period

June 30,

June 6 - June 30

2006

2005

(In thousands)
Operating revenues

$
259,990

$
43,031

Less: Cost of energy 208,408 34,083
Gross margin

51,582

8,948

Customer related expense 5,988 466
Administrative and general 12,056 1,089
Total non-fuel O&M

18,044

1,555

Corporate allocation 7,965 1,130
Depreciation and amortization 1,008 105
Taxes other than income taxes 2,536 512
Income taxes 7,663 2,020
Total non-fuel operating expenses

37,216

5,322

Operating income

$
14,366

$
3,626

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

~~First Choice Electric Revenues~~

Six Months Ended

For the Period

June 30,

June 6 - June 30

2006

2005

(In thousands, except customers)
Residential $ 148,782 $ 29,265
Mass-market 42,730 6,615
Mid-market 53,313 5,864
Other 15,165 1,287
$ 259,990 $ 43,031

Average customers * 212,958 215,965

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

~~The following table shows electric sales by customer class:~~

First Choice Electric Sales *

Six Months Ended

For the period

June 30,

June 6 - June 30,

2006

2005

(Megawatt hours)
Residential 1,064,206 246,332
Mass-market 282,789 55,424
Mid-market 486,063 67,420
Other 25,445 2,949
1,858,503 372,125

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

First Choice’s gross margin was $51.6 million for the six months ended June 30, 2006. The significant factors that impacted gross margin include increases in price margins driven by increased competitive and price2006 as compared to beat sales prices, an increase in mark-to-market gains and an amortization benefit of sales and purchase contracts existing at the time of the acquisition. As part of the acquisition of TNP, PNMR determined the fair value of a First Choice contractual obligation to purchase power and an obligation to sell power that are being amortized over the contract lives, or approximately three years. These increases were2007 partially offset by ~~customer attrition.~~

~~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~~reduced payments in the corporate allocation line item in the segment statements. These costs increased $25.3 million, or 40.6%, to $87.6 million for the six months ended June 30, 2006 compared to the same period of 2005. This increase was primarily due to $17.8 million in additional expenses for insurance, benefits and corporate support activities for TNP, which PNMR did not incur until the acquisition of TNP in June 2005. Stock-based compensation expense increased $4.6 million due to the adoption of SFAS 123R (see Note 6). Legal and consulting expenses increased $2.5 million for audit fees, SEC compliance, tax matters and integration charges. Wages and benefit costs increased $3.5 million due to a transfer of employees to corporate and increases in projected payouts of employee incentive programs. These increases were partially offset by a decrease of $2.4 million of acquisition related costs.

~~Depreciation Expense~~

~~Corporate and other depreciation expense decreased $3.8 million, or 47.7%, to $4.2 million, primarily due to the write-off of software costs in the second quarter of 2005.~~

~~Taxes Other Than Income~~

Corporate and other taxes other than income increased $1.1 million, or 85.6%, to $2.4 million primarily due to an increase in payroll taxes resulting from a transfer of employees to Corporate and a higher tax base from the TNP acquisition.

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

~~PNMR Consolidated~~

~~Other Income and Deductions~~

Interest income decreased $1.9 million, or 8.9% for the six months ended June 30, 2006 due primarily to interest earned on the investment of proceeds related to the sale of hybrid income term securities, invested from March 31, 2005 until the TNP acquisition on June 6, 2005.

~~Other income decreased $1.3 million or 19.8% primarily~~2007 associated with gas purchases due to lower ~~returns on investments.~~

~~Carrying charges on regulatory assets were $4.0 million for the six months ended June 30, 2006. This represents interest income on TNMP regulatory assets.~~

~~Interest Charges~~

~~PNMR’s consolidated interest charges increased by $29.2 million for the six months ended June 30, 2006,~~prices as compared to the same period of 2005, primarily due to $12.6 million of interest charges related to debt from the TNP operations, which PNMR did not incur until the acquisition of TNP in June 2005, interest and refinancing costs of $5.6 million related to the equity-linked units issued in March and October of 2005, $5.7 million of interest charges related to the bridge loan associated with the Altura purchase of Twin Oaks, which occurred on April 18, 2006, $1.0 million of interest charges for pollution control bonds due to increased interest rates, $1.4 million of interest charges related to rate increases on PNMR swaps, $3.0 million of interest for hybrid income term securities and $7.8 million of interest charges related to commercial paper borrowings. These increased charges were partially offset by $2.4 million of interest capitalized in connection with capital construction projects and $2.0 million of TNMP debt retirement in connection with the purchase of TNMP in June 2005.2006.

~~Income Taxes~~

PNMR’s consolidated income tax expense was $25.4 million for the six months ended June 30, 2006, compared to $18.6 million for the same period of 2005. PNMR’s effective operating income tax rates for the six months ended June 30, 2006 and 2005 were 37.2% and 34.9%, respectively. PNMR’s effective non-operating income tax rates for the six months ended June 30, 2006 and 2005 were 37.0% and 35.5%, respectively.

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

~~RESULTS OF OPERATIONS - PNM~~

~~THREE AND SIX MONTHS ENDED JUNE 30, 2006~~

~~COMPARED TO THREE AND SIX MONTHS ENDED JUNE 30, 2005~~

PNM’s segments are PNM Electric, PNM Gas and Wholesale. The PNM Electric and PNM Gas segments are identical to the segments presented above in “Results of Operations” for PNMR. The Wholesale segment reported for PNM does not include Altura (see Note 2 and Note 3).

PNM’s operating revenues decreased $24.1 million, or 6.8%, for the three months ended June 30, 2006, compared with the same period of 2005. Gross margin decreased $2.7 million, or 1.9%, compared with the prior year quarter. These decreases were primarily due to a decrease in the Electric segment gross margin of $2.7 million and the Gas segment gross margin of $2.3 million discussed above. These decreases were partially offset by an increase in the PNM Wholesale segment gross margin of $2.3 million, which increased primarily due to a decrease in purchase prices, partially offset by lower plant availability and increased retail loads, which caused a decrease in energy available to sell in the market.

Total operating expenses decreased $25.8 million, or 7.6%, for the three months ended June 30, 2006, compared with the same period of 2005, due primarily to a decrease in cost of energy of $21.4 million. Administrative and general expenses decreased $2.0 million primarily due to higher capitalized costs of $1.1 million and lower legal and consulting costs of $0.8 million. Depreciation expenses decreased $8.1 million as a result of a write-off of software costs of $4.5 million in the second quarter of 2005, an increase in the estimated useful life at SJGS and some fully depreciated plant at Four Corners, partially offset by additions to fixed assets.

PNM’s consolidated income tax expense was $2.2 million for the three months ended June 30, 2006, compared to $2.5 million for the same period of 2005. PNM’s effective operating income tax benefit rates for the three months ended June 30, 2006 and 2005 were 37.3% and 44.8%, respectively. PNM’s effective non-operating income tax rates for the three months ended June 30, 2006 and 2005 were 38.8% and 40.5%, respectively.

PNM’s operating revenues increased $67.2 million, or 8.6%, for the six months ended June 30, 2006, compared with the same period of 2005. Gross margin decreased $3.3 million, or 1.0%, compared with the prior year. These decreases were primarily due to a decrease in the Electric segment gross margin of $5.1 million and the Gas segment gross margin of $3.3 million discussed above. These decreases were partially offset by an increase in the PNM Wholesale segment gross margin of $5.2 million, which increased primarily due to a first quarter forward sale, partially offset by lower plant availability and increased retail loads, which caused a decrease in energy available to sell in the market.

Total operating expenses increased $66.7 million, or 9.1%, for the six months ended June 30, 2006, compared with the same period of 2005, due primarily to an increase in cost of energy of $70.5 million. Administrative and general expenses decreased $1.3 million primarily due to higher capitalized cost of $2.1 million and lower legal and consulting costs of $1.2 million. Depreciation expenses decreased $11.2 million as a result of a write-off of software costs of $4.5 million in the second quarter of 2005, an increase in the estimated useful life at SJGS and some fully depreciated plant at Four Corners, partially offset by additions to fixed assets.

PNM’s consolidated income tax expense was $21.2 million for the six months ended June 30, 2006, compared to $21.0 million for the same period of 2005. PNM’s effective operating income tax rates for the six months ended June 30, 2006 and 2005 were 38.4% and 36.1%, respectively. PNM’s effective non-operating income tax rates for the six months ended June 30, 2006 and 2005 were 38.8% and 37.1%, respectively.

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

~~RESULTS OF OPERATIONS - TNMP~~

~~THREE AND SIX MONTHS ENDED JUNE 30, 2006~~

~~COMPARED TO THREE AND SIX MONTHS ENDED JUNE 30, 2005~~

TNMP operates in only one reportable segment, “TNMP Electric.” Results include the effect of purchase accounting on June 6, 2005. Amounts for the period January 1 through June 6, 2005 are pre-acquisition and amounts after June 6, 2005 are post-acquisition. See Note 1.

TNMP’s operating revenues decreased $4.7 million, or 7.2%, for the three months ended June 30, 2006, compared with the same period of 2005. Gross margin decreased $3.9 million, or 9.1%, compared with the prior year quarter. The significant factors that impacted gross margin include a decrease in revenues due to rate reductions in conjunction with the acquisition in both Texas and New Mexico, lower revenues due to a reduction in operations of a major customer in New Mexico and increased transmission costs. These decreases were partially offset by customer growth and weather impacts.

Total operating expenses increased $0.8 million, or 1.6%, for the three months ended June 30, 2006, compared with the same period of 2005, due primarily to an increase in non-fuel operating expenses of $1.8 million. Administrative and general expenses increased $2.9 million primarily due to increased labor, employee benefits, consulting and insurance expenses, including expenses allocated to TNMP from PNMR. The increase in administrative and general expense was partially offset by decreased operating income tax expenses of $2.7 million. Depreciation expenses increased as a result of additions to fixed assets.

TNMP’s consolidated income tax expense was $2.1 million for the three months ended June 30, 2006, compared to $5.0 million for the same period of 2005. TNMP’s effective operating income tax rates for the three months ended June 30, 2006 and 2005 were 45.1% and 35.1%, respectively. TNMP’s effective non-operating income tax rates for the three months ended June 30, 2006 and 2005 were 38.9% and 38.3%, respectively.

TNMP’s operating revenues decreased $7.9 million, or 6.0%, for the six months ended June 30, 2006, compared with the same period of 2005. Gross margin decreased $7.2 million, or 8.8%, compared with the prior year first and second quarters. The significant factors that impacted gross margin include a decrease in revenues due to rate reductions in conjunction with the acquisition in both Texas and New Mexico, lower revenues due to a reduction in operations of a major customer in New Mexico and increased transmission costs. These decreases were partially offset by customer growth.

Total operating expenses increased $2.0 million, or 1.9%, for the six months ended June 30, 2006, compared with the same period of 2005, due primarily to an increase in non-fuel operating expenses of $3.4 million. Administrative and general expenses increased $7.7 million primarily due to increased labor, employee benefits, consulting and insurance expenses, including expenses allocated to TNMP from PNMR. The increase in administrative and general expense was partially offset by decreased operating income tax expenses of $5.7 million. Depreciation expenses increased as a result of additions to fixed assets.

TNMP’s consolidated income tax expense was $2.3 million for the six months ended June 30, 2006, compared to $6.3 million for the same period of 2005. TNMP’s effective operating income tax rates for the six months ended June 30, 2006 and 2005 were 31.9% and 34.8%, respectively. TNMP’s effective non-operating income tax rates for the six months ended June 30, 2006 and 2005 were 38.6% and 40.1%, respectively.

~~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.

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

As of June 30, 2006, there have been no significant changes with regard to the critical accounting policies disclosed in PNMR’s, PNM’s and TNMP’s Annual Reports on Forms 10-K/A (Amendment No. 2) for the year ended December 31, 2005. The policies disclosed included the accounting for revenue recognition, regulatory assets and liabilities, asset impairment, goodwill and other intangible assets, purchase accounting, pension and postretirement benefits, decommissioning costs and financial instruments. Effective January 1, 2006, the Company adopted SFAS 123R, utilizing the modified prospective approach. See Note 6 for a comprehensive discussion of the accounting for stock-based compensation expense, including a discussion of the assumptions used to estimate the fair market value of awards.

~~LIQUIDITY AND CAPITAL RESOURCES~~

~~Statements of Cash Flow~~

~~PNMR~~

~~At June 30, 2006,~~ PNMR had net positive cash ~~and short-term investments of $73.9 million compared to $68.2 million in cash and short-term investments at December 31, 2005.~~

Cash provided by operating activities for the six months ended June 30, 2006 was $111.6 million compared to $113.4 million for the six months ended June 30, 2005. PNMR's net earnings for the six months ended June 30, 2006 increased 33.0%, to $42.6 millionflows from $32.1 million, for the six months ended June 30, 2005. The slight decrease in cash from operating activities was due to a decrease in accounts payable resulting from PNM’s decreased gas purchases and payments for gas purchased in prior periods for the 2005-2006 winter heating season. The slight decrease in cash from operating activities was offset in part higher net earnings.

~~Cash used for~~ investing activities for the six months ended June 30, ~~2006 was $596.4 million compared~~2007 primarily due to cash ~~used~~distributions to PNMR from EnergyCo (See Note 11) and the proceeds from the sales of ~~$31.5 million~~utility plant, whereas in 2006 PNMR had net cash outflows for the ~~six months ended June 30, 2005. The increase in cash used for investing activities in the current period was due primarily to~~acquisition of Twin Oaks. In addition, PNMR incurred increased ~~cash payments~~expenditures for utility plant additions, ~~and~~including the purchase of ~~the Twin Oaks business.~~assets underlying a portion of PVNGS leased by PNM (See Note 2).

Cash provided from financing activities for the six months ended June 30, 2006 was $490.5 million compared to cash provided from financing activities of $123.8 million for the six months ended June 30, 2005. During the six months ended June 30, 2006, PNMR borrowed $480 millionThe change in short term debt and used the proceeds to acquire the Twin Oaks business. During the six months ended June 30, 2005, PNMR issued equity-linked units for $239.8 million and common stock for $101.2 million and repaid $74.0 million of short-term debt, as well as the repaying of $110.5 million of long-term debt related to the acquisition of TNP, which did not recur in 2006.

~~PNM~~

~~At June 30, 2006, PNM had cash and short-term investments of $2.7 million compared to $12.7 million in cash and short-term investments at December 31, 2005.~~

Cash provided by operating activities for the six months ended June 30, 2006 was $100.7 million compared to $83.2 million for the six months ended June 30, 2005. PNM's net earnings for the six months ended June 30, 2006 decreased 7.9 %, to $33.7 million from $36.6 million, for the six months ended June 30, 2005. The increase in cash from operations was due primarily to a decrease in accounts receivable and unbilled revenues resulting from the collection of the higher levels of accounts receivable balances during the 2005-2006 winter heating season, an increase in cash from current regulatory assets due to lower levels of PGAC accounts receivable resulting from collections of PGAC balances from customers and lower levels of billings to customers and an increase in accrued interest and taxes due to higher current income taxes resulting from collections of PGAC balances from customers and property tax accruals. The increase in cash from operations was offset in part by a decrease in accounts payable resulting from decreased gas purchases and the payment of outstanding gas purchases as of December 31, 2005.

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

~~Cash used for investing activities for the six months ended June 30, 2006 was $82.5 million compared to $49.5 million for the six months ended June 30, 2005. The increase in~~PNMR’s cash flows ~~used for investing activities was due primarily to higher levels of utility plant additions.~~

~~Cash used~~ for financing activities for the six months ended June 30, ~~2006 was $28.2 million~~2007 is primarily driven by the redemption of long-term debt by TNMP, the issuance of PCRBs by PNM, and a decrease in short-term debt in 2007 compared to ~~$42.4 million for the six months ended June 30, 2005. The decrease~~an increase in ~~cash used for financing activities was due primarily to lower levels of~~ short-term debt ~~repayments.~~

~~TNMP~~

~~At June 30, 2006, TNMP had cash and short-term investments of $18.7 million compared to $16.2 million in cash and short-term investments at December 31, 2005.~~

Cash provided by operating activities for the six months ended June 30, 2006 was $20.5 million compared to $22.0 million for the six months ended June 30, 2005. TNMP's net earnings for the six months ended June 30, 2006 decreased 66.2%, to $4.0 million from $11.8 million, for the six months ended June 30, 2005, which contributed to the decrease in cash provided by operating activities for the six months ended June 30, 2006.

Cash used for investing activities for the six months ended June 30, 2006 was $18.1 million compared to $22.4 million for the six months ended June 30, 2005. The decrease in cash used for investing activities resulted from lower levels of utility plant additions for the six months ended June 30, 2006 and the absence in 2006 ~~of costs~~that was primarily related to ~~PNMR's~~financing the acquisition of ~~TNMP.~~Twin Oaks.

~~Cash from financing activities for the six months ended June 30, 2006 was relatively unchanged, as compared to the same period of 2005.~~

Capital Requirements

~~PNMR~~

Total capital requirements ~~include~~consist of 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~~PNMR’s current construction program is upgrading generation resources, including pollution control equipment, upgrading and expanding the electric and gas transmission and distribution systems, and purchasing nuclear fuel. Projections for total capital requirements for ~~2006,~~2007 are $485.8 million, including ~~TNMP and First Choice, are $397.1 million with projections for~~ construction expenditures ~~for 2006 constituting $358.0 million~~ of ~~that total.~~$414.8 million. Total capital requirements ~~including TNMP and First Choice,~~for the years 2007-2011 are projected to be ~~$1,649.7~~$2,426.8 million, ~~and~~including construction expenditures ~~are projected to be $1,421.0~~of $1,990.7 million. This projection includes $56.0 million for ~~2006-2010.~~completion of the expansion at Afton and $150.6 million for the SJGS environmental project to install low NOX combustion control and mercury reduction technologies, as well as equipment to increase SO₂ controls. These estimates are under continuing review and subject to on-going ~~adjustment. This projection includes $147.0 million for PNM’s expansion at Afton. In November 2005, PNM filed a joint stipulation with the NMPRC that would allow PNM~~adjustment, as well as to ~~convert Afton to a combined cycle plant~~board review and ~~bring Afton into retail rates effective January 1, 2008. The stipulation is subject to approval by the NMPRC. This projection is subject to on-going adjustment.~~

approval.

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~~southwestern and ~~west areas of the~~western United States.

During the ~~six months ended June 30, 2006,~~first half of 2007, the Company utilized cash generated from operations and cash on hand, as well as its liquidity arrangements, to ~~cover~~meet its capital requirements and construction ~~expenditures, including the acquisition~~expenditures. On April 18, 2006, PNMR borrowed $480.0 million under a bridge loan facility for temporary financing of the Twin Oaks ~~business. It~~acquisition. On April 17, 2007, PNMR repaid the remaining principal balance of $249.5 million under the bridge loan at its maturity through a borrowing of $250.5 million under the PNMR Facility, PNMR’s $600.0 million revolving credit facility, which amount has been repaid.

As discussed in Note 7 to Condensed Consolidated Financial Statements, TNMP redeemed $100 million of its senior unsecured notes using funds from PNMR and PNMR received $7.6 million from the initial draw under $20 million of PCRBs issued by the City of Farmington, New Mexico during the six months ended June 30, 2007. As discussed in Note 11, PNMR received cash distributions from EnergyCo aggregating $362.3 million during this same period. PNMR and PNM have an aggregate of $631.4 million of commercial paper outstanding as of August 1, 2007. PNMR, including its subsidiaries, also has $616.6 million in senior unsecured notes and $347.3 million in equity-linked units (which include a debt component) that will come due through 2011, of which $148.9 million in unsecured notes is ~~expected~~due within the next twelve months.

As discussed in Note 11, EnergyCo purchased an electric generating plant in August 2007 for $467.5 million for which PNMR and ECJV each made a cash contribution to EnergyCo of $42.5 million. In addition, EnergyCo has announced an agreement for the co-development of an additional generating unit for which its share of the construction costs is anticipated to be approximately $195 million. PNMR currently anticipates that the ~~permanent~~remaining amounts of financing for these EnergyCo projects will be obtained from EnergyCo’s credit facility. To the ~~$480.0~~extent EnergyCo’s credit facility should be insufficient to finance the current projects, PNMR and ECJV may, at their option, provide additional funds to EnergyCo. Likewise, if EnergyCo undertakes additional projects, which require funds that would exceed the capacity of its current credit facility and EnergyCo is unable to obtain additional financing capabilities, PNMR and ECJV may be asked to provide additional funding, but such funding would be at the option of PNMR and ECJV. PNMR is unable to predict if these possibilities will occur or, if they do occur, the amount or timing of additional funds that would be provided to EnergyCo.

PNMR’s equity-linked units contain mandatory obligations under which the holders are required to purchase $347.3 million of PNMR equity securities in 2008. The equity-linked units also provide that, prior to settlement of those purchase ~~price~~obligations, the debt component of the equity-linked units, which is scheduled to mature in 2010, will be remarketed. If the remarketing is successful, the debt may be extended to dates selected by PNMR and the interest rates will be adjusted to the current rates at that date. If the remarketing of the debt is not successful, the holders of the equity-linked units may satisfy their obligations to purchase PNMR equity securities by tendering the debt to PNMR. The effect of these terms is that, if the remarketing is successful, PNMR would receive $347.3 million in cash for its equity securities and the ~~Twin Oaks business will come from~~debt would continue to mature in 2010 or such later date selected by PNMR in the remarketing. If the remarketing is not successful, the issuance of PNMR equity securities would offset the retirement of the debt without requiring payment in cash by PNMR. PNMR expects the remarketing of the debt will be successful.

In addition to cash anticipated to be received from the equity-linked units described above and ~~equity structured to maintain PNMR’s investment grade rating. The~~its internal cash generation, the Company anticipates that ~~internal cash generation and current debt capacity in combination with the Twin Oaks permanent financing~~it will be ~~sufficient~~necessary to ~~meet all~~obtain additional long-term financing in the form of debt refinancing, new debt, and/or new equity in order to fund its capital requirements and ~~construction expenditures~~the repayment of senior unsecured notes during the 2007-2011 period. To the extent the cash anticipated to be received from the equity-linked units is not received, the need for new financing will be increased. Although the ~~years 2006 through 2010.~~Company currently has no specific plans or commitments for additional permanent financing, it believes that its internal cash generation, credit arrangements, and access to capital markets will provide sufficient resources to meet the Company’s capital requirements and retire its senior unsecured notes at maturity. To cover the difference in the amounts and timing of cash generation and cash requirements, the Company intends to use short-term borrowings under its current and future liquidity arrangements.

Liquidity

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

~~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 $267.0 million with projections for construction expenditures for 2006 constituting $288.4 million of that total. Total capital requirements are projected to be $978.7 million and construction expenditures are projected to be $1,109.4 million for the years 2006 through 2010. These estimates are under continuing review and subject to on-going adjustment. This projection includes $147.0 million for PNM’s expansion at Afton, as discussed above.

~~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 $42.5 million. Total capital requirements are projected to be $231.9 million for the years 2006 through 2010. These estimates are under continuing review and subject to on-going adjustment.

As previously reported, in 2005, the NMPRC approved a stipulation in connection with the acquisition of TNP which called for the integration of TNMP's New Mexico assets into PNM effective January 1, 2007. On August 8, 2006, PNMR, PNM, TNMP and TNP filed an application with FERC requesting necessary approvals under the Federal Power Act for the transfer of TNMP's New Mexico and Arizona assets to PNM effective January 1, 2007. In accordance with conditions imposed by FERC on the earlier issuance of debt by TNMP, the applicants committed that an appropriate proportion of debt issued under those FERC conditions would be retired with cash contributed by PNMR. The application stated that the retired TNMP debt would be equal to, at a minimum, the ratio of TNMP New Mexico and Arizona property additions to Texas property additions funded by such debt. The applicants also committed that TNMP debt would be retired to the extent necessary or advisable to maintain a TNMP equity to debt capitalization ratio in excess of 30%, to maintain any required interest coverage ratios, and to maintain TNMP's credit rating.

~~Liquidity~~

~~PNMR~~

~~At August 1, 2006, PNMR had $615.0 million of liquidity arrangements. The~~PNMR’s 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 August 1, 2006, there were no amounts borrowed underinclude the PNMR Facility and ~~no amounts borrowed under~~ the ~~local lines~~PNM Facility both of ~~credit. PNMR had $107.7 million of~~which primarily expire in 2012. These facilities provide short-term borrowing capacity and also allow letters of credit ~~outstanding.~~

~~At August 1, 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 August 1, 2006, First Choice had no borrowings outstanding under the PNMR Facility; however, First Choice had $1.8 million of letters of credit outstanding,be issued, which ~~reduces~~reduce 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 affiliate borrowing arrangements between~~facilities. Both PNMR and ~~its subsidiaries that would authorize each subsidiary to borrow up to $50.0 million from PNMR.~~

PNM also have lines of credit with local financial institutions.

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 and PNM has a commercial paper program under which it may issue commercial paper for up to 365 days. The commercial paper is unsecured and the proceeds are used for short-term cash management needs. The PNMR Facility ~~serves~~and the PNM Facility serve as ~~a backstop~~support for the outstanding commercial paper. AtOperationally, this means the aggregate borrowings under the commercial paper program and the revolving credit facility for each of PNMR and PNM cannot exceed the maximum amount of that entity’s revolving credit facility.

A summary of these arrangements as of August 1, ~~2006, there were $126.3~~2007 is as follows:


	PNM		PNMR		PNMR
	Separate		Separate		Consolidated
	(In millions)

Financing Capacity:
Revolving credit facility	$	400.0	$	600.0	$	1,000.0
Local lines of credit		13.5		15.0		28.5

Total financing capacity	$	413.5	$	615.0	$	1,028.5


Commercial paper program maximum	$	300.0	$	400.0	$	700.0


Amounts outstanding as of August 1, 2007:
Commercial paper program	$	268.6	$	362.8	$	631.4
Revolving credit facility		—		—		—
Local lines of credit		—		—		—

Total short-term debt outstanding		268.6		362.8		631.4

Letters of credit		3.1		30.5		33.6


Total short term-debt and letters of credit	$	271.7	$	393.3	$	665.0


Remaining availability as of August 1, 2007	$	141.8	$	221.7	$	363.5

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 June 30, 2007, PNMR had approximately $400.0 million of ~~borrowings outstanding~~remaining unissued securities under this ~~program.~~universal registration statement. In addition, in August 2006, PNMR filed a new shelf registration statement with the SEC. This new registration statement can be amended at any time to include additional securities of PNMR. As a result, this new shelf registration statement has unlimited availability, subject to certain restrictions and limitations.

Pursuant to the terms of the PNM Direct Plan, PNMR began offering new shares of PNMR common stock through the plan beginning June 1, 2006. PNMR may also waive the maximum investment limit upon request in individual cases pursuant to the terms of the plan. In August 2006, PNMR entered into an equity distribution agreement to offer and sell up to 8 million shares of PNMR common stock from time to time. The agreement provides that PNMR will not sell more shares than needed for the aggregate gross proceeds from such sales to reach $200.0 million. From January 1, 2007 through August 1, 2007, PNMR had sold a combined total of 54,170 shares of its common stock through the PNMR Direct Plan and the equity distribution agreement for net proceeds of $1.6 million.

~~PNMR’s~~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 June 30, 2007, PNM had approximately $200.0 million of remaining unissued securities registered under its shelf registration statement.

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

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

On April 16, 2007, Moody’s ~~considered PNMR's~~changed the credit outlook ~~stable~~of PNMR, PNM, and TNMP to negative from stable. S&P considered ~~PNMR’s~~the outlook of PNMR, PNM, and TNMP as negative as of the date of this report. As of June 30, ~~2006, S&P and Moody’s rated PNMR’s senior unsecured notes issued in March 2005 (see “Financing Activities” below)~~2007, ratings on the Company’s securities were as BBB- and Baa3, respectively. PNMR's commercial paper program discussed above has been rated P-3 by Moody's and A-3 by S&P. The Company is committed to maintaining or improving its investment grade ratings.follows:


	PNMR	PNM	TNMP

S&P
Senior unsecured notes	BBB-	BBB	BBB
Commercial paper	A3	A3	*
Moody’s
Senior unsecured notes	Baa3	Baa2	Baa3
Commercial paper	P3	P2	*
Preferred stock	*	Ba1	*


*		Not applicable

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~~

At August 1, 2006, PNM had $423.5 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 and $23.5 million in local lines of credit. At August 1, 2006, there were no amounts borrowed against 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.

At August 1, 2006, PNM also had a $20.0 million borrowing arrangement with PNMR, which is not included in the $423.5 million of liquidity arrangements discussed above. At August 1, 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. At August 1, 2006, PNM had $98.2 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.

Moody’s considered PNM's credit outlook stable and S&P considered PNM’s outlook negative as of the date of this report. As of June 30, 2006, S&P rated PNM’s business position as six and its senior unsecured notes as BBB. As of June 30, 2006, Moody’s rated PNM’s senior unsecured notes as Baa2 and its preferred stock as Ba1. PNM's commercial paper program has been rated P-2 by Moody's and A-3 by S&P. The Company is committed to maintaining or improving its investment grade ratings.

~~TNMP~~

TNMP is a borrower and can issue notes of up to $100.0 million under the PNMR Facility. Any borrowings made by TNMP under this sublimit are not guaranteed by PNMR. At August 1, 2006, TNMP had no outstanding borrowings under the PNMR Facility, but did have $2.4 million letters of credit outstanding, which reduces available capacity under the PNMR Facility.

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.

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

Moody’s considered TNMP's credit outlook stable and S&P considered TNMP’s outlook negative as of the date of this report. As of June 30, 2006, S&P rated TNMP’s senior unsecured notes at BBB. As of June 30, 2006, Moody’s rated TNMP’s senior unsecured notes at Baa3. The Company is committed to maintaining or improving its investment grade ratings.

Off-Balance Sheet Arrangements

~~The Company’s~~PNMR’s off-balance sheet arrangements ~~consist of~~include PNM’s operating lease obligations for PVNGS Units 1 and 2, the EIP transmission line, and the entire output of Delta, a gas-fired generating plant. See Note 7 of Notes to Consolidated Financial Statements in the 2006 Annual Reports on Form 10-K/A (Amendment No. 1). These arrangements help ensure PNM the availability of lower-cost generation needed to serve customers. In addition, PNMR’s investment in EnergyCo is accounted for under the equity method of accounting. Therefore, EnergyCo’s assets, liabilities, results of operations, and cash flows are not consolidated with PNMR’s other operations. See Note 11 for further discussion of this arrangement and summarized financial information concerning EnergyCo.

~~As of June 30, 2006, there have been no significant changes to the Company’s off-balance sheet arrangements reported in the 2005 Annual Reports on Form 10-K/A (Amendment No. 2).~~

Commitments and Contractual Obligations

PNMR, PNM and TNMP have contractual obligations for long-term debt, operating leases, purchase obligations and certain other long-term liabilities that were summarized in a table of contractual obligations in the ~~2005~~2006 Annual Reports on Form ~~10-K/A (Amendment No. 2). As~~10-K. The adoption of ~~June 30, 2006, there have been no significant changes~~FIN 48, effective January 1, 2007, was not material to the Company’s contractual obligations. Under FIN 48, certain liabilities related to uncertain tax positions have been recognized. See Note 15 for a discussion of these obligations ~~from December 31, 2005 except for~~and timing of the ~~Twin Oaks acquisition.~~payments.

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

~~PNMR’s term loan agreement for financing~~If a contingent requirement were to be triggered under the ~~acquisition of Twin Oaks~~PNM Facility resulting in April 2006 (see Note 2 and Note 7) includes customary covenants, including requirements that PNMR maintain a debt-to-capital ratio, inclusive of off-balance sheet debt, of less than 65%. The term loan agreement includes customary events of default, including a cross default provision and a change in control provision. If an ~~event of default occurs, the administrative agent may, or upon the request and direction of lenders holding more than 50%~~acceleration of the outstanding ~~term loan shall, declare~~loans under the ~~unpaid principal and interest on the term loan to be due and payable. Such acceleration will occur automatically~~PNM Facility, a cross-default provision in the ~~event~~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 ~~an insolvency or bankruptcy default.~~all future lease payments.

~~PNM~~

~~PNM's~~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.

No conditions have occurred that would result in any of the above contingent provisions being implemented.

Capital Structure

The capitalization tables below include the current maturities of long-term debt, but do not include operating lease obligations as debt. The tables for PNM and TNMP reflect the transfer of TNMP’s New Mexico operations as of January 1, 2007, which decreased the common equity of TNMP and increased the common equity of PNM. This transfer had no impact on PNMR. See Note 14.


	June 30,			December 31,
PNMR	2007			2006

Common equity		50.5	%		48.9	%
Preferred stock of subsidiary		0.3	%		0.3	%
Long-term debt		49.2	%		50.8	%

Total capitalization		100.0	%		100.0	%


	June 30,			December 31,
PNM	2007			2006

Common equity		57.8	%		54.4	%
Preferred stock		0.5	%		0.5	%
Long-term debt		41.7	%		45.1	%

Total capitalization		100.0	%		100.0	%


	June 30,			December 31,
TNMP	2007			2006

Common equity		59.1	%		54.9	%
Long-term debt		40.9	%		45.1	%

Total capitalization		100.0	%		100.0	%

MD&A FOR PNM

~~100~~

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

SIX MONTHS ENDED JUNE 30, 2007

COMPARED TO SIX MONTHS ENDED JUNE 30, 2006

PNM’s segments are PNM Electric, PNM Gas and PNM Wholesale. The ~~committed~~ PNM ~~Facility contains~~Electric and PNM Gas segments are identical to the segments presented above for PNMR. The PNM Wholesale segment reported for PNM does not include Twin Oaks. See Notes 2 and 11. The results of operations of these segments are discussed further under “MD&A for PNMR — Results of Operations” above. The results of operations for Twin Oaks is set forth in a ~~“ratings trigger,”~~table under “MD&A for ~~pricing purposes only. If PNM is downgraded or upgraded by~~PNMR — Results of Operations — Unregulated Operations — Wholesale” above.

PNM’s net earnings for the ~~ratings agencies,~~six months ended June 30, 2007 were $28.1 million compared to $33.1 million for the six months ended June 30, 2006. The major causes of changes in net earnings were the decrease in gains from Wholesale marketing activity from 2006 as a result ~~would be~~of the absence of market opportunities that allowed for the forward sale of the first quarter 2006 excess resources, mark-to-market losses, an increase ~~or decrease~~ in ~~interest cost, respectively. In addition,~~generation prices due to the ~~PNM Facility contains a contingent provision that requires PNM to maintain a debt-to-capital ratio, inclusive~~increase 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 becoal costs, an increase ~~or decrease~~ in ~~interest cost, respectively. In addition,~~general operating expenses, and increased financing costs. These decreases were partially offset by improved plant performance, primarily at PVNGS, increased load growth along with the ~~PNMR Facility contains a contingent requirement that requires TNMP to maintain a debt-to-capital ratio, inclusive~~effects 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.

~~Financing Activities~~

~~PNMR~~

On April 18, 2006, PNMR entered into a short-term loan agreement for temporary financing of the Twin Oaks acquisition (see Note 2). Under the term loan agreement, PNMR was permitted to borrow up to $480.0 million in a single draw on or after April 18, 2006, to finance the acquisition of Twin Oaks and related expenses. Term loans made under this agreement bear interestcolder weather, primarily at ~~a base rate (the greater of the prime rate in effect~~PNM Gas, and the ~~Federal Funds rate plus ½~~TNMP asset transfer to PNM Electric. The positive or (negative) after-tax impacts of ~~1%) or an adjusted Eurodollar rate (equal~~these items on net earnings in 2007 compared to ~~the British Bankers Association LIBOR rate plus an additional percentage based on PNMR’s then current long-term senior unsecured non-credit enhanced debt rating). On April 18,~~ 2006 ~~PNMR borrowed $480.0~~are as follows:


	Six Months Ended
	June 30, 2007
	(In millions)
After-tax Impacts
TNMP asset transfer	$	2.1
Plant performance		10.9
Mark-to-market		(5.5	)
Coal costs		(4.8	)
Wholesale marketing activity		(6.3	)
Regulated load growth and weather		6.2
General operational increases		(2.1	)
Financing		(2.1	)
Other		(3.4	)

Net change	$	(5.0	)

PNM’s consolidated income tax expense was $17.7 million under the term loan agreement. PNMR must repay the loan by April 17, 2007, unless accelerated in accordance with the terms of the agreement or prepaid in whole or in part upon the issuance of certain additional equity or debt. It is expected that the permanent financing for the ~~$480.0~~six months ended June 30, 2007, compared to $21.2 million ~~Twin Oaks purchase price will come from the issuance of debt and equity structured to maintain PNMR’s investment grade rating. On August 3, 2006, $20.0 million of the term loan was repaid.~~

~~PNMR has a universal shelf registration statement filed with the SEC~~ for the ~~issuance~~same period of ~~debt securities and equity securities, preferred stock, purchase contracts, purchase contract units and warrants. As of~~2006. PNM’s effective income tax rates for the six months ended June 30, 2007 and 2006 ~~PNMR had approximately $400.0 million of remaining unissued securities under this universal registration statement.~~were 38.6% and 39.0%, respectively.

MD&A FOR TNMP

RESULTS OF OPERATIONS

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 March 15, 2006, to a weighted average rate of 5.65%. The swaps are accounted for as fair-value hedges with a liability position of approximately $6.0 million at JuneSIX MONTHS ENDED JUNE 30, 2007
COMPARED TO SIX MONTHS ENDED JUNE 30, 2006 ~~with a corresponding reduction of long-term debt. There was no hedge ineffectiveness~~

TNMP operates in only one reportable segment, “TNMP Electric.” Results for the ~~three and~~ six months ended June 30, 2006 ~~or June 30, 2005.~~present TNMP’s New Mexico operations as discontinued operations, as these operations were transferred to PNM on January 1, 2007. See Note 14. TNMP’s results of operations are discussed further under “MD&A for PNMR — Results of Operations — Regulated Operations — TNMP Electric” above.

~~101~~

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

~~During October 2004, PNMR entered into two forward starting floating-to-fixed rate interest rate swaps with~~The PUCT issued an ~~aggregate notional principal amount of $100.0 million. These swaps became effective August 1, 2005 with a termination date of~~order on November ~~15, 2009. Under these swaps, PNMR received a floating rate equal~~2, 2006 related to the three month LIBOR rate on the notional principal amount which paid 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% to be reset every three months. Asstranded costs incurred by TNMP as part of the ~~last adjustment date,~~deregulation of the ~~weighted average interest rate was 5.149%. From November 2004 through June 30, 2005,~~Texas energy market and the ~~swaps were accounted~~associated carrying charges. The details of this order are discussed in TNMP’s Annual Report on Form 2006 10-K.

TNMP’s net earnings for ~~as a cash flow hedge against~~ the PNMR Facility. Effective June 30, 2005, the swaps were de-designated as cash flow hedges. As such, changes in market valuations were marked-to-market and recorded as unamortized gains or losses in the appropriate period. Prior to the de-designation, the increase in fair market value of $0.4 million was recorded in accumulated other comprehensive income on PNMR’s Condensed Consolidated Balance Sheet at June 30, 2006 and December 31, 2005. For the three and six months ended June 30, ~~2006, $0.2 and $1.4~~2007 were $5.2 million ~~respectively, was recognized in other income on PNMR’s Condensed Consolidated Statement of Earnings. No comparable amount was recognized~~compared to $4.0 million for the ~~three and~~ six months ended June 30, ~~2005. These two interest rate swaps were sold on May 19,~~ 2006. The ~~current amount recorded~~major causes of changes in ~~other comprehensive income will be recognized in income over~~net earnings were the recovery of costs as a ~~3 year period ending in November 2009.~~

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, commissions and expenses, of approximately $101.0 million. In March 2005, PNMR also completed a public offering of 4,945,000 equity-linked units at 6.75%, yielding net proceeds after deducting discounts, commissions and expenses of approximately $239.6 million. 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.

~~Pursuant to the terms~~result of the PUCT order and customer growth, which was partially offset by the transfer of New Mexico assets to PNM ~~Direct Plan, PNMR began offering new shares of PNMR common stock through the plan beginning June 1, 2006. PNMR may also waive the maximum investment limit upon request~~Electric and a decrease in ~~individual cases pursuant to the terms~~carrying charges on regulatory assets as a result of the ~~plan. For~~absence of interest income earned on TNMP stranded costs in 2006 based on the ~~quarter~~collection of costs order by the PUCT. The positive or (negative) after-tax impacts of these items on net earnings in 2007 compared to 2006 are as follows:


	Six Months Ended
	June 30, 2007
	(In millions)
After-tax Impacts
Discontinued operations	$	(2.1	)
Carrying Charges		(2.6	)
PUCT order		3.9
Customer growth		1.0
Other		1.0

Net change	$	1.2

TNMP’s consolidated income tax expense from continuing operations was $2.4 million for the six months ended June 30, ~~2006, 371,725 new shares~~2007, compared to $1.3 million for the same period of ~~PNMR common stock were sold~~2006. TNMP’s effective income tax rates from continuing operations for ~~total proceeds of $9.3 million. From~~the six months ended June 30, 2007 and 2006 ~~through August 1, 2006, 375,526 shares of common stock~~ were ~~issued at a weighted average price of $25.93. The total proceeds from the issuance were $9.7 million.~~

~~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~~31.5% and ~~warrants. As of June 30, 2006, PNM had approximately $200.0 million of remaining unissued securities registered under its shelf registration statement.~~41.3%, respectively.

~~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.

~~102~~

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

~~Capital Structure~~

~~PNMR~~

~~PNMR’s capitalization, including current maturities of long-term debt, at June 30, 2006 and December 31, 2005 is shown below:~~

June 30,

December 31,

2006

2005

Common Equity 42.9 % 42.3 %
Preferred Stock 0.4 % 0.4 %
Long-term Debt 56.7 % 57.3 %
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 $168.0 million as of June 30, 2006 and $170.9 million as of December 31, 2005.

~~PNM~~

~~PNM’s capitalization, including current maturities of long-term debt, at June 30, 2006 and December 31, 2005 is shown below:~~

June 30,

December 31,

2006

2005

Common Equity 51.0 % 50.2 %
Preferred Stock 0.6 % 0.6 %
Long-term Debt 48.4 % 49.2 %
Total Capitalization 100.0 % 100.0 %

~~TNMP~~

~~TNMP’s capitalization, including current maturities of long-term debt, at June 30, 2006 and December 31, 2005 is shown below:~~

June 30,

December 31,

2006

2005

Common Equity 54.7 % 54.6 %
Long-term Debt 45.3 % 45.4 %
Total Capitalization 100.0 % 100.0 %

~~103~~

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

OTHER ISSUES FACING THE COMPANY

See Notes 9 and 10 for a discussion of commitments and contingencies and rate and regulatory matters facing the Company.

Global Warming Issues

Global warming increasingly is a concern for the energy industry. Although there continues to be significant debate regarding its existence and extent, scientific evidence suggests that the emission of so-called greenhouse gases (particularly CO₂) from fossil fuel-fired generation facilities is a contributing factor. The Company is a founding member of the United States Climate Action Partnership, a group of businesses and leading environmental organizations calling on the federal government to quickly enact strong national legislation to require significant reductions of greenhouse gas emissions and that has issued a landmark set of principles and recommendations to underscore the urgent need for a policy framework on climate change. The Company intends to continue working with this group and with others in order to best address this challenging issue.

The Company believes that future governmental regulations applicable to the Company’s operations will limit emissions of greenhouse gases, although at this point the Company cannot predict with any level of certainty what form such future regulations will take or when they will become effective. Under consideration are limitations on the amount of greenhouse gases that can be emitted (so called “caps”) together with systems of trading permitted emissions capacities. Such a system could require the Company to reduce emissions, although current technology is not available for efficient reduction. Emissions also could be taxed independently of limits.

The NMPRC issued an order on June 19, 2007, requiring that New Mexico utilities factor a standardized cost of carbon emissions into their integrated resource plans using prices ranging between $8 and $40 per metric ton of CO₂ emitted. Pursuant to New Mexico law, utility integrated resource plans must be submitted every three years to evaluate renewable energy, energy efficiency, load management, distributed generation and conventional supply-side resources on a consistent and comparable basis, taking into consideration risk and uncertainty of fuel supply, price volatility and costs of anticipated environmental regulations in order to identify the most cost-effective portfolio of resources to supply the energy needs of customers. Under the NMPRC order, starting with each utility’s next required filing of its integrated resource plan, each utility must analyze these standardized prices as projected operating costs with respect to years 2010 and thereafter. The Company’s next integrated resource plan is due to be filed with the NMPRC in July 2008. Reflecting the developing nature of this issue, the NMPRC order states that these prices may be changed in the future to account for additional information or changed circumstances. The Company is required, however, to use these prices for planning purposes, and the prices may not reflect the costs that it ultimately will incur.

On February 26, 2007 five western states (Arizona, California, New Mexico, Oregon and Washington) entered into an accord, called the Western Regional Climate Action Initiative (the “Initiative”), to reduce greenhouse gas emissions from automobiles and certain industries, including utilities. Since then, Utah, British Columbia and Manitoba have joined the Initiative. The Initiative requires the states and provinces to set emission goals within six months and determine a specific plan to meet such goals within eighteen months. The Company is monitoring the impact of this Initiative.

The Company expects the regulation of greenhouse gas emissions to have a material impact on its operations, but it is premature to attempt to quantify its possible costs of these impacts.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

See Note 11 regarding accounting for the investment in EnergyCo and Note 15 for discussion concerning the adoption of FIN 48 as of January 1, 2007. As of June 30, 2007, there have been no other significant changes with regard to the critical accounting policies disclosed in PNMR’s, PNM’s and TNMP’s Annual Reports on Forms 10-K for the year ended December 31, 2006. The policies disclosed included the accounting for revenue recognition, regulatory assets and liabilities, asset impairment, goodwill and other intangible assets, purchase accounting, pension and postretirement benefits, decommissioning costs, financial instruments and market risk.

NEW ACCOUNTING STANDARDS

There have been no new accounting standards issued that materially affected PNMR, PNM or TNMP this period; however, see Note 615 for discussion of ~~SFAS 123R~~.FIN 48 implementation.

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 risk that EnergyCo is unable to identify and implement profitable acquisitions, including development of the Cedar Bayou Generating Station and implementation of the acquisition of the Lyondell facility, or that the contribution of assets to EnergyCo by PNMR may not be implemented as expected, or that PNMR and ECJV will not agree to make additional capital contributions to EnergyCo,

	•	The potential unavailability of cash from PNMR’s subsidiaries or EnergyCo due to regulatory, statutory ~~and~~or contractual restrictions,

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

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

·
	•		Changes in ERCOT protocols,

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

·
	•		Collections experience,

·
	•		Insurance coverage available for claims made in litigation,

·
	•		Fluctuations in interest rates,

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

•

Conditions inaffecting the Company’s ability to access the financial markets, ~~affecting PNMR’s permanent~~or EnergyCo’s access to additional debt financing ~~for~~following the ~~Twin Oaks power plant acquisition,~~utilization of its existing credit facility,

·
	•		Weather, ~~including impacts on PNMR and its subsidiaries 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, SJGS, Four Corners, and EnergyCo generating units, and transmission systems,

·	~~The market for electrical generating equipment,~~

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

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

•

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

·
	•		State and federal regulatory and legislative decisions and actions,

·
	•		The outcome of legal proceedings,

·
	•		Changes in applicable accounting principles, and

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

~~104~~

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

Any material changes to risk factors occurring after the filing of PNMR’s, PNM’s, or TNMP’s ~~2005~~2006 Annual Report on Form ~~10-K/A (Amendment No. 2)~~10-K are disclosed in Item 1A, Risk Factors, in Part II of this Form 10-Q.

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

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-Q does not constitute an offer to sell or the solicitation of an offer to buy any securities.

~~105~~

ITEM 3. QUANTITATIVE AND QUALITATIVE ~~DISCLOSURE~~DISCLOSURES ABOUT MARKET RISK

The Company uses derivative ~~financial~~ instruments to manage risk as it relates to changes in natural gas and electric prices and changes in interest ~~rates and, historically, adverse market changes for investments held by the Company’s various trusts.~~rates. 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 ~~energy~~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 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 risk management 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 an Executive Director of Financial Risk Management, 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 Board and its Finance Committee on these activities.

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

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 athe normal ~~purchase or sale designation~~sales and purchases exception 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 ~~transactions are designated as cash flow hedges and~~ specific hedge accounting criteria are met. Should an energy transaction qualify as a ~~cash flow~~ hedge under SFAS 133, fair ~~market~~ value changes ~~from period to period~~ are recognized on the balance sheet with a corresponding ~~charge to~~entry in other comprehensive ~~income. Gains or losses~~income to the extent effective. Hedges are ~~reclassified from accumulated other comprehensive income~~recognized in results of operations when the hedged transaction ~~settles and impacts earnings.~~settles. Derivatives that meet the normal sales and purchases ~~exceptions~~exception within SFAS 133 are not marked to market but rather recorded in results of operations when the underlying transaction settles.

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 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~~

PNM Wholesale’s operations, including long-term contracts and short-term sales, are managed primarily through a net asset-backed marketing strategy, whereby ~~PNM’s~~PNM Wholesale’s aggregate net open forward contract position is covered by its forecasted excess generation capabilities. ~~PNM is~~PNMR would be exposed to market risk if its generation capabilities were to be disrupted or if its retail load requirements were to be greater than anticipated. If ~~PNM were required to cover~~ all or a portion of ~~its~~the net open contract position were required to be covered as a result of the aforementioned unexpected situations, itcommitments would have to ~~meet its commitments~~be met through market purchases. As such, ~~PNM~~PNMR 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~~customers 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~~Choice’s retail operations.

~~Additionally,~~The market prices used to value PNMR energy contracts are based on available market data, including index prices and broker quotations. These valuations can be limited by the availability of market data. When market data is unavailable or is insufficient to develop reliable pricing, the Company utilizes internally developed pricing data. Generally, the fair market value of energy contracts is based on actively quoted prices, except for options, which incorporate actively quoted prices into an option valuation model. As a result, the Company records liquidity reserves on these contracts for the unrealized market gains and losses in ~~connection with~~this illiquid period. Generally, the ~~issuance~~liquid period on which the Company’s valuations are based is up to 18 months for option type contracts and from three to five years for gas and electric commodities. The Company regularly assesses the validity and availability of ~~a final stranded cost true-up order~~pricing data for ~~TNMP,~~ the ~~PUCT will adjust First Choice’s fuel factor portion~~illiquid period of ~~the price-to-beat downward if natural gas prices are below the prices embedded in the then-current rates.~~

~~The acquisition of TNP occurred on June 6, 2005. Therefore, in the following tables First Choice activity is included in the PNMR activity from June 6, 2005 only.~~

~~106~~

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

its derivative transactions and adjusts its liquidity reserves accordingly.

The following table shows the net fair value of mark-to-market energy contracts ~~for First Choice and Wholesale~~ included in PNMR’s Condensed Consolidated Balance ~~Sheet:~~Sheet. See Note 4 for additional information.

	June 30,			December 31,
	2006			2005			June 30,			December 31,
	(In thousands)						2007			2006
Mark-to-Market Energy Contracts:
							(In thousands)
Mark-to-market energy contracts:
Current asset	$	38,949		$	21,884		$	87,321		$	43,680
Long-term asset		4,760			21,265			24,605			10,982

Total mark-to-market assets		43,709			43,149			111,926			54,662

Current liability		(36,784	)		(17,777	)		(98,820	)		(42,020	)
Long-term liability		(4,261	)		(20,844	)		(17,580	)		(9,176	)

Total mark-to-market liabilities		(41,045	)		(38,621	)		(116,400	)		(51,196	)

Net fair value of mark-to-market energy contracts	$	2,664		$	4,528		$	(4,474	)	$	3,466

The mark-to-market energy transactions represent net ~~assets~~liabilities at June 30, ~~2006~~2007 and net assets at December 31, ~~2005~~2006 after netting all applicable open purchase and sale contracts.

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 Wholesale:~~transactions:

	Six Months Ended
	June 30,						Six Months Ended
	2006			2005			June 30,
	(In thousands)						2007			2006
Sources of Fair Value Gain/(Loss):
Fair value at beginning of period	$	4,528		$	2,073
							Mark-to-Market Instruments
							(In thousands)
Sources of fair value gain (loss):
Fair value at beginning of year							$	3,466		$	4,528
Amount realized on contracts delivered during period		(4,108	)		(254	)		2,823			(4,108	)

Changes in fair value		2,244			1,066			(10,763	)		2,244

Net fair value at end of period	$	2,664		$	2,885		$	(4,474	)	$	2,664

Net change recorded as mark-to-market	$	(1,864	)	$	812		$	(7,940	)	$	(1,864	)

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

Fair Value at June 30, ~~2006~~2007


	Less than
	1 year			1-3 Years		4+ Years		Total
	(In thousands)
Net fair value at end of period	$	(11,499	)	$	1,809	$	5,216	$	(4,474	)

Maturities
Less than

1 year

1-3 Years

4+ Years

Total
(In thousands)
$2,165 $272 $227 $2,664
The net change in fair value on PNMR’s commodity derivative instruments designated as hedging instruments is summarized as follows:


	Six Months Ended
	June 30,
	2007			2006
Type of Derivative	Hedge Instruments
	(In thousands)
Change in fair value of energy contracts	$	(34,223	)	$	(988	)
Change in fair value of gas fixed for float swaps		6,228			(19,694	)
Change in the fair value of options		30			(7,703	)

Net change in fair value	$	(27,965	)	$	(28,385	)

As of June 30, 2006, 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%.

Risk Management Activities

~~PNM’s~~PNM Wholesale ~~Operations measure~~measures 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. The Company utilizes 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 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 well as at the total portfolio level. The two-tailed confidence level established is 99%. For ~~PNM's wholesale operations,~~example, if VaR is calculated at $10.0 million, it is estimated that in 990 out of 1000 market simulations the ~~Company~~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.

PNM Wholesale measures VaR for all transactions that are not directly asset related and have economic risk. ~~The VaR limit established for these transactions is $5.0 million.~~ For the three months ended

~~107~~

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

June 30, 2007, the average VaR amount for these transactions was $4.1 million, with high and low VaR amounts for the period of $6.4 million and $1.8 million, respectively. The VaR amount for these transactions at June 30, 2007 was $1.8 million. For the six months ended June 30, 2006, the average VaR amount for these transactions was $0.9 million, with high and low VaR amounts for the period of $1.9 million and $0.5 million, respectively. The total VaR amount for these transactions at June 30, 2006 was $1.6 million. For the three months ended June 30, 2005, the average VaR amount for these transactions was $0.3 million, with high and low VaR amounts for the period of $1.0 million and $0.1 million, respectively. The total VaR amount for these transactions at June 30, 2005 was $1.0 million.

First Choice measures the market risk of its activities using an EaR calculation to maintain ~~the Company’s~~PNMR’s total exposure within management-prescribed limits. Because of its obligation to serve customers, First Choice must take certain contracts to settlement. Accordingly, a measure that evaluates the settlement of First Choice’s positions against earnings provides management with a useful tool to manage its portfolio. First Choice’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. First Choice utilizes the one-tailed confidence level at 95%. 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 ~~limit established~~calculation considers the Company’s forward position for ~~First Choice’s transactions~~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 ~~$25.0~~calculated at $10.0 million, it is estimated that in 950 out of 1000 market scenarios calculated by the model the losses against the Company’s forecasted earnings over the next twelve months would not exceed $10.0 million.

For the six months ended June 30, 2007, the average EaR amount was $14.0 million, with high and low EaR amounts for the period of $20.5 million and $5.7 million, respectively. The total EaR amount at June 30, 2007 was $7.3 million. For the six months ended June 30, 2006, the average EaR amount for these transactions was $9.1 million, with high and low EaR amounts for the period of $11.9 million and $6.8 million, respectively. The total EaR amount for these transactions at June 30, 2006 was $9.8 million.

In addition, ~~the Company adopted~~First Choice utilizes two ~~new~~ VaR measures to ~~monitor the~~manage its market ~~based mitigation strategies of First Choice management.~~risk. 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 ~~VaR limit was established~~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 ~~$7.5 million.~~a 95% confidence level. The VaR amount for these transactions was ~~$2.75~~$4.5 million at June 30, 2007. For the six months ended June 30, 2007, the high, low and average mark-to-market VaR amounts were $6.2 million, $2.1 million and $4.1 million, respectively. The VaR amount for these transactions was $2.8 million at June 30, 2006. For the six months ended June 30, 2006, the high, low and average mark-to-market VaR amounts were $4.3 million, $2.1 million and $3.1 million, respectively.

The second VaR limit was established for First Choice transactions that are subject to mark-to-market accounting as defined by SFAS 133 and SFAS 149~~“Amendment~~.This calculation captures the effect of ~~Statement 133 on Derivative Instruments~~changes in market prices over a three-day holding period and ~~Hedging~~~~Activities.”~~utilizes the same Monte Carlo simulation approach described above at a 95% confidence level. The VaR ~~limit established~~amount for these transactions ~~is $3.0 million.~~was $1.8 million at June 30, 2007. For the six months ended June 30, 2007, the high, low and average mark-to-market VaR amounts were $4.4 million, $0.7 million and $2.0 million, respectively. The VaR amount for these transactions was $0.9 million at June 30, 2006. For the six months ended June 30, 2006, the high, low and average mark-to-market VaR amounts were $1.2 million, $0.3 million and $0.7 million, respectively.

The ~~Company's~~Company’s risk measures are regularly monitored by the ~~Company's~~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.

~~108~~

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

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 for energy commodities 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 procedures in place to ensure that increases in credit risk measures that exceed the prescribed limits are reviewed and, if deemed necessary, acted upon to reduce exposures.

PNM Wholesale

The following table provides information related to PNM Wholesale’s credit exposure as of June 30, ~~2006. The Company does not hold any credit collateral as of June 30, 2006.~~2007. 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.~~

PNM Wholesale

~~Wholesale~~

Schedule of Credit Risk Exposure

June 30, ~~2006~~2007


					Net						Net
	(b)		Number		Exposure		(b)		Number		Exposure
	Net		of		of		Net		of		of
	Credit		Counter		Counter-		Credit		Counter		Counter-
	Risk		-parties		parties		Risk		-parties		parties
Rating (a)	Exposure		>10%		>10%		Exposure		>10%		>10%
	(Dollars in thousands)						(Dollars in thousands)

External ratings:
Investment grade	$	96,865		4	$	64,619	$	85,365		3	$	51,863
Non-investment grade		901		-		-		986		—		—
Internal ratings
Split								25		—		—
Internal ratings:
Investment grade		315		-		-		—		—		—
Non-investment grade		6,308		-		-		917		—		—

Total	$	104,389			$	64,619	$	87,293			$	51,863


(a)		TheRatingincluded in “Investment Grade” is for counterparties with a minimum S&P rating of BBB- or ~~Moody's~~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 tofrom PNM ~~from~~ Wholesale operations. This includes long-term contracts, forward sales and short-term sales. The exposure captures the net amounts due to PNM from receivables/payables for realized transactions, delivered and unbilled revenues, and mark-to-market gains/losses (pursuant to contract terms). Exposures are offset according to legally enforceable netting arrangements and reduced by credit collateral. Credit collateral includes cash deposits, letters of credit and performance bonds received from counterparties. Amounts are presented before those reserves that are determined on a portfolio basis.

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

PNM Wholesale

~~109~~

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

~~Wholesale~~

Maturity of Credit Risk Exposure

June 30, ~~2006~~2007


					Greater		Total
	Less than				than		Net
Rating	2 Years		2-5 Years		5 Years		Exposure
	(In thousands)

External ratings:
Investment grade	$	51,001	$	30,527	$	3,837	$	85,365
Non-investment grade		986		—		—		986
Split		25		—		—		25
Internal ratings:
Investment grade		—		—		—		—
Non-investment grade		917		—		—		917

Total	$	52,929	$	30,527	$	3,837	$	87,293

Total

Less than

Net

Rating

2 Years

2-5 Years

>5 Years

Exposure

(In thousands)

Investment grade $ 90,770 $ 5,455 $ 639 $ 96,864
Non-investment grade 901 - - 901
Internal ratings
Investment grade 315 - - 315
Non-investment grade 6,308 - - 6,308
Total $ 98,294 $ 5,455 $ 639 $ 104,388

The Company provides for losses due to market and credit risk. Credit risk for ~~Wholesale's~~PNM Wholesale’s largest counterparty as of June 30, ~~2006~~2007 and December 31, ~~2005~~2006 was ~~$27.4~~$30.5 million and ~~$20.5~~$29.7 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~~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 June 30, ~~2006, the supply contracted with Constellation~~2007, FCPSP was in an unfavorable mark-to-market position ~~for FCPSP. When netted against amounts owed to Constellation, this exposure was approximately $68.3 million.~~with Constellation. The Constellation power supply agreement ~~collateral~~ provisions will continue as long as FCPSP is purchasing power from Constellation to serve retail customers. The existing pricing mechanism under the Constellation power supply agreement ~~expires~~expired on December 31, 2006, and the obligations of Constellation to act as a qualified scheduling entity continue until the expiration of the agreement on December 31, 2007. First ~~Choice's~~Choice’s credit exposure to other counterparties at June 30, ~~2006 and December 31, 2005~~2007 was ~~$11.7 million and $14.6~~$12.0 million and the ~~tenor~~time period of these exposures ~~was less than two years.~~

extends through 2010.

First Choice’s retail bad debt expense for the ~~three~~six months ended June 30, ~~2006~~2007 was ~~$2.4~~$7.9 million. First Choice expects bad debt expense to decrease in subsequent periods as the impacts from the Gulf Coast hurricanes, including waiver of customer deposits for hurricane victims, diminish. In addition, aA reduction in bad debt expense from retail customers is expected due to reduced customer receivables resulting partially from effective disconnect policies, increased collection activity and refined consumer credit and securitization policies.

Interest Rate Risk

PNMR’s ~~senior notes~~debt 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~~debt may change to a rate selected by the remarketing agent, and the maturity of the ~~senior notes~~debt may be extended to a date selected by PNMR. If the remarketing of the ~~senior notes~~debt is not successful, the maturity and interest rate of the ~~senior notes~~debt will not change and holders of the equity-linked units will have the option of putting their ~~senior notes~~debt to PNMR to satisfy their obligations under the purchase contracts. PNMR expects that the remarketing of the ~~senior notes~~debt will be successful.

~~PNM~~PNMR has long-term debt which subjects it to the risk of loss associated with movements in market interest rates. The majority of ~~PNM’s~~PNMR’s long-term debt is fixed-rate debt, and therefore, does not expose ~~PNM’s~~PNMR’s earnings to a major risk of loss due to adverse changes in market interest rates. However, the fair value of all long-term debt instruments would increase by approximately ~~4.0%~~1.3%, ~~or $39.6 million,~~ if interest rates were to decline by 50 basis

~~110~~

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

points from their levels at June 30, ~~2006. At June 30, 2006, the fair value of PNM's long-term debt was approximately $987.0 billion as compared to a book value of $985.9 million.~~2007. 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~~reacquire 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 with a maturity date of April 1, 2033, were required to be remarketed in April 2006. Following the remarketing, the interest rate on the pollution control bonds was changed to a fixed rate of 4.875% annually.

During the three and six months ended June 30, ~~2006,~~2007, PNM ~~did not contribute cash~~contributed $1.5 million and $3.1 million to ~~fund PVNGS decommissioning,~~the trust for other post retirement benefits and $0 million and $4.9 million to the NDT. PNM made no contributions to the trusts for the pension ~~and other postretirement benefits for plan year 2006.~~or executive retirement plans. The securities held by all of the trusts had an estimated fair value of ~~$638.5~~$711.6 million at June 30, ~~2006,~~2007, of which approximately ~~24.12%~~24.2% 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 June 30, ~~2006,~~2007, the decrease in the fair value of the fixed-rate securities would be approximately 3.5%, or ~~$5.4~~$6.1 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 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 1.0%, or $4.2 million, if interest rates were to decline by 50 basis points from their levels at June 30, 2006. At June 30, 2006, the fair value of TNMP's long-term debt was approximately $424.5 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 three and six months ended June 30, ~~2006,~~2007, TNMP ~~did not contribute cash~~contributed $0.3 million and $0.3 million to ~~fund pension and~~the trust for other postretirement benefits for plan year ~~2006.~~2007. TNMP made no contributions to the trust for its pension plan. The securities held by all of the trusts had an estimated fair value of ~~$86.1~~$91.5 million at June 30, ~~2006,~~2007, of which approximately ~~27.8%~~22.3% were fixed-rate debt securities that subject TNMP 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 June 30, ~~2006,~~2007, the decrease in the fair value of the fixed-rate securities would be approximately ~~2.9%~~4.0%, or ~~$0.7~~$0.8 million. ~~TNMP, therefore,~~The Company is at risk for shortfalls in its funding of its obligations due to investment losses. ~~TNMP~~The Company 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.

Equity Market Risk

The trusts established to fund PNM’s share of the decommissioning costs of PVNGS and pension and other postretirement benefits also hold certain equity securities at June 30, ~~2006. These equity securities also expose the Company to losses in fair value.~~2007. Approximately ~~62.6%~~61.3% of the securities held by the various PNM trusts were equity securities as of June 30, 2006. 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.

2007. The trusts established to fund TNMP’s pension and other postretirement benefits hold certain equity securities at June 30, ~~2006. These equity securities also expose the Company to losses in fair value.~~2007. Approximately ~~59.8%~~54.2% of the securities held by the various trusts were equity securities as of June 30, ~~2006. TNMP does~~2007. These equity securities also expose the Company to losses in fair value.

Alternatives Investment Risk

The Company has a target of investing 20% of its pension assets in the alternatives asset class. This includes real estate, private equity, and hedge funds. The private equity and hedge fund investments are limited partner structures that are multi-manager multi-strategy funds. This investment approach gives broad diversification and minimizes risk compared to a direct investment in any one component of the funds. The general partner oversees the selection and monitoring of the underlying managers. The Company’s Corporate Investment Committee, assisted by its investment consultant, monitors the performance of the funds and general partner’s investment process. There is risk associated with these funds due to the nature of the strategies and techniques and the use of investments that do not ~~recover or earn a return through rates on any losses or gains on these equity securities.~~have readily determinable fair value.

~~111~~

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

ITEM 4. CONTROLS AND PROCEDURES

PNMR

~~PNMR~~

Disclosure ~~Controls~~of controls and ~~Procedures~~

procedures.

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

Changes in ~~Internal Controls~~

internal controls

The following material changes in internal controls occurred during the second quarter of ~~2006:~~2007:

o	~~Implemented a new application to process accounts payable activities and modified the related business process controls.~~

o	Implemented a new application to process gas purchasing and miscellaneous accounts receivable and billing activities and modified the related business process controls for one of its subsidiaries, PNM.

o	~~Upgraded the general ledger system to enhance existing functionality and to add new functionality for use in analysis and financial reporting.~~

~~TNP Acquisition~~

PNMR 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, PNMR continues to integrate PNMR’s internal~~designing and implementing monitoring controls ~~into TNP’s operations.~~

~~Twin Oaks Acquisition~~

~~PNMR is currently undergoing a diligent effort to integrate Twin Oaks' and PNMR’s internal control activities~~for its equity investment in EnergyCo to ensure that PNMR maintains its compliance with Section 404 of the Sarbanes-Oxley Act of 2002. It is expected that this effort will continue ~~during~~through the ~~remainder~~end of ~~2006 and into~~ 2007.

Except as described above, there ~~were~~have been no other changes in PNMR’s internal ~~control~~controls over financial reporting ~~that occurred during~~for the ~~second~~ quarter ~~of 2006~~ended June 30, 2007, that have materially affected, or are reasonably likely to materially affect, PNMR’s internal control over financial reporting.

PNM

~~PNM~~

Disclosure ~~Controls~~of controls and ~~Procedures~~

procedures

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

~~112~~

Changes ~~in Internal Controls~~

~~The following material changes~~ in internal controls ~~occurred during the second quarter of 2006:~~

o	~~Implemented a new application to process accounts payable activities and modified the related business process controls.~~

o	~~Implemented a new application to process gas purchasing and miscellaneous accounts receivable and billing activities and modified the related business process controls.~~

o	~~Upgraded the general ledger system to enhance existing functionality and to add new functionality for use in analysis and financial reporting.~~

~~Except as described above, there were~~There have been no ~~other~~ changes in PNM’s internal ~~control~~controls over financial reporting ~~that occurred during~~for the ~~second~~ quarter ~~of 2006~~ended June 30, 2007, that have materially affected, or are reasonably likely to materially affect, PNM’s internal control over financial reporting.

100

TNMP

~~TNMP~~

Disclosure ~~Controls~~of controls and ~~Procedures~~

procedures

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

Changes ~~in Internal Controls~~

~~The following material changes~~ in internal controls ~~occurred during the second quarter of 2006:~~

o	~~Implemented a new application to process accounts payable activities and modified the related business process controls.~~

o	~~Upgraded the general ledger system to enhance existing functionality and to add new functionality for use in analysis and financial reporting.~~

~~Except as described above, there were~~There have been no ~~other~~ changes in TNMP’s internal ~~control~~controls over financial reporting ~~that occurred during~~for the ~~second~~ quarter ~~of 2006~~ended June 30, 2007, that have materially affected, or are reasonably likely to materially affect, TNMP’s internal control over financial reporting.

101

~~113~~

PART II -— OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

·	~~Asbestos Cases~~•	Citizen Suit Under the Clean Air Act

	•	Navajo Nation Environmental Issues

	•	Four Corners Federal Implementation Plan Litigation

	•	Legal Proceedings discussed under the caption, “Western United States Wholesale Power Market”

	•	Natural Gas Royalties Qui Tam Litigation

	•	TNMP Competitive Transition Charge True-Up Proceeding

	•	San Juan River Adjudication

·	~~SESCO Matter (for both PNM and TNMP)~~

·	~~California Refund Proceeding~~

·	~~TNMP True-Up Proceeding~~

ITEM 1A. RISK FACTORS

As of the date of this report, there have been no material changes with regard to the ~~Company’s~~ Risk Factors disclosed in PNMR’s, PNM’s and TNMP’s Annual Reports on ~~Forms 10-K/A (Amendment No. 2)~~Form 10-K for the year ended December 31, ~~2005.~~2007.

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

Annual Meeting

The annual meeting of shareholders was held on May ~~16, 2006.~~22, 2007. The matters voted on at the meeting and the results were as follows:

The election of the following nominees to serve as directors as follows:


							Votes Against or
Director	Votes For		Votes Against or Withheld		Votes For		Withheld
Terms expiring in 2007:
Terms expiring in 2008:
Adelmo E. Archuleta		61,731,760		192,210		64,181,150		6,204,301
Julie A. Dobson		61,723,253		200,717		64,185,592		6,199,859
Woody L. Hunt		61,730,796		193,174		64,182,949		6,202,502
C. E. McMahen		61,729,836		194,134		63,784,715		6,600,736
M. T. Pacheco		61,719,470		204,500		70,214,216		171,235
R. M. Price		57,915,087		4,008,883		60,351,592		10,033,859
B. S. Reitz		61,718,240		205,730		70,214,050		171,401
Jeffry E. Sterba		57,936,128		3,987,842		66,802,203		3,583,248
Joan B. Woodard		61,731,251		192,719		70,218,959		166,492

The approval of the selection by the Company’s Board of Deloitte & Touche LLP as independent auditors for the fiscal year ending December 31, ~~2006,~~2007, was voted on, as follows:


Votes For	Votes Against or Withheld	Abstentions
70,231,908	99,434	54,109

102

Votes For
Votes Against or Withheld
Abstentions
61,778,325 90,648 54,996

The approval of an amendment to the Restated Articles of Incorporation of PNM Resources, Inc. to eliminate the authority of the Board to classify itself by amending the bylaws, was voted on, as follows:

Votes For
Votes Against or Withheld
Abstentions
60,059,637 1,714,389 149,943

~~ITEM 5. OTHER EVENTS~~

~~None~~

~~114~~

ITEM 6. EXHIBITS

~~3.1~~
2.1		PNMR	~~Articles~~	Contribution Agreement, dated as of ~~Incorporation of~~June 1, 2007, among EnergyCo, LLC, PNM Resources, ~~as amended through June 21, 2006.~~and ECJV Holdings, LLC

~~10.4~~4.23	~~PNMR~~	~~Term Loan Agreement,~~PNM		Seventh Supplemental Indenture, dated as of ~~April 17, 2006, among~~June 1, 2007, to Indenture dated as of March 11, 1998, between PNM ~~Resources, as borrower, the lenders identified therein~~ and ~~Lehman Commercial Paper Inc.~~The Bank of New York Trust Company, N.A. (successor to JPMorgan Chase Bank), as ~~administrative agent.~~Trustee

10.43**	~~PNMR~~	~~PNMR Fourth Amendment to the PNM Resources Non-Union Severance Pay Plan executed April 19, 2006.~~

12.1		PNMR		Ratio of Earnings to Fixed Charges

12.2		PNMR		Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends

31.1		PNMR		Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		PNMR		Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3		PNM		Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.4		PNM		Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.5		TNMP		Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.6		TNMP		Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		PNMR		Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		PNMR		Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.3		PNM		Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.4		PNM		Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.5		TNMP		Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.6		TNMP		Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

103

** designates each management contract or compensatory plan or arrangement required to be identified.

~~115~~

~~Signature~~

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.


		PNM RESOURCES, INC. PUBLIC SERVICE COMPANY OF NEW MEXICO TEXAS-NEW MEXICO POWER COMPANY

		(Registrants)


Date: August ~~9, 2006~~14, 2007		/s/ Thomas G. Sategna
	~~Thomas G. Sategna~~
		Thomas G. Sategna Vice President and Corporate Controller
	(Officer duly authorized to sign this report)

104

EXHIBIT INDEX

~~116~~


Exhibit
No.		Description

2.1	PNMR	Contribution Agreement, dated as of June 1, 2007, among EnergyCo, LLC, PNM Resources, and ECJV Holdings, LLC

4.23	PNM	Seventh Supplemental Indenture, dated as of June 1, 2007, to Indenture dated as of March 11, 1998, between PNM and The Bank of New York Trust Company, N.A. (successor to JPMorgan Chase Bank), as Trustee

12.1	PNMR	Ratio of Earnings to Fixed Charges

12.2	PNMR	Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends

31.1	PNMR	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	PNMR	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3	PNM	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.4	PNM	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.5	TNMP	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.6	TNMP	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	PNMR	Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	PNMR	Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.3	PNM	Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.4	PNM	Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.5	TNMP	Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.6	TNMP	Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

105

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005
	(In thousands, except per share amounts)
Operating Revenues:
Electric	$	477,603		$	322,676		$	925,819		$	585,119
Gas		68,869			82,261			276,345			247,494
Other		197			317			306			554
Total operating revenues		546,669			405,254			1,202,470			833,167

Operating Expenses:
Cost of energy sold		306,500			238,191			732,472			485,669
Administrative and general		66,311			52,786			131,616			94,095
Energy production costs		43,714			39,805			81,301			75,838
Depreciation and amortization		37,953			35,637			72,283			64,464
Transmission and distribution costs		21,314			15,051			40,364			29,113
Taxes, other than income taxes		18,261			10,571			35,225			19,442
Income taxes		6,190			(3,367	)		16,437			10,024
Total operating expenses		500,243			388,674			1,109,698			778,645
Operating income		46,426			16,580			92,772			54,522

Other Income and Deductions:
Interest income		8,916			11,622			19,067			20,922
Other income		1,922			2,634			5,089			6,344
Carrying charges on regulatory assets		2,004			525			3,977			525
Other deductions		(2,497	)		(1,542	)		(4,013	)		(3,678	)
Other income taxes		(3,834	)		(4,677	)		(8,935	)		(8,561	)
Net other income and deductions		6,511			8,562			15,185			15,552

Interest Charges		36,498			21,533			65,061			35,824

Preferred Stock Dividend Requirements of
Subsidiary		132			2,068			264			2,200

Net Earnings	$	16,307		$	1,541		$	42,632		$	32,050

Net Earnings per Common Share (see Note 5):
Basic	$	0.24		$	0.02		$	0.62		$	0.51

Diluted	$	0.23		$	0.02		$	0.61		$	0.50

Dividends Declared per Common Share	$	0.22		$	0.19		$	0.44		$	0.37

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

PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

	June 30,		December 31,
	2006		2005
	(In thousands)
ASSETS
Utility Plant:
Electric plant in service	$	4,020,138	$	3,315,642
Gas plant in service		728,494		711,823
Common plant in service and plant held for future use		144,764		135,849
		4,893,396		4,163,314
Less accumulated depreciation and amortization		1,428,793		1,374,599
		3,464,603		2,788,715
Construction work in progress		144,514		168,195
Nuclear fuel, net of accumulated amortization of $13,758 and $14,679		28,086		27,182

Net utility plant		3,637,203		2,984,092

Other Property and Investments:
Investment in lessor notes		271,000		286,678
Other investments		137,020		180,013
Non-utility property, net of accumulated depreciation of $2,372 and $22		7,898		4,214

Total other property and investments		415,918		470,905

Current Assets:
Cash and cash equivalents		73,890		68,199
Special deposits		5,159		534
Accounts receivable, net of allowance for uncollectible accounts of $4,856 and $3,653		127,726		128,834
Unbilled revenues		100,900		151,773
Other receivables		64,296		64,285
Inventories		60,547		52,037
Regulatory assets		830		28,058
Other current assets		108,087		102,577

Total current assets		541,435		596,297

Deferred Charges:
Regulatory assets		357,106		347,279
Prepaid pension cost		93,471		91,444
Goodwill		495,441		499,155
Other intangible assets, net of accumulated amortization of $1,397 and $742		102,857		78,512
Other deferred charges		94,112		57,025

Total deferred charges		1,142,987		1,073,415
	$	5,737,543	$	5,124,709

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

PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Six Months Ended
	June 30,
	2006			2005
	(In thousands)
Cash Flows From Operating Activities:
Net earnings	$	42,632		$	32,050
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization		81,465			69,510
Allowance for equity funds used during construction		(73	)		(1,196	)
Accumulated deferred income tax		(7,920	)		4,381
Net unrealized (gains)/losses on trading and marketing securities		1,864			(812	)
Realized gains on investment securities		(1,839	)		(2,229	)
Carrying charges on deferred stranded costs		(3,978	)		(525	)
Interest on retail competition transition obligation		885			-
Carrying charges on other regulatory assets and liabilities		(1,829	)		(1,317	)
Amortization of fair value of acquired Twin Oaks sales contract		(16,878	)		-
Amortization of emissions allowances		832			-
Amortization of fair value of acquired First Choice contracts		(2,780	)		(370	)
Stock based compensation expense		5,513			-
Excess tax benefits from stock-based payment arrangements		(908	)		-
Other, net		1,203			318
Changes in certain assets and liabilities, net of amounts acquired:
Accounts receivable - customer		25,314			23,046
Accounts receivable - other		(4,888	)		(5,918	)
Unbilled revenues		46,947			36,661
Regulatory assets		21,120			(9,087	)
Other assets		(4,445	)		(1,561	)
Accrued postretirement benefit costs		(5,299	)		(1,091	)
Accounts payable		(88,241	)		(44,382	)
Accrued interest and taxes		36,812			41,880
Other liabilities		(13,884	)		(25,921	)
Net cash flows from operating activities		111,625			113,437

Cash Flows From Investing Activities:
Utility plant additions		(123,288	)		(74,790	)
Nuclear fuel additions		(5,280	)		(5,159	)
Proceeds from sales of securities		45,322			41,910
Purchases of securities		(45,738	)		(42,693	)
Return of principal PVNGS lessor notes		11,297			10,681
Cash acquired from purchase of TNP, net of cash paid		-			34,531
Twin Oaks business acquisition		(481,015	)		-
Other, net		2,309			4,061
Net cash flows used for investing activities		(596,393	)		(31,459	)

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

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005
				(In thousands)
Operating Revenues:
Electric	$	259,298		$	270,005		$	570,765		$	532,448
Gas		68,869			82,261			276,345			247,494
Total operating revenues		328,167			352,266			847,110			779,942

Operating Expenses:
Cost of energy sold		185,410			206,798			524,672			454,210
Administrative and general		40,520			42,496			81,648			82,975
Energy production costs		42,080			39,806			79,667			75,839
Depreciation and amortization		24,289			32,417			49,144			60,362
Transmission and distribution costs		15,916			13,898			30,223			27,961
Taxes, other than income taxes		8,414			7,459			17,727			15,751
Income taxes		(1,254	)		(1,677	)		13,708			12,966
Total operating expenses		315,375			341,197			796,789			730,064
Operating income		12,792			11,069			50,321			49,878

Other Income and Deductions:
Interest income		8,670			9,097			18,023			18,303
Other income		1,705			2,185			3,533			5,461
Other deductions		(1,504	)		(864	)		(2,355	)		(2,028	)
Other income taxes		(3,444	)		(4,220	)		(7,455	)		(8,061	)
Net other income and deductions		5,427			6,198			11,746			13,675

Interest Charges		14,899			13,137			28,319			26,937

Net Earnings		3,320			4,130			33,748			36,616

Preferred Stock Dividend Requirements		132			132			264			264

Net Earnings Available for Common Stock	$	3,188		$	3,998		$	33,484		$	36,352

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

	Post-Acquisition			Post-Acquisition			Pre-Acquisition
	Three months ended			For the period			For the period
	June 30,			June 6-June 30,			April 1-June 6,
	2006			2005			2005
				(In thousands)

Operating Revenues:
Electric	$	61,456		$	19,235		$	46,938
Total operating revenues		61,456			19,235			46,938

Operating Expenses:
Cost of energy sold		22,651			6,702			16,793
Administrative and general		9,688			2,183			4,551
Depreciation and amortization		7,832			2,085			5,436
Transmission and distribution costs		5,399			1,150			3,944
Taxes, other than income taxes		5,872			1,885			3,195
Income taxes		1,238			1,125			2,808
Total operating expenses		52,680			15,130			36,727
Operating income		8,776			4,105			10,211

Other Income and Deductions:
Interest income		81			87			360
Other income		125			111			252
Carrying charges on regulatory assets		2,004			525			1,394
Other deductions		(32	)		(11	)		(30	)
Other income taxes		(847	)		(314	)		(715	)
Net other income and deductions		1,331			398			1,261

Interest Charges		7,271			1,956			5,088

Net Earnings	$	2,836		$	2,547		$	6,384

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

TEXAS-NEW MEXICO POWER COMPANY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Post-Acquisition			Post-Acquisition			Pre-Acquisition
	Six months ended			For the period			For the period
	June 30,			June 6-June 30,			January 1-June 6,
	2006			2005			2005
				(In thousands)
Cash Flows From Operating Activities:
Net earnings	$	3,992		$	2,547		$	9,260
Adjustments to reconcile net earnings to net cash flows from
operating activities:
Depreciation and amortization		15,712			2,261			14,042
Allowance for equity funds used during construction		(74	)		(8	)		(60	)
Accumulated deferred income tax		1,877			75			(1,267	)
Carrying charges on deferred stranded costs		(3,978	)		(525	)		1,407
Interest on retail competition transition obligation		885			-			-
Other, net		(21	)		(1	)		(120	)
Changes in certain assets and liabilities:
Accounts receivable		2,154			823			149
Unbilled revenues		717			(139	)		(106	)
Other assets		7,053			(1,468	)		(3,800	)
Accrued postretirement benefit costs		(1,014	)		(2,583	)		495
Accounts payable		(79	)		652			(5,379	)
Accrued interest and taxes		(10,872	)		1,586			(4,134	)
Change in affiliate accounts		6,736			1,249			47
Other liabilities		(2,583	)		2,180			4,819
Net cash flows from operating activities		20,505			6,649			15,353

Cash Flows From Investing Activities:
Utility plant additions		(18,152	)		(1,685	)		(17,822	)
Other, net		69			840			(242	)
Acquisition costs		-			(3,473	)		-
Net cash flows used for investing activities		(18,083	)		(4,318	)		(18,064	)

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

At April 18, 2006
(In thousands)
Net utility plant	$	595,336
Other current assets		10,341
Other intangible assets		25,000
Other deferred charges		99,598
Total assets acquired		730,275

Other current liabilities		96,088
Other deferred credits		153,173
Total liabilities assumed		249,261

Net assets acquired	$	481,014

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2006		2005		2006		2005
	(In thousands, except per share amounts)
Operating revenues	$	559,375	$	452,788	$	1,262,178	$	928,771
Operating expenses	$	506,659	$	418,032	$	1,146,775	$	836,894
Earnings before extraordinary item	$	21,631	$	12,927	$	57,512	$	55,826
Net earnings	$	21,631	$	12,927	$	57,512	$	55,826
Net earnings per common share:
Basic	$	0.31	$	0.20	$	0.84	$	0.89
Diluted	$	0.31	$	0.19	$	0.83	$	0.87

	Regulated									Unregulated
Segments of Business	PNM			TNMP			PNM						First			Corporate
	Electric			Electric			Gas			Wholesale			Choice			& Other				Consolidated
2006:
Operating revenues	$	144,080		$	43,437		$	68,869		$	141,820		$	154,908		$	(6,445	)	(a)	$	546,669
Intersegment revenues		2,256			18,019			92			12,674			-			(33,041	)			-
Total revenues		146,336			61,456			68,961			154,494			154,908			(39,486	)			546,669
Less: Cost of energy		43,308			22,652			42,168			119,869			118,073			(39,570	)	(a)		306,500
Intersegment energy
Transfer		8,524			-			-			(8,524	)		-			-				-
Gross margin		94,504			38,804			26,793			43,149			36,835			84				240,169
Operating expenses		66,564			20,957			25,881			18,380			15,367			2,451		(b)		149,600
Depreciation and
amortization		14,316			7,831			5,994			7,155			510			2,147				37,953
Income taxes		1,852			1,239			(3,236	)		3,219			7,363			(4,247	)	(b)		6,190
Operating income		11,772			8,777			(1,846	)		14,395			13,595			(267	)			46,426

Interest income		6,626			81			468			1,323			116			302				8,916
Other income/(deductions)		216			2,097			(11	)		330			(225	)		(1,110	)			1,297
Other income taxes		(2,709	)		(847	)		(181	)		(654	)		42			515				(3,834	)
Interest charges		(8,946	)		(7,271	)		(3,091	)		(9,512	)		(248	)		(7,430	)			(36,498	)
Segment net income (loss)	$	6,959		$	2,837		$	(4,661	)	$	5,882		$	13,280		$	(7,990	)		$	16,307

Gross property additions	$	46,114		$	10,936		$	9,633		$	5,797		$	-		$	4,267			$	76,747

At June 30, 2006:
Total assets	$	1,935,934		$	1,131,593		$	616,678		$	1,082,632		$	374,640		$	596,066			$	5,737,543
Goodwill	$	-		$	363,763		$	-		$	-		$	131,678		$	-			$	495,441

	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
				(In thousands)
Amount realized on contracts delivered
during period	$	(3,966	)	$	(322	)	$	(4,108	)	$	(254	)
Changes in fair value		308			211			2,244			1,066
Net change recorded as mark-to-market	$	(3,658	)	$	(111	)	$	(1,864	)	$	812

	Three Months Ended		Six Months Ended
	June 30, 2006
	(In thousands, except per share amounts)

Reduction - PNMR income from operations	$	807	$	3,515
Reduction - PNMR income before income taxes	$	807	$	3,515
Reduction - PNMR net earnings	$	492	$	2,142
Reduction - PNMR earnings per share
Basic	$	0.01	$	0.03
Diluted	$	0.01	$	0.03

	Three Months Ended			Six Months Ended
	June 30, 2005
	(In thousands, except per share amounts)

Net earnings	$	1,541		$	32,050
Add: Stock compensation expense included
in reported income, net of related tax effects		-			-
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related tax effects		(346	)		(693	)
Pro forma net earnings	$	1,195		$	31,357

Earnings per share:
Basic - as reported	$	0.02		$	0.51

Basic - pro forma	$	0.02		$	0.50

Diluted - as reported	$	0.02		$	0.50

Diluted - pro forma	$	0.02		$	0.49

	June 30, 2006	December 31, 2005
	(In thousands)
PNM payable to PNMR	$61,274	$50,070

PNM receivable from TNMP net of transmission purchases	$ 8,613	$ 4,130

	Three Months Ended		For the Period
	June 30,		June 6 - June 30,
	2006		2005
	(Megawatt hours)
Residential		806,148		275,271
Commercial		931,064		189,767
Industrial		401,524		144,791
Other		31,756		8,590
		2,170,492		618,419

Maturities
Less than
1 year	1-3 Years	4+ Years	Total
	(In thousands)
$2,165	$272	$227	$2,664