~~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

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

~~For the quarterly period endedJune 30, 2007~~

For the quarterly period ended June 30, 2008




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

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

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

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. YESþü 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. YES NO oü NOþ

~~(NOTE:~~(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~~þ ~~Accelerated filer~~o ~~Non-accelerated filer~~o

Large accelerated filer ü

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 filer~~o ~~Accelerated filer~~o ~~Non-accelerated filer~~þ

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). YES NO ü

~~YES~~o NOþ

As of August ~~1, 2007, 76,726,852~~4, 2008, 86,400,262 shares of common stock, no par value per share, of PNMR were outstanding.

The total number of shares of common stock of PNM outstanding as of August ~~1, 2007~~4, 2008 was 39,117,799 all held by PNMR (and none held by non-affiliates).

The total number of shares of common stock of TNMP outstanding as of August ~~1, 2007~~4, 2008 was 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 combined Form 10-Q ~~represents separate filings~~is separately filed by PNMR, PNM and TNMP. Information contained herein relating to anany individual registrant is filed by ~~that~~such registrant on its own behalf. ~~PNM~~Each registrant makes no ~~representations~~representation as to ~~the~~ information relating to ~~PNMR and its subsidiaries~~the other ~~than PNM (and its subsidiary). TNMP makes no representations as to the information relating to PNMR and its subsidiaries other than TNMP (and its subsidiaries).~~registrants. When this Form 10-Q is incorporated by reference into any filing with the SEC made by PNMR, PNM or TNMP, as a registrant, the portions of this Form 10-Q that relate to ~~PNMR and its subsidiaries~~each other ~~than PNM (and its subsidiary) or TNMP (and its subsidiaries), respectively,~~registrant 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

PART I. FINANCIAL INFORMATION 0; 4

ITEM 1. FINANCIAL STATEMENTS (Unaudited)

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) &# 160; 6

CONDENSED CONSOLIDATED BALANCE SHEETS 0; 7

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS9

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS’ EQUITY 11

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 12

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) 13

CONDENSED CONSOLIDATED BALANCE SHEETS 14

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 0; 16

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER’S EQUITY 18

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 19

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS &# 160; 20

CONDENSED CONSOLIDATED BALANCE SHEETS 0; 21

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 0; 23

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER’S EQUITY 25

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 26

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 27

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 70

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 91

ITEM 4. CONTROLS AND PROCEDURES ; 99

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS 100

ITEM 1A. RISK FACTORS 0; 100

ITEM 6. EXHIBITS 60; 102

SIGNATURE 0; 103

GLOSSARY


	~~Page No.~~

~~GLOSSARY~~		1

~~PART I. FINANCIAL INFORMATION~~

~~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 CONDITION AND RESULTS OF OPERATIONS~~		63

~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK~~		94

~~ITEM 4. CONTROLS AND PROCEDURES~~		~~100~~

~~PART II. OTHER INFORMATION~~

~~ITEM 1. LEGAL PROCEEDINGS~~		~~102~~

~~ITEM 1A. RISK FACTORS~~		~~102~~

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

~~ITEM 6. EXHIBITS~~		~~103~~

~~SIGNATURE~~		~~104~~
	Definitions:
~~Exhibit 2.1~~Afton
~~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~~

~~GLOSSARY~~


~~Definitions~~:
~~Afton~~		Afton Generating Station
~~ALJ~~ AG		New Mexico Attorney General
ALJ		Administrative Law Judge
Altura			Altura Power L.P.
~~APS~~ APB		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
CAIR		EPA’s Clean Air Interstate Rule
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~~Continental		Continental Energy Systems, LLC
CRHC		Cap Rock Holding Corporation, a subsidiary of Continental
CTC		Competition Transition Charge
Decatherm				Million BTUs
~~EaR~~ Delta		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~~limited liability corporation, owned 50% by each of PNMR and ECJV
EPA			United States Environmental Protection Agency
~~ERCOT~~ EPE		El Paso Electric
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.
FERC			Federal Energy Regulatory Commission
FIN			FASB Interpretation Number
FIP			Federal Implementation Plan
FSP		FASB Staff Position
First Choice			First Choice Power, L. P. and Subsidiaries
Four Corners			Four Corners Power Plant
~~GAAP~~ FPPAC		Fuel and Purchased Power Adjustment Clause
GAAP		Generally Accepted Accounting Principles in the United States of America
GWh			Gigawatt hours
ISO			Independent System Operator
~~Luna~~ LIBOR		London Interbank Offered Rate
Lordsburgh		Lordsburg Generating Station
Luna		Luna Energy Facility
MD&A			Management’s Discussion and Analysis of Financial Condition and Results of Operations
~~MMBTUs~~			~~Million 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~~ NMGC	New Mexico Gas Company, Inc., a subsidiary of Continental
NMED	New Mexico Environment Department
NMPRC		New Mexico Public Regulation Commission
NOPR		Notice of Proposed Rulemaking
~~NSPS~~ NOX	Nitrogen Oxides
NOI	Notice of Inquiry
NRC	United States Nuclear Regulatory Commission
NSPS	New Source Performance Standards

NSR		New Source Review
~~NYMEX~~		~~New York Mercantile Exchange~~
OATT	Open Access Transmission Tariff
O&M		Operations and Maintenance
~~PCRBs~~		~~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~~Subsidiaries
PNM Facility		PNM’s $400 Million Unsecured Revolving Credit Facility
PNMR		PNM Resources, Inc. and Subsidiaries
PNMR Facility		PNMR’s $600 Million Unsecured Revolving Credit Facility
PPA		Power Purchase Agreement
~~PSA~~ PRP	Potential Responsible Party
PSA	Power Supply Agreement
PSD		Prevention of Significant Deterioration
PUCT		Public Utility Commission of Texas
PVNGS		Palo Verde Nuclear Generating Station
~~REC~~ Pyramid	Tri-State Pyramid Unit 4
REC	Renewable Energy Certificates
REP		Retail Electricity Provider
RMC		Risk Management Committee
RTO		Regional Transmission Organization
SCE	Southern Cal Edison Company
SDG&E			~~San~~ Diego Gas and Electric Company
SEC		United States Securities and Exchange Commission
SFAS		FASB Statement of Financial Accounting Standards
SJCC		San Juan Coal Company
SJGS		San Juan Generating Station
SOAH		State Office of Administrative Hearings
SO2	Sulfur Dioxide
SPS	Southwestern Public Service Company
SRP	Salt River Project
S&P		Standard and Poors Ratings Services
TECA		Texas Electric Choice Act
TNMP		Texas-New Mexico Power Company and Subsidiaries
~~TNP~~ TNMP Facility	TNMP’s $200 Million Unsecured Revolving Credit Facility
TNP	TNP Enterprises, Inc. and Subsidiaries
~~Throughput~~ Tri-State			~~Volumes of gas delivered, whether or not owned by the Company~~Tri-State Generation and Transmission Association, Inc.
Twin Oaks		Assets of Twin Oaks Power, L.P. and Twin Oaks Power III, L.P.
~~VaR~~ Valencia	Valencia Energy Facility
VaR	Value at Risk

~~Accounting Pronouncements (as amended)~~:


Accounting Pronouncements (as amended and interpreted):
EITF ~~03-11~~	02-3	EITF Issue No. ~~03-11~~ 02-3 “~~Reporting Realized Gains and Losses on~~Issues Involved in Accounting for Derivative ~~Instruments that are Subject to FASB Statement No. 133 and Not~~Contracts Held for Trading Purposes” and Contracts Involved in Energy Trading and Risk Management Activities”
~~EITF 03-13~~FIN 46R	FIN 46R “Consolidation of Variable Interest Entities an Interpretation of ARB No. 51”
FSP FIN 39-1	~~EITF Issue No. 03-13~~FASB Staff Position FIN 39-1 – “~~Applying the Conditions in Paragraph 42~~Amendment of FASB ~~Statement~~Interpretation No. ~~144 in Determining Whether to Report Discontinued Operations~~” 39”
~~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 71112			SFAS No. 71112 “Employers’ Accounting for ~~Effects~~Postemployment Benefits – an amendment of ~~Certain Types of Regulation~~FASB Statements No. 5 and 43”
SFAS 115	SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities”
SFAS 128			SFAS No. 128 “Earnings per Share”
SFAS 133			SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”
SFAS 141			SFAS No. 141 “Business Combinations”
SFAS 142	SFAS No. 142 “Goodwill and Other Intangible Assets”
SFAS 144			SFAS ~~No.144~~No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”
SFAS ~~149~~157			SFAS No. ~~149~~157 “~~Amendment~~Fair Value Measurements”
SFAS 159	SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement ~~133 on~~No. 115”
SFAS 161	SFAS No. 161 “Disclosure about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement No. 133”
SFAS ~~154~~162			SFAS No. ~~154~~162 “The Hierarchy of Generally Accepted Accounting ~~Changes and Error Corrections~~” Principles”

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(LOSS)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended		Six Months Ended
	2007			2006			2007			2006			June 30,		June 30,
				(As Restated,						(As Restated,			2008	2007	2008	2007
				See Note 16)						See Note 16)			(In thousands, except per share amounts)
	(In thousands, except share information)
Operating Revenues:
Electric	$	505,376		$	477,603		$	942,183		$	925,819		$ 580,243	$ 505,400	$ 944,645	$ 942,234
Gas		75,136			68,869			291,620			276,345
Other		169			197			379			306		67	169	167	379

Total operating revenues		580,681			546,669			1,234,182			1,202,470		580,310	505,569	944,812	942,613


Operating Expenses:
Cost of energy sold		356,533			306,500			735,053			732,472
Cost of energy													398,698	311,465	633,079	528,277
Administrative and general		64,341			66,311			135,547			131,616		59,392	50,600	106,754	108,927
Energy production costs		52,256			44,038			100,080			81,949		45,557	51,674	96,761	99,056
Impairment of goodwill and other intangible assets													136,179	-	136,179	-
Regulatory disallowances													-	-	30,248	-
Depreciation and amortization		39,695			37,953			80,137			72,283		34,650	34,222	68,686	69,063
Transmission and distribution costs		22,194			21,314			44,761			40,364		15,110	14,953	28,486	29,608
Taxes other than income taxes		19,003			18,261			37,623			35,225		13,484	16,759	26,350	33,331

Total operating expenses		554,022			494,377			1,133,201			1,093,909		703,070	479,673	1,126,543	868,262

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

Operating income (loss)													(122,760)	25,896	(181,731)	74,351

Other Income and Deductions:
Interest income		7,041			8,916			17,829			19,067		4,412	7,583	9,942	17,375
Gains on investments held by NDT		2,957			1,158			3,001			2,054
Gains (losses) on investments held by NDT													(677)	2,957	(4,382)	3,001
Other income		1,890			764			3,929			3,035		226	1,817	1,116	3,722
Equity in net earnings of EnergyCo		2,272			—			1,610			—
Carrying charges on regulatory assets		—			2,004			—			3,977
Equity in net earnings (loss) of EnergyCo													(2,523)	2,272	(27,606)	1,610
Other deductions		(5,530	)		(2,497	)		(6,518	)		(4,013	)	(3,199)	(5,506)	(7,081)	(6,482)

Net other income and deductions		8,630			10,345			19,851			24,120		(1,761)	9,123	(28,011)	19,226


Interest Charges:
Interest on long-term debt		18,734			24,267			42,743			46,798		24,197	15,836	43,105	36,899
Other interest charges		11,158			12,231			24,996			18,263		7,823	11,158	16,750	24,996

Total interest charges		29,892			36,498			67,739			65,061		32,020	26,994	59,855	61,895

Earnings (Loss) before Income Taxes													(156,541)	8,025	(269,597)	31,682

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
Income Taxes (Benefit)													(10,425)	(13,935)	(52,477)	(5,554)

Preferred Stock Dividend Requirements of Subsidiary		132			132			264			264		132	132	264	264

Earnings (Loss) from Continuing Operations													(146,248)	21,828	(217,384)	36,972

Net Earnings	$	20,240		$	15,983		$	49,906		$	41,984
Earnings (Loss) from Discontinued Operations, net of Income
Taxes (Benefit) of $1,824, $(1,040), $15,479 and $8,477													2,762	(1,588)	25,261	12,934

Net Earnings (Loss)													$(143,486)	$ 20,240	$(192,123)	$ 49,906

Net Earnings per Common Share (see Note 5):
Earnings (Loss) from Continuing Operations per Common Share:
Basic	$	0.26		$	0.23		$	0.65		$	0.61		$ (1.79)	$ 0.28	$ (2.74)	$ 0.48

Diluted													$ (1.79)	$ 0.28	$ (2.74)	$ 0.47
Net Earnings (Loss) per Common Share:
Basic													$ (1.76)	$ 0.26	$ (2.42)	$ 0.65
Diluted	$	0.26		$	0.23		$	0.64		$	0.61		$ (1.76)	$ 0.26	$ (2.42)	$ 0.64

Dividends Declared per Common Share	$	0.23		$	0.22		$	0.46		$	0.44		$ 0.125	$ 0.230	$ 0.355	$ 0.46

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

	Six Months Ended June 30,
	2008			2007
	(In thousands)
Cash Flows From Financing Activities:
Short-term borrowings (repayments), net		(321,717	)		(204,675	)
Long-term borrowings		452,750			20,000
Redemption of long-term debt		(148,935	)		(100,500	)
Issuance of common stock		249,547			2,127
Proceeds from stock option exercise		86			10,773
Purchase of common stock to satisfy stock awards		(1,245	)		(17,693	)
Excess tax benefits (tax shortfall) from stock-based payment arrangements		(513	)		8
Dividends paid		(35,625	)		(34,766	)
Payments received on PVNGS firm-sales contracts		73,173			-
Other, net		(9,612	)		(311	)
Net cash flows from financing activities		257,909			(325,037	)

Change in Cash and Cash Equivalents		120,111			(65,369	)
Cash and Cash Equivalents at Beginning of Period		17,791			123,419
Cash and Cash Equivalents at End of Period	$	137,902		$	58,050

Supplemental Cash Flow Disclosures:
Interest paid, net of capitalized interest	$	62,639		$	58,323
Income taxes paid (refunded), net	$	(4,702	)	$	-

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

Current assets	$	22,529
Utility plant, net		575,906
Deferred charges		46,018
Total assets contributed		644,453

Current liabilities		63,268
Deferred credits and other liabilities		38,095
Total liabilities contributed		101,363
Other comprehensive income		(12,651	)
Total liabilities and OCI contributed		88,712

Net contribution to EnergyCo	$	555,741

Utility plant purchased 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

Activities related to the consolidation of Valencia as of May 30, 2008 (see Note 16):
Utility plant additions	$ 87,310
Increase in short-term borrowings	$ 82,468

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

			Accumulated
	Common Stock		Other		Total Common
	Number of	Aggregate	Comprehensive	Retained	Stockholders’
	Shares	Value	Income (Loss)	Earnings	Equity
		(Dollars in thousands)

Balance at December 31, 2007	76,814,491	$1,042,974	$ 11,208	$ 638,229	$1,692,411
Adoption of SFAS 157	-	-	-	10,422	10,422
Exercise of stock options	-	(1,130)	-	-	(1,130)
Tax shortfall from stock-based compensation arrangements	-	(513)	-	-	(513)
Stock based compensation expense	-	2,431	-	-	2,431
Sale of common stock	9,531,589	242,427	-	-	242,427
Common stock issued to ESPP	44,621	519	-	-	519
Net earnings (loss)	-	-	-	(192,123)	(192,123)
Total other comprehensive income (loss)	-	-	(35,795)	-	(35,795)
Dividends declared on common stock	-	-	-	(17,697)	(17,697)
Balance at June 30, 2008	86,390,701	$1,286,708	$ (24,587)	$ 438,831	$1,700,952

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
	(In thousands)
Net Earnings (Loss)	$	(143,486	)	$	20,240		$	(192,123	)	$	49,906

Other Comprehensive Income (Loss):

Unrealized Gain (Loss) on Investment Securities:
Unrealized holding gains (losses) arising during
the period, net of income tax (expense) benefit
of $(1,089), $(2,230), $412, and $(3,486)		1,662			3,403			(629	)		5,320
Reclassification adjustment for (gains) included in
net earnings (loss), net of income tax expense
of $824, $787, $1,726, and $1,058		(1,257	)		(1,201	)		(2,634	)		(1,614	)

Fair Value Adjustment for Designated Cash Flow Hedges:
Change in fair market value, net of income tax (expense)
benefit of $14,069, $(1,387), $20,858, and $10,795		(20,224	)		1,996			(30,430	)		(16,578	)
Reclassification adjustment for (gains) losses included in
net earnings (loss), net of income tax expense (benefit)
of $(848) $288, $1,403, and $(962)		1,250			(454	)		(2,102	)		1,562

Total Other Comprehensive Income (Loss)		(18,569	)		3,744			(35,795	)		(11,310	)

Comprehensive Income (Loss)	$	(162,055	)	$	23,984		$	(227,918	)	$	38,596

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

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

	Six Months Ended June 30,
	2008			2007
	(In thousands)
Cash Flows From Financing Activities:
Short-term borrowings (repayments), net		(316,817	)		(7,179	)
Long-term borrowings		350,000			20,000
Payments received on PVNGS firm-sales contracts		73,173			-
Dividends paid		(264	)		(264	)
Other, net		(3,912	)		(41	)
Net cash flows from financing activities		102,180			12,516

Change in Cash and Cash Equivalents		40,193			(10,456	)
Cash and Cash Equivalents at Beginning of Period		4,331			11,886
Cash and Cash Equivalents at End of Period	$	44,524		$	1,430

Supplemental Cash Flow Disclosures:
Interest paid, net of capitalized interest	$	33,175		$	29,758
Income taxes paid (refunded), net	$	(1,855	)	$	-


Supplemental schedule of noncash investing and financing activities:
As of January 1, 2007, TNMP transferred its New Mexico operational assets and liabilities to PNMR through a redemption of TNMP’s common stock. PNMR contemporaneously contributed the TNMP New Mexico operational assets and liabilities to PNM.
Current assets	$	15,444
Other property and investments		10
Utility plant, net		96,468
Goodwill		102,775
Deferred charges		1,377
Total assets transferred from TNMP		216,074

Current liabilities		17,313
Long-term debt		1,065
Deferred credits and other liabilities		30,673
Total liabilities transferred from TNMP		49,051

Net assets transferred – increase in common stockholder’s equity	$	167,023
Activities related to the consolidation of Valencia as of May 30, 2008 (see Note 16):
Utility plant additions	$	87,310
Increase in short-term borrowings	$	82,468

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

					Accumulated
	Common Stock				Other						Total Common
	Number of		Aggregate		Comprehensive			Retained			Stockholder’s
	Shares		Value		Income (Loss)			Earnings			Equity
			(Dollars in thousands)

Balance at December 31, 2007		39,117,799	$	932,523	$	7,580		$	453,122		$	1,393,225
Adoption of SFAS 157		-		-		-			10,422			10,422
Net earnings (loss)		-		-		-			(48,724	)		(48,724	)
Total other comprehensive income (loss)		-		-		(17,771	)		-			(17,771	)
Dividends on preferred stock		-		-		-			(264	)		(264	)
Balance at June 30, 2008		39,117,799	$	932,523	$	(10,191	)	$	414,556		$	1,336,888

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
	(In thousands)
Net Earnings (Loss) Available for Common Stock	$	(44,378	)	$	(943	)	$	(48,988	)	$	27,805

Other Comprehensive Income (Loss):

Unrealized Gain (Loss) on Investment Securities:
Unrealized holding gains (losses) arising during
the period, net of income tax (expense) benefit
of $(1,089), $(2,230), $412 and $(3,486)		1,662			3,403			(629	)		5,320
Reclassification adjustment for (gains) included in
net earnings (loss), net of income tax expense
of $824, $787, $1,726 and $1,058		(1,257	)		(1,201	)		(2,634	)		(1,614	)

Fair Value Adjustment for Designated Cash Flow Hedges:
Change in fair market value, net of income tax (expense)
benefit of $8,434, $(723), $9,134 and $(1,511)		(12,870	)		1,103			(13,937	)		2,305
Reclassification adjustment for (gains) losses included in
net earnings (loss), net of income tax expense (benefit)
of $(225), $236, $374 and $(599)		343			(361	)		(571	)		913

Total Other Comprehensive Income (Loss)		(12,122	)		2,944			(17,771	)		6,924

Comprehensive Income (Loss)	$	(56,500	)	$	2,001		$	(66,759	)	$	34,729

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

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

	Six Months Ended June 30,
	2008			2007
	(In thousands)
Cash Flow From Financing Activities:
Short-term borrowings		150,000			-
Short-term borrowings – affiliate		(1,304	)		27,200
Redemption of long-term debt		(148,935	)		(100,500	)
Equity contribution by parent		-			101,249
Other, net		(925	)		-
Net cash flows from financing activities		(1,164	)		27,949

Change in Cash and Cash Equivalents		(114	)		(2,508	)
Cash and Cash Equivalents at Beginning of Period		187			2,542
Cash and Cash Equivalents at End of Period	$	73		$	34

Supplemental Cash Flow Disclosures:
Interest paid, net of capitalized interest	$	10,112		$	14,127
Income taxes paid (refunded), net	$	(858	)	$	-


Supplemental schedule of noncash investing and financing activities:
As of January 1, 2007, TNMP transferred its New Mexico operational assets and liabilities to PNMR through a redemption of TNMP’s common stock. PNMR contemporaneously contributed the TNMP New Mexico operational assets and liabilities to PNM.
Current assets	$	15,444
Other property and investments		10
Utility plant, net		96,468
Goodwill		102,775
Deferred charges		1,377
Total assets transferred to PNM		216,074

Current liabilities		17,313
Long-term debt		1,065
Deferred credits and other liabilities		30,673
Total liabilities transferred to PNM		49,051

Net assets transferred – common stock redeemed	$	167,023

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

							Accumulated					Total
	Common Stock						Other					Common
	Number of		Aggregate		Paid-in		Comprehensive		Retained			Stockholder’s
	Shares		Value		Capital		Income		Earnings (Deficit)			Equity
					(Dollars in thousands)

Balance at December 31, 2007		6,358	$	64	$	427,320	$	823	$	5,241		$	433,448
Net earnings (loss)		-		-		-		-		(25,023	)		(25,023	)
Balance at June 30, 2008		6,358	$	64	$	427,320	$	823	$	(19,782	)	$	408,425

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2008			2007		2008			2007
	(In thousands)
Net Earnings (Loss) and Comprehensive Income	$	(28,753	)	$	4,234	$	(25,023	)	$	5,172

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

(1) Significant Accounting Policies and Responsibility for Financial Statements

Financial Statement Preparation

In the opinion of management, the accompanying unaudited interim Condensed Consolidated Financial Statements reflect all normal and recurring accruals and adjustments ~~which~~that are necessary to present fairly the consolidated financial position at June 30, ~~2007~~2008 and December 31, ~~2006,~~2007, the consolidated results of operations and comprehensive income for the three months and six months ended June 30, ~~2007~~2008 and ~~2006~~2007 and the consolidated ~~statements of~~ cash flows for the six months ended June 30, ~~2007~~2008 and ~~2006.~~2007. The preparation of financial statements in conformity with ~~generally accepted accounting principles in the United States~~GAAP 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 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~~2007 Annual Reports on Form ~~10-K/A (Amendment No. 1).~~10-K.

Principles of Consolidation

The Condensed Consolidated Financial Statements of each of PNMR, PNM, and TNMP include their accounts and those of subsidiaries in which that entity owns a majority voting interest. PNMR’s primary subsidiaries are PNM, TNMP, First Choice and, through May 31, 2007, Altura. PNM consolidates the PVNGS Capital ~~Trust.~~Trust and Valencia. See Note 16. PNMR shared ~~services~~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, lease payments, 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.

The Notes to the 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~~2007 Condensed Consolidated Financial Statements and Notes thereto have been reclassified to conform to the ~~2007~~2008 financial statement presentation. ~~Income taxes, which previously had been separated between operating expense~~

Dividends on Common Stock

Dividends on PNMR’s common stock are declared by its Board. The timing of the declaration of dividends is dependent on the timing of meetings and other ~~income~~actions of the Board. This has historically resulted in dividends considered to be attributable to the second quarter of each year being declared through actions of the Board during the third quarter of the year. The Board declared dividends on common stock considered to be for the second quarter of $0.23 per share in July 2007. On August 11, 2008, the Board declared a dividend of $0.125 per share. The amounts declared in July 2007 and ~~deductions~~August 2008 are reflected as being in the second quarter and included in “Dividends Declared per Common Share” on the PNMR Condensed Consolidated Statements of Earnings ~~is being presented on~~(Loss). On August 12, 2008, PNM declared a ~~combined basis. In addition, certain sections on the Condensed Consolidated Balance Sheets have been rearranged in the current presentation.~~dividend payable to PNMR amounting to $40 million.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND ~~SUBSIDIARY~~
SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(2)	Acquisitions and Dispositions

PNM Gas Sale; Termination of Cap Rock Acquisition

On January 12, 2008, PNM reached a definitive agreement to sell its natural gas operations, which comprise the PNM Gas segment, to NMGC, a subsidiary of Continental, for $620 million in cash. In a separate transaction conditioned upon the sale of the natural gas operations, PNMR proposed to acquire CRHC, Continental’s regulated Texas electric transmission and distribution business, for $202.5 million in cash. On July 22, 2008, PNMR and Continental agreed to terminate the agreement for the acquisition of CRHC. The termination agreement provides that Continental will pay PNMR $15.0 million, but only upon the closing of the PNM Gas transaction. PNMR expects to use the proceeds from the sale of PNM Gas to retire debt, fund future electric capital expenditures and for other corporate purposes. The agreement for the sale of PNM Gas contains a number of customary representations and warranties and indemnification provisions as well as closing conditions, including regulatory and third party approvals. The parties may terminate the agreement under certain circumstances and may be obligated to pay a termination fee in connection therewith. The sale of the natural gas operations is subject to, among other conditions, receiving approval from the NMPRC. On June 13, 2008, PNMR received notice of early termination of the waiting period required under the Hart-Scott-Rodino antitrust rules. Notification of early termination is considered antitrust clearance of the transaction. The Company filed testimony with the NMPRC in March 2008 for approvals required for the sale of its gas utility operations and for transition services to be provided to NMGC. Hearings have been rescheduled to begin September 12, 2008. Pending all approvals, the transaction is expected to close by the end of 2008. There are no material relationships between the PNMR and Continental parties other than in respect of the transactions described herein. See Note 14 for financial information concerning PNM Gas, which is classified as discontinued operations in the accompanying financial statements.

Twin Oaks Acquisition and Disposition

On April 18, 2006, PNMR’s wholly owned subsidiary, Altura, purchased the Twin Oaks business, which included the 305 MW coal-fired Twin Oaks power plant located 150 miles south of Dallas, Texas. Effective June 1, 2007, PNMR contributed Altura, including the 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 April 18, 2006 through May 31, 2007. Beginning June 1, 2007, the Twin Oaks operations are included in EnergyCo, which is accounted for by PNMR using the equity method.

As part of the acquisition of Twin Oaks, PNMR determined the fair value of two contractual obligations to sell power. The first contract ~~obligates~~obligated Altura to sell power through September 2007 at which time the second contract ~~begins~~began and extends for three years. In comparing the pricing terms of the contractual obligations against the forward price of electricity in the relevant market at the acquisition date, PNMR concluded that the contracts were below market. In accordance with SFAS 141, the contracts were recorded at fair value to be amortized as an increase in operating revenue over the contract 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, ~~which runs through September 30, 2007, $94.9~~a liability of $147.3 million was recorded ~~in other current liabilities~~ and $52.4 million was recorded in other deferred 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, which begins October 1, 2007, $29.6 million was recorded ~~in other deferred credits~~for the second contract. During the three months and ~~no amortization has been recorded.~~

(3)	Segment Information

The following segment presentation is based on the methodology that management uses for making operating decisions and assessing performance of its various business activities. ~~The following~~A reconciliation of the segment presentation ~~for operating segments reflects normal operations. Unusual~~to the GAAP financial statements is provided.

Effective as of December 31, 2007, management changed the methodology it uses to operate and ~~non-recurring items are included~~assess the business activities of the Company as described 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.~~Annual Reports on Form 10-K. The ~~2006~~ segment information is presented ~~as previously reported and does not reflect this transfer.~~below includes recasting prior period information to be consistent with the new methodology.

PNM RESOURCES, INC. AND SUBSIDIARIES

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~REGULATED OPERATIONS~~

PNM Electric ~~is a regulated~~includes the retail electric utility operations of PNM that are subject to traditional rate regulation by the NMPRC. PNM Electric provides integrated electricity services that include the generation, transmission and distribution of electricity for retail electric customers in New Mexico ~~and~~as well as the sale of transmission to third ~~parties~~parties. PNM Electric includes the generation and sale of electricity into the wholesale market. This includes optimization of PNM’s jurisdictional assets as well as the capacity of its generating plants excluded from retail rates. Although the FERC has jurisdiction over the wholesale rates, they are not subject to traditional rate of return regulation. PNM Electric also includes the ~~PNM Wholesale segment.~~purchase power contract with Valencia, which is a variable interest entity and is consolidated by PNM. See Note 16.

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

PNM Gas ~~is a regulated utility that~~

PNM Gas distributes natural gas to most of the major communities in New ~~Mexico.~~Mexico and is subject to traditional rate regulation by the NMPRC. 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.

As described in Note 2, 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~~

~~Wholesale for PNMR includes~~entered into an agreement to sell its gas operations on January 12, 2008. PNM ~~Wholesale~~Gas is reported as discontinued operations in the accompanying financial statements and Altura and consists of the generation and sale of electricity into the wholesale market. PNM Wholesale sells the unused capacity of PNM’s jurisdictional assets as well as the capacity of PNM’s wholesale plants excluded from retail rates. Although the FERC has jurisdiction over the rates of PNM Wholesale, it is included in unregulated operations because PNM Wholesale is not ~~subject to traditional rate of return regulation. Twin Oaks is~~ included in the ~~consolidated~~segment information presented below. Financial information regarding PNM Gas is presented in Note 14.

Altura

The Altura segment includes the results of ~~operations for PNMR~~Twin Oaks from the date of its acquisition by PNMR on April 18, 2006 ~~through May 31, 2007, at which time Altura was contributed~~until its contribution to ~~EnergyCo.~~EnergyCo as of June 1, 2007. See ~~Notes~~Note 2 and Note 11. ~~Power from Twin Oaks is sold at wholesale through ERCOT.~~

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, it is ~~included in unregulated operations because First Choice is~~ not subject to traditional rate of return regulation. First Choice has also entered into speculative trading transactions in order to attempt to take advantage of market opportunities. As explained in Note 4, First Choice has closed out its speculative positions and has ended any further speculative trading due to market volatility and the deterioration of the forward basis market. On August 11, 2008, PNMR announced that it has decided to pursue strategic alternatives for First Choice.

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~~accounting. EnergyCo’s revenues and expenses are not included in PNMR’s consolidated ~~results of operations~~revenues and expenses or the following tables. See Notes 2 and 11.

PNM RESOURCES, INC. AND SUBSIDIARIES

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

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~~Services Company is 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.~~also reflects activities of the PNMR holding company, including earnings (loss) of EnergyCo and interest expense on PNMR short-term and long-term debt.

The following tables present summarized financial information for PNMR by reportable segment. Excluding PNM Gas, which is presented as discontinued operations, PNM has only one reporting segment. TNMP also operates in only one reportable segment. Therefore, tabular segment information is not presented for PNM and ~~PNM, as restated, by business segment. Explanations for footnotes (a) through (e) follow the tables.~~TNMP.

PNM RESOURCES, INC. AND SUBSIDIARIES

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

PNMR SEGMENT INFORMATION

	PNM			TNMP			First			Corporate
2008	Electric			Electric			Choice			and Other			Consolidated
							(In thousands)
Three Months Ended June 30, 2008:
Operating revenues	$	386,034		$	32,209		$	162,224		$	(157	)	$	580,310
Intersegment revenues		24			14,909			-			(14,933	)		-
Total revenues		386,058			47,118			162,224			(15,090	)		580,310
Cost of energy		247,589			7,935			158,082			(14,908	)		398,698
Gross margin		138,469			39,183			4,142			(182	)		181,612
Operating expenses		147,210			51,969			72,803			(2,260	)		269,722
Depreciation and amortization		20,896			8,777			579			4,398			34,650
Operating income (loss)		(29,637	)		(21,563	)		(69,240	)		(2,320	)		(122,760	)

Interest income		4,878			4			393			(863	)		4,412
Equity in net earnings (loss) of EnergyCo		-			-			-			(2,523	)		(2,523	)
Other income (deductions)		(2,185	)		596			(7	)		(2,054	)		(3,650	)
Net interest charges		(17,623	)		(4,365	)		(320	)		(9,712	)		(32,020	)

Segment earnings (loss) before income taxes		(44,567	)		(25,328	)		(69,174	)		(17,472	)		(156,541	)

Income taxes (benefit)		2,441			3,425			(8,755	)		(7,536	)		(10,425	)
Preferred stock dividend requirements		132			-			-			-			132

Segment net earnings (loss) from continuing operations	$	(47,140	)	$	(28,753	)	$	(60,419	)	$	(9,936	)	$	(146,248	)

Six Months Ended June 30, 2008:
Operating revenues	$	638,673		$	60,027		$	246,393		$	(281	)	$	944,812
Intersegment revenues		50			29,319			-			(29,369	)		-
Total revenues		638,723			89,346			246,393			(29,650	)		944,812
Cost of energy		383,284			15,747			263,351			(29,303	)		633,079
Gross margin		255,439			73,599			(16,958	)		(347	)		311,733
Operating expenses		273,793			67,443			88,258			(4,716	)		424,778
Depreciation and amortization		41,866			17,136			1,049			8,635			68,686
Operating income (loss)		(60,220	)		(10,980	)		(106,265	)		(4,266	)		(181,731	)

Interest income		10,969			5			870			(1,902	)		9,942
Equity in net earnings (loss) of EnergyCo		-			-			-			(27,606	)		(27,606	)
Other income (deductions)		(7,656	)		992			(72	)		(3,611	)		(10,347	)
Net interest charges		(31,726	)		(9,354	)		(614	)		(18,161	)		(59,855	)

Segment earnings (loss) before income taxes		(88,633	)		(19,337	)		(106,081	)		(55,546	)		(269,597	)

Income taxes (benefit)		(14,648	)		5,686			(21,597	)		(21,918	)		(52,477	)
Preferred stock dividend requirements		264			-			-			-			264

Segment net earnings (loss) from continuing operations	$	(74,249	)	$	(25,023	)	$	(84,484	)	$	(33,628	)	$	(217,384	)

At June 30, 2008:
Total assets*	$	3,549,985		$	949,879		$	544,531		$	463,284		$	5,507,679
Goodwill	$	51,632		$	226,665		$	88,559		$	-		$	366,856

* Excludes total assets of PNM Gas discontinued operations of $619,114.

PNM RESOURCES, INC. AND SUBSIDIARIES

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

PNMR SEGMENT INFORMATION

2007	PNM			TNMP						First			Corporate
	Electric			Electric			Altura			Choice			and Other			Consolidated
Three Months Ended June 30, 2007							(In thousands)
Operating revenues	$	300,331		$	26,480		$	28,592		$	150,002		$	164		$	505,569
Intersegment revenues		-			17,056			-			31			(17,087	)		-
Total revenues		300,331			43,536			28,592			150,033			(16,923	)		505,569
Cost of energy		185,346			7,221			9,897			125,863			(16,862	)		311,465
Gross margin		114,985			36,315			18,695			24,170			(61	)		194,104
Operating expenses		89,653			17,719			5,066			12,961			8,587			133,986
Depreciation and amortization		20,729			7,041			3,074			470			2,908			34,222
Operating income (loss)		4,603			11,555			10,555			10,739			(11,556	)		25,896

Interest income		7,192			776			28			534			(947	)		7,583
Equity in net earnings of EnergyCo		-			-			-			-			2,272			2,272
Other income (deductions)		2,073			724			1			8			(3,538	)		(732	)
Net interest charges		(12,741	)		(6,871	)		(3,066	)		(1,061	)		(3,255	)		(26,994	)

Segment earnings (loss) before income taxes		1,127			6,184			7,518			10,220			(17,024	)		8,025

Income taxes (benefit)		350			1,950			2,976			3,854			(23,065	)		(13,935	)
Preferred stock dividend requirements		132			-			-			-			-			132

Segment earnings from continuing operations	$	645		$	4,234		$	4,542		$	6,366		$	6,041		$	21,828

Six Months Ended June 30, 2007
Operating revenues	$	540,683		$	50,641		$	65,395		$	285,520		$	374		$	942,613
Intersegment revenues		-			33,823			-			78			(33,901	)		-
Total revenues		540,683			84,464			65,395			285,598			(33,527	)		942,613
Cost of energy		288,519			14,392			22,063			236,679			(33,376	)		528,277
Gross margin		252,164			70,072			43,332			48,919			(151	)		414,336
Operating expenses		177,910			36,369			17,326			28,118			11,199			270,922
Depreciation and amortization		41,484			14,041			7,684			941			4,913			69,063
Operating income (loss)		32,770			19,662			18,322			19,860			(16,263	)		74,351

Interest income		14,898			864			146			1,017			450			17,375
Equity in net earnings of EnergyCo		-			-			-			-			1,610			1,610
Other income (deductions)		2,541			973			-			(34	)		(3,239	)		241
Net interest charges		(25,887	)		(13,949	)		(8,564	)		(1,176	)		(12,319	)		(61,895	)

Segment earnings (loss) before income taxes		24,322			7,550			9,904			19,667			(29,761	)		31,682

Income taxes (benefit)		9,187			2,378			3,921			7,419			(28,459	)		(5,554	)
Preferred stock dividend requirements		264			-			-			-			-			264

Segment earnings (loss) from continuing operations	$	14,871		$	5,172		$	5,983		$	12,248		$	(1,302	)	$	36,972

At June 30, 2007:
Total Assets*	$	3,427,895		$	1,002,001		$	-		$	409,602		$	363,288		$	5,202,786
Goodwill	$	102,601		$	260,144		$	-		$	131,768		$	-		$	494,513

* Excludes total assets of PNM Gas discontinued operations of $590,167.

PNM RESOURCES, INC. AND SUBSIDIARIES

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

TEXAS-NEW MEXICO POWER COMPANY AND 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

~~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 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

~~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 SEGMENT INFORMATION~~

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

~~Footnote explanations for the above tables are as follows:~~

(4)	~~(a)~~	~~Reflects EITF 03-11 impact of $26.5 million~~Energy Related Derivative Contracts 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.Fair Value Disclosures

~~(4)~~

Energy Related Derivative Contracts

~~OVERVIEW~~

~~The~~Overview

Under derivative accounting and related rules for energy contracts, the Company ~~may enter into agreements~~accounts for its various derivative instruments for the purchase and sale ~~or purchase~~ of energy based on the Company’s intent. Energy contracts that do not qualify for the normal sales and purchases exception are recorded at fair value. Note 8 of Notes to Consolidated Financial Statements in the 2007 Annual Reports on Form 10-K contains information regarding energy related derivative ~~instruments, including options and~~contracts. See Note 7 for additional information regarding interest rate 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~~which are fair value hedges.

For derivative transactions meeting the definition of a cash flow or fair value 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~~transaction and the ~~Company classifies as mark-to-market instruments and hedge instruments, be carried at fair value in~~methods utilized to assess the ~~Condensed Consolidated Balance Sheets. Note 8~~effectiveness 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.~~

hedges. Changes in the fair value of ~~mark-to-market~~contracts qualifying for cash flow hedge accounting are included in accumulated other comprehensive income to the extent effective. Ineffectiveness gains and losses were immaterial for the three months and six months ended June 30, 2008 and 2007. The amounts shown as current assets and current liabilities relate to contracts that will be settled in the next twelve months. Gains or losses related to cash flow hedge instruments are reclassified from accumulated other comprehensive income when the hedged transaction settles and impacts earnings. Based on market prices at June 30, 2008, after-tax gains of less than $0.1 million for PNMR and losses of $8.3 million for PNM would be reclassified from other comprehensive income into earnings during the next twelve months. However, the actual amount reclassified into earnings will vary due to future changes in market prices. As of June 30, 2008, the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows is through December 31, 2010.

The contracts recorded at fair value that do not qualify or are not designated for hedge accounting are classified as either trading transactions or economic hedges. Trading transactions are defined as derivative instruments that are either speculative and expose the Company to market risk or transactions that lock in margin with no forward market risk and are not economic hedges. Changes in the fair value of trading transactions are reflected on a net basis in operating revenues. Economic hedges are defined as derivative instruments, including long-term power agreements, used to hedge generation assets, purchased power costs, and customer load requirements. Changes in the fair value of economic hedges 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~~energy.

Fair value is based on current market quotes as available and is supplemented by modeling techniques and assumptions made by the ~~fair value of hedge instruments are included in accumulated other comprehensive income, except for amounts related~~Company to the ~~PGAC that~~extent quoted market prices or volatilities are ~~recoverable from or refundable~~not available. Generally, market data to ~~customers, which~~value these instruments is available for up to five years for gas swaps and electricity contracts and up to 18 months for options. The remaining periods are ~~included in regulatory assets and liabilities on the Condensed Consolidated Balance Sheets. Amounts due~~referred 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 COMPANY AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

~~GAAP defines the fair value of a financial instrument~~ as the ~~amount at which~~illiquid period and are valued using internally developed pricing data. The Company regularly assesses the ~~instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.~~validity and availability of pricing data for the illiquid period of its derivative transactions. Although management uses its best judgment in estimating the fair value of these ~~financial~~ instruments, there are inherent limitations in any estimation technique.

Effective January 1, 2008, the Company adopted SFAS 157, SFAS 159, and FSP FIN 39-1. SFAS 157 defines fair value, establishes a framework for measuring fair value under GAAP, and enhances disclosures about fair value measurements. Fair value is based on current market 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 the Company’s energy portfolio are based on closing exchange prices and over-the-counter quotations.

Valuation of certain derivative instruments requires the use of models and assumptions. At June 30, 2007, PNM implemented new market price curve models and assumptions. This change in valuation is a change in accounting estimatedefined under SFAS ~~154. The effect of~~157 as the ~~change in estimate was~~exchange price that would be received for an asset or paid to transfer a decrease in net earnings for PNMR and PNM of $1.2 million, which is $0.015 per share for PNMR. Fluctuating commodity prices on open positions prevent the Company from predicting with certainty the future impact of the change in estimate.

~~PNM recognized an ineffectiveness loss on its fair value hedge of $0.9 million~~liability (an exit price) in the ~~six months ended June 30, 2007, which is included~~principal or most advantageous market for the asset or liability in ~~operating revenues. Ineffectiveness~~an orderly transaction between market participants on the measurement date. FSP 157-2 delayed the effective date of SFAS 157 for certain ~~cash flow hedges was immaterial during the six months ended June 30, 2007.~~nonfinancial assets and nonfinancial liabilities measured on a nonrecurring basis, primarily

PNM RESOURCES, INC. AND SUBSIDIARIES

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

goodwill and other intangible assets, and the Company has not elected to early adopt SFAS 157 for these items. SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. FSP FIN 39-1 permits a reporting entity to offset fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting arrangement and to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments in accordance with FSP FIN 39-1.

Prior to January 1, 2008, the Company deferred gains and losses at inception of certain derivative contracts whose fair value was not evidenced by observable market data in accordance with EITF 02-3. For those gains and losses not evidenced by observable market data, the transaction price was used as the fair value of the derivative contract. Any difference between the transaction price and the model fair value was considered an unrecognized gain or loss at inception of the contract. These unrecognized gains and losses were recorded in income as the contracts settled. The adoption of SFAS 157 on January 1, 2008, eliminated the deferral of these gains and losses resulting in the recognition of previously deferred gains and losses as a net after-tax increase of $10.4 million in the beginning balance of retained earnings for both PNMR and PNM and had no impact on TNMP.

As stated in SFAS 157, valuations of derivative assets and liabilities must take into account nonperformance risk including the effect of the Company’s own credit standing. Nonperformance risk refers to the risk that the obligation will not be fulfilled and affects the value at which the liability is transferred. Effective January 1, 2008, the Company updated its methodology to include the impact of the nonperformance risk and its own credit standing. The Company did not elect to irrevocably fair value any additional financial assets and liabilities under SFAS 159 and did not elect to offset fair values of its derivative instruments under FSP FIN 39-1.

At June 30, 2008, amounts recognized for the right to reclaim cash collateral are $43.9 million for PNMR and $8.5 million for PNM. In addition, obligations to return cash collateral were $2.2 million for PNMR and none for PNM.

The following tables do not include activity related to PNM Gas. See Note 14.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

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,
	2008			2007			2008			2007
Type of Derivative	Mark-to-Market Instruments						Hedge Instruments
				(In thousands)
Current Assets
Energy contracts	$	92,621		$	14,486		$	-		$	864
Swaps and futures		85,341			25,653			8,111			524
Options		46,564			7,372			12,976			358
Total current assets		224,526			47,511			21,087			1,746

Deferred Charges
Energy contracts		18,964			14,133			-			-
Swaps and futures		19,668			26,898			731			-
Options		-			4,663			-			-
Total deferred charges		38,632			45,694			731			-

Total Assets		263,158			93,205			21,818			1,746

Current Liabilities
Energy contracts		(145,464	)		(19,842	)		(16,911	)		-
Swaps and futures		(65,827	)		(25,308	)		(899	)		(1,058	)
Options		(34,137	)		(7,594	)		-			(30	)
Total current liabilities		(245,428	)		(52,744	)		(17,810	)		(1,088	)

Long-term Liabilities					-						-
Energy contracts		(14,017	)		(42,009	)		(9,895	)		-
Swaps and futures		(16,815	)		(4,465	)		(42	)		(32	)
Options		-			(8,700	)		-			-
Total long-term liabilities		(30,832	)		(55,174	)		(9,937	)		(32	)

Total Liabilities		(276,260	)		(107,918	)		(27,747	)		(1,120	)

Net Total Assets and Liabilities	$	(13,102	)	$	(14,713	)	$	(5,929	)	$	626

First Choice Trading Activities

In 2007, First Choice entered into a series of forward trades that arbitraged basis differentials among certain ERCOT delivery zones. During the three months ended March 31, 2008, these trades were negatively affected by extreme transmission congestion within the ERCOT market. This congestion resulted in historically high basis differences between the various delivery zones. As a result, in the first quarter of 2008, First Choice recorded a total pre-tax loss of $47.1 million in the trading margins from these speculative trades that is reflected in electric revenues. Because of continued market volatility and the concern that the forward basis market would continue to deteriorate, First Choice decided to end any further speculative trading. In the second quarter of 2008, First Choice incurred an additional $1.9 million loss to close out remaining speculative positions, including transaction costs. Of the speculative trading losses, $23.4 million has not cash settled and represents unrealized losses on its remaining forward positions at June 30, 2008. The majority of these positions will cash settle before December 31, 2008. No significant additional costs are expected related to speculative trading.

PNM RESOURCES, INC. AND SUBSIDIARIES

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

PNM

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,
	2008			2007			2008			2007
Type of Derivative	Mark-to-Market Instruments						Hedge Instruments
				(In thousands)
Current Assets
Energy contracts	$	620		$	2,587		$	-		$	864
Swaps and futures		13,276			6,650			4,031			422
Options		12,726			4,336			-			-
Total current assets		26,622			13,573			4,031			1,286

Deferred Charges
Energy contracts		954			9,443			-			-
Swaps and futures		6,007			23,253			-			-
Options		-			4,663			-			-
Total deferred charges		6,961			37,359			-			-

Total Assets		33,583			50,932			4,031			1,286

Current Liabilities
Energy contracts		(6,251	)		(6,872	)		(16,911	)		-
Swaps and futures		(14,723	)		(6,037	)		(842	)		(868	)
Options		-			(4,119	)		-			-
Total current liabilities		(20,974	)		(17,028	)		(17,753	)		(868	)

Long-term Liabilities
Energy contracts		(185	)		(38,172	)		(9,895	)		-
Swaps and futures		-			(693	)		(42	)		(32	)
Options		-			(8,700	)		-			-
Total long-term liabilities		(185	)		(47,565	)		(9,937	)		(32	)

Total Liabilities		(21,159	)		(64,593	)		(27,690	)		(900	)

Net Total Assets and Total Liabilities	$	12,424		$	(13,661	)	$	(23,659	)	$	386

Sale of Wholesale Contracts

On January 18, 2008, PNM entered into an agreement to sell certain wholesale power, natural gas and transmission contracts. These contracts represent a significant portion of the wholesale activity portfolio of PNM Electric, and include several long-term sales and purchase power agreements. Included in the sales agreement were the Tri-State Pyramid Unit 4 operating lease and certain transmission agreements, which were not considered derivative instruments under SFAS 133. The derivative contracts included in the sale were fair valued and reflected in the above table at December 31, 2007 as current assets of $6.3 million, deferred charges of $35.8 million, current liabilities of $10.7 million, and long-term liabilities of $47.6 million. In connection with the adoption of SFAS 157, pre-tax gains on these contracts amounting to $17.2 million were recorded as an adjustment to January 1, 2008 retained earnings. On June 19, 2008 PNM completed the sale for $6.1 million. PNM recognized gains on these contracts of $2.9 million and $5.1 million in the three months and six months ended June 30, 2008. PNM provided the buyer with a $10 million letter of credit for 18 months in connection with PNM’s representations regarding the contracts.

PNM RESOURCES, INC. AND SUBSIDIARIES

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~(5) Earnings Per Share~~

Sale of Power from PVNGS Unit 3

In April 2008, PNM entered into three separate contracts for the sale of capacity and energy related to its entire ownership interest in PVNGS Unit 3, which is 135 MW. Under two of the contracts, PNM will sell 90 MW of firm capacity and energy. Under the remaining contract, PNM will sell 45 MW of unit contingent capacity and energy. The term of the contracts is May 1, 2008 through December 31, 2010. Under the two firm contracts, the two buyers made prepayments of $40.6 million and $30.0 million. These amounts are recorded to a deferred revenue account and amortized over the life of the contracts. The amount to be amortized in the next 12 months is included in other current liabilities in the Condensed Consolidated Balance Sheet and the remainder is included in other deferred credits. The prepayments received under the firm contracts, as well as required subsequent monthly payments on them, are shown as a financing activity in the Condensed Consolidated Statement of Cash Flows as required by GAAP. The firm contracts are considered energy derivatives and a loss of $4.8 million was recognized at inception. Future changes in the fair value of the firm contracts will be accounted for as cash flow hedges and included in accumulated other comprehensive income. The contingent contract is accounted for as a normal sale.

Fair Value Disclosures

Effective January 1, 2008, the Company determines the fair market values of its instruments based on the fair value hierarchy established in SFAS 157, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The fair values determinations at June 30, 2008 are as follows:

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Fair Value Measurements

	Total			Quoted Prices in Active Market for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
				(In thousands)
PNMR
Assets
Commodity derivatives	$	284,976		$	116,113		$	148,503		$	20,360
NDT		130,806			88,216			42,590			-
Rabbi Trust		1,841			1,831			10			-
Interest rate swaps		803			-			803			-
Total Assets		418,426			206,160			191,906			20,360

Liabilities
Commodity derivatives		(304,007	)		(72,704	)		(230,806	)		(497	)
Interest rate swaps		(803	)		-			(803	)		-
Total Liabilities		(304,810	)		(72,704	)		(231,609	)		(497	)
Net Total Assets and Total Liabilities	$	113,616		$	133,456		$	(39,703	)	$	19,863

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

PNM
Assets
Commodity derivatives	$	37,614		$	6,401	$	11,547		$	19,666
NDT		130,806			88,216		42,590			-
Rabbi Trust		1,841			1,831		10			-
Interest rate swaps		803			-		803			-
Total Assets		171,064			96,448		54,950			19,666

Liabilities
Commodity derivatives		(48,849	)		-		(48,849	)		-
Interest rate swaps		(803	)		-		(803	)		-
Total Liabilities		(49,652	)		-		(49,652	)		-
Net Total Assets and Total Liabilities	$	121,412		$	96,448	$	5,298		$	19,666

A reconciliation of the changes in Level 3 fair value measurements is as follows:

Recurring Fair Value Measurements Using Significant Unobservable Inputs

(Level 3)

	Three Months Ended						Six Months Ended
	June 30, 2008						June 30, 2008
	PNMR			PNM			PNMR			PNM
				(In thousands)
Level 3 Fair Value Assets and Liabilities
Balance at December 31, 2007							$	2,061		$	2,679
Adoption of SFAS 157								16,407			16,407
Balance at beginning of period	$	32,946		$	33,348			18,468			19,086
Total gains included in earnings		6,912			7,605			16,164			16,917
Total gains included in other comprehensive income		88			-			88			-
Purchases, issuances, and settlements1		(20,083	)		(21,287	)		(14,857	)		(16,337	)
Balance at June 30, 20082	$	19,863		$	19,666		$	19,863		$	19,666
Total gains included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the end of the period	$	10,242		$	10,484		$	16,195		$	16,632

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

(2)	There were no transfers in or out of Level 3 during the period.

Gains and losses (realized and unrealized) for Level 3 fair value measurements included in earnings for the three and six months ended June 30, 2008 are reported in operating revenues and cost of energy as follows:

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	Three Months Ended							Six Months Ended
	June 30, 2008							June 30, 2008
PNMR	Operating Revenues			Cost of Energy		Total		Operating Revenues			Cost of Energy		Total
	(In thousands)
Total gains (losses) included in earnings	$	(824	)	$	7,736	$	6,912	$	(1,087	)	$	17,251	$	16,164
Change in unrealized gains or losses relating to assets still held at reporting date	$	(351	)	$	10,593	$	10,242	$	(546	)	$	16,741	$	16,195

PNM
Total gains (losses) included in earnings	$	(213	)	$	7,818	$	7,605	$	(224	)	$	17,141	$	16,917
Change in unrealized gains or losses relating to assets still held at reporting date	$	-		$	10,484	$	10,484	$	-		$	16,632	$	16,632

(5)	Earnings Per Share

In accordance with SFAS 128, dual presentation of basic and diluted earnings per share has been presented in the Condensed Consolidated Statements of Earnings of PNMR. Information regarding the computation of earnings per share 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,
	2008	2007	2008	2007
	(In thousands)
Earnings (Loss):
Earnings (loss) from continuing operations	$ (146,248)	$ 21,828	$ (217,384)	$ 36,972
Earnings (loss) from discontinued operations	2,762	(1,588)	25,261	12,934
Net Earnings (Loss)	$ (143,486)	$ 20,240	$ (192,123)	$ 49,906

Average Number of Common Shares Outstanding	81,698	76,695	79,274	76,677
Dilutive Effect of Common Stock Equivalents (a):
Stock options and restricted stock	-	659	-	680
Equity-linked units	-	1,439	-	1,089
Average Common and Common Equivalent
Shares Outstanding	81,698	78,793	79,274	78,446

Per Share of Common Stock – Basic:
Earnings (loss) from continuing operations	$ (1.79)	$ 0.28	$ (2.74)	$ 0.48
Earnings (loss) from discontinued operations	0.03	(0.02)	0.32	0.17
Net Earnings (Loss)	$ (1.76)	$ 0.26	$ (2.42)	$ 0.65

Per Share of Common Stock – Diluted:
Earnings (loss) from continuing operations	$ (1.79)	$ 0.28	$ (2.74)	$ 0.47
Earnings (loss) from discontinued operations	0.03	(0.02)	0.32	0.17
Net Earnings (Loss)	$ (1.76)	$ 0.26	$ (2.42)	$ 0.64


~~(a)~~		Excludes the effect of average anti-dilutive common stock equivalents related to out-of-the-money stock options of zero and 661,855 for the three months and zero and 736,869 for the six months ended June 30, 2007 and 2006, respectively.

PNM RESOURCES, INC. AND SUBSIDIARIES

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~(6) Stock-Based Compensation~~

(a)

At June 30, 2008, PNMR had 2,890,155 out-of-the-money stock options and 873,200 in-the-money stock options that are anti-dilutive. In addition, PNMR’s privately held equity-linked units are anti-dilutive. Based on the current price of PNMR’s common stock, it is anticipated that 4,778,000 common stock equivalents will be issued in connection with the settlement of the purchase contracts that are contained in the units.

(6)	Stock-Based Compensation

Information concerning stock-based compensation plans is contained in Note 13 of Notes to Consolidated Financial Statements in the ~~2006~~2007 Annual Reports on Form ~~10-K/A (Amendment No. 1).~~10-K.

Stock Options

The following table represents stock option activity for the six months ended June 30, ~~2007:~~2008:


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

Outstanding at beginning of period		2,999,606		$	21.02						3,264,898		$	23.26
Granted		762,400		$	30.50						554,261			11.91
Exercised		(431,065	)	$	20.45						(5,001	)		16.13
Forfeited		(19,837	)	$	27.18						(50,803	)		25.57


Outstanding at end of period		3,311,104		$	23.24	$	15,063		7.35		3,763,355		$	21.54	$	(36,010	)		7.34


Options exercisable at end of period		1,898,008		$	19.73	$	15,292		6.08		2,634,551		$	22.00	$	(26,432	)		5.84


Options available for future grant		2,477,194									1,942,024

The following table 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

Options for PNMR Common Stock	2008		2007
	(In thousands, except per share amounts)

Weighted-average grant date fair value per share of options granted	$	1.39	$	4.70
Total intrinsic value of options exercised during the period	$	15	$	4,847

PNM RESOURCES, INC. AND SUBSIDIARIES

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

TEXAS-NEW MEXICO POWER COMPANY AND 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, ~~2007:~~2008:


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

Nonvested at beginning of period		161,769		$	24.55		169,750		$	26.09
Granted		102,400		$	28.78		125,250		$	11.56
Vested		(69,551	)	$	23.35		(79,656	)	$	25.70

Forfeited							(5,005	)	$	26.44

Nonvested at end of period		194,618		$	26.09		210,339		$	17.54

The total fair value of shares of restricted stock that vested during the six months ended June 30, ~~2007~~2008 was ~~$1.6~~$2.0 million.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

(7)

Financing

Information concerning financing activities is contained in Note 6 of Notes to Consolidated Financial Statements in the ~~2006~~2007 Annual Reports on Form ~~10-K/A (Amendment No. 1).~~10-K.

Financing Activities

On May 5, 2008, PNM entered into a $300 million unsecured delayed draw term loan facility (as amended, the “Term Loan Agreement”) with Merrill Lynch Bank USA, Morgan Stanley Senior Funding, Inc. and Wachovia Bank, National Association, as initial lenders. The Term Loan Agreement allowed PNM, at its option, to borrow, on no more than two occasions, up to $300 million at any time prior to 45 days before April 30, 2009. In the event of a downgrade in senior unsecured debt credit ratings of PNM, PNM may be required to borrow money under the Term Loan Agreement. Borrowings must be repaid on April 30, 2009, or 45 days before that date if PNM makes no optional borrowings under the credit facility. PNM must pay interest and fees from time to time based upon its then-current senior unsecured debt credit ratings. The Term Loan Agreement is to be used for general corporate purposes. Borrowings under the Term Loan Agreement are conditioned on the ability of PNM to make certain representations. The Term Loan Agreement includes customary covenants, including requirements to maintain a maximum consolidated debt-to-consolidated capitalization ratio and a minimum consolidated earnings before interest, income taxes, depreciation and amortization to consolidated interest expense ratio. The Term Loan Agreement provides that if PNM receives net cash proceeds from the sale of certain debt securities or the sale of assets, the amount of the commitments under the Term Loan Agreement may be reduced. As described below, on May 13, 2008, PNM completed the offering of $350 million aggregate principal amount of senior unsecured notes. On May 28, 2008, PNM was notified that the lenders under the Term Loan Agreement had reduced their commitments to $150 million. The Term Loan Agreement provides that upon the closing of the sale of PNM Gas described in Note 2, any amounts outstanding must be repaid and remaining commitments for borrowings would be terminated. No borrowings have been made under the Term Loan Agreement.

On May 8, 2008, PNM entered into a $100 million unsecured letter of credit facility pursuant to a reimbursement agreement (as amended, the “Reimbursement Agreement”) with Deutsche Bank AG and Royal Bank of Canada, as lenders. The Reimbursement Agreement allows PNM to obtain, from time to time, standby letters of credit up to the aggregate amount of $100 million at any time prior to April 30, 2009. The letter of credit and commitment fees will vary depending upon the then-current senior unsecured debt credit rating for PNM. The Reimbursement Agreement will be used for general corporate purposes, including supporting margin requirements

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

under hedging agreements. Letter of credit issuances under the Reimbursement Agreement are conditioned on the ability of PNM to make certain customary representations. The Reimbursement Agreement includes customary covenants, including requirements to maintain a maximum consolidated debt-to-consolidated capitalization ratio and a minimum consolidated earnings before interest, income taxes, depreciation and amortization to consolidated interest expense ratio. No letters of credit have been issued under this arrangement.

On May 16, 2008, PNM issued $350 million aggregate principal amount of senior unsecured notes. The notes pay interest semi-annually at a rate of 7.95% per year, payable on May 15 and November 15 of each year, beginning November 15, 2008, and mature on May 15, 2018.

PNMR previously issued 4,945,000 6.75% publicly held equity-linked units. Each of these equity-linked units consisted of a purchase contract and a 5.0% undivided beneficial ownership interest in one of PNMR’s senior notes with a stated amount of $1,000, which corresponds to a $50.00 stated amount of PNMR’s senior notes. The senior notes were scheduled to mature in May 2010 (subject to the remarketing described below) and bore interest at a rate of 4.8% per year. The purchase contracts entitled their holders to contract adjustment payments of 1.95% per year on the stated amount of $50.00. Each purchase contract contained a mandatory obligation for the holder to purchase, and PNMR to sell, at a purchase price of $50.00 in cash, shares of PNMR’s common stock on or before May 16, 2008. Generally, the number of shares each holder of the equity-linked units was obligated to purchase depended on the average closing price per share of PNMR’s common stock over a 20-day trading period ending on the third trading day immediately preceding May 16, 2008, with an adjusted maximum price of $32.08 per share and minimum price of $26.29 per share. In accordance with the terms of the equity-linked units, the senior note components were remarketed prior to May 16, 2008. The proceeds from the remarketed senior notes amounted to $247.3 million and were utilized by the holders of the equity-linked units to satisfy their obligations to purchase 9,403,412 shares of PNMR’s common stock for the same aggregate amount on May 16, 2008. In connection with the remarketed senior notes, PNMR sold an additional $102.7 million of senior notes with the same terms for a total offering of $350 million. The senior notes pay interest semi-annually at a rate of 9.25% per year, payable on May 15 and November 15 of each year, beginning November 15, 2008, and mature on May 15, 2015.

PNMR also has outstanding 4,000,000 privately held 6.625% equity-linked units. Each of these equity-linked units consists of a purchase contract and a 2.5% undivided beneficial ownership interest in one of PNMR’s senior notes with a stated amount of $1,000, which corresponds to a $25.00 stated amount of PNMR’s senior notes. The ownership interest in the senior notes is pledged to secure the holder’s obligation to purchase PNMR common or preferred stock under the related purchase contract. The senior notes are scheduled to mature in August 2010 (subject to the remarketing described below) and bear interest at the annual rate of 5.1%. The purchase contracts entitle the holder to quarterly contract adjustment payments of 1.525% per year on the stated amount of $25.00. Each purchase contract contains a mandatory obligation for the holder to purchase, and PNMR to sell, at a purchase price of $25.00 in cash, shares of PNMR’s common stock (or preferred stock in a ratio of 1/10 of a preferred share for each share of common stock) aggregating $100 million on or before November 16, 2008. Generally, the number of shares the holder is obligated to purchase depends on the average closing price per share of PNMR’s common stock over a 20-day trading period ending on the third trading day immediately preceding November 16, 2008, with a maximum price of $25.12 per share and minimum price of $20.93 per share. Beginning on November 7, 2008, PNMR will attempt to remarket the senior notes. If the remarketing is successful, the interest rate on the senior notes may change to a rate selected by the remarketing agent, and the maturity of the senior notes may be extended to a date selected by PNMR subject to certain conditions. If the remarketing of the senior notes is not successful, the maturity and interest rate of the senior notes will not change and holder of the equity-linked units will have the option of putting its senior notes to PNMR to satisfy its obligations under the purchase contracts. Although there can be no assurance, PNMR expects that the remarketing of the senior notes will be successful.

PNMR and PNM have revolving credit facilities for borrowings up to $600 million under the PNMR Facility and $400 million ~~respectively,~~under the PNM Facility that primarily expire in 2012 and local lines of credit amounting to ~~$15~~$10.0 million and ~~$13.5 million, respectively.~~$8.5 million. PNMR and PNM also have commercial paper programs under which they may issue up to ~~$400~~

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

$400 million and $300 million of commercial paper ~~respectively.~~although these commercial paper programs are currently suspended and no commercial paper has been issued since March 11, 2008. The revolving credit facilities serve as support for the commercial paper programs. Operationally, 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 the revolving credit facility for that entity. ~~PNMR~~

On March 7, 2008, TNMP entered into a $150 million short-term ~~bridge~~bank loan agreement ~~for temporary financing of Twin Oaks. See Note 2. On April 17, 2007, PNMR repaid the balance due on the bridge loan. To facilitate the repayment, PNMR~~with two banks. TNMP borrowed ~~$250.5~~$150 million under this agreement on April 9, 2008 and used the proceeds to redeem the remaining $148.9 million of its 6.125% senior unsecured notes prior to the maturity date of June 1, 2008.

On May 15, 2008, TNMP entered into a credit agreement with eight lenders for the TNMP Facility. The TNMP Facility provides TNMP with a revolving credit facility ~~which amount has~~for up to $200 million. In connection with entering into the TNMP Facility, TNMP withdrew as a borrower under the PNMR Facility and is no longer a party under the PNMR Facility. There have been ~~repaid as of~~no borrowings under the TNMP Facility.

At June 30, ~~2007.~~

2008, the weighted average interest rate was 3.83% for the PNMR Facility, 3.67% for the PNM Facility, and 3.40% for the TNMP short-term bank loan. Short-term debt outstanding consists of:

	June 30,	December 31,
Short-term Debt	2008	2007
	(In thousands)

PNM
Commercial paper	$ -	$ -
Revolving credit facility	-	321,000
Delayed draw term loan facility	-	-
Local lines of credit	-	-
Total PNM	-	321,000
TNMP
Short-term bank loan	150,000	-
Revolving credit facility	-	-
Total TNMP	150,000	-
PNMR
Commercial paper	-	-
Revolving credit facility	190,000	343,500
Local lines of credit	-	1,400
Total PNMR	190,000	344,900
Total PNM, TNMP and PNMR	340,000	665,900
Valencia	86,651	-

	$ 426,651	$ 665,900

At August ~~1, 2007,~~4, 2008, PNMR, PNM, and ~~PNM~~TNMP had ~~$221.7~~$252.8 million, $380.7 million, and ~~$141.8~~$198.5 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.~~

~~Long-term Debt~~

PNM RESOURCES, INC. AND SUBSIDIARIES

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Effective June 15, 2007,~~

PNM, and TNMP ~~redeemed $100.0~~had cash balances of $54.8 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$54.4 million, ~~to TNP, which then made an equity contribution to TNMP in the same amount.~~and none.

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 floating rate was 6.09% at December 31, 2007 and was reset to 3.28% on March 17, 2008. The swaps are accounted for as fair-value hedges with ~~a liability~~an asset position of ~~approximately $3.5~~$0.8 million at June 30, ~~2007,~~2008, with a corresponding ~~reduction~~addition to current maturities of long-term debt.

Stockholders’ Equity

See Financing Activities above for information on PNMR common stock issued in connection with its publicly held equity-linked units. PNMR offers new shares of PNMR common stock through the ~~PNM~~PNMR Direct Plan and an equity distribution agreement. The equity distribution agreement is currently suspended. For the six months ended June 30, ~~2007,~~2008, PNMR sold ~~a combined total of 47,049~~128,177 shares of its common stock through the PNMR Direct Plan ~~and the equity distribution agreement~~ for net proceeds of ~~$1.4~~$1.8 million. PNMR also issued ~~24,210~~44,621 shares of its common stock for ~~$0.7~~$0.5 million through its ESPP during the six months ended June 30, ~~2007.~~2008.

(8)	Pension and Other Postretirement Benefit Plans

PNMR and its subsidiaries ~~(other than TNP, TNMP and First Choice) have a~~maintain qualified defined benefit pension ~~plan, a plan~~plans, postretirement benefit plans providing medical and dental benefits, ~~to eligible retirees,~~ and an executive retirement ~~program~~programs (“PNM Plans” and “TNMP Plans”). PNMR ~~is legally obligated~~maintains the legal obligation for the benefits owed to participants under the PNM Plans. TNP, TNMP and First Choice have a qualified defined benefit pension plan, a plan providing medical and death benefits to eligible retirees and an executive retirement program (“TNMP Plans”). Benefits were frozen in 1997 for the PNM pension plan and 2005 for the TNMP pension plan. these plans.

Readers should refer to Note 12 of Notes to the Consolidated Financial Statements in the ~~2006~~2007 Annual Reports on Form ~~10-K/A (Amendment No. 1)~~10-K for additional information on these plans.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

The following tables present the components of the PNM Plans’ net periodic benefit cost (income):

PNM contributed $1.5 million and $3.1 million, respectively, to trusts for other postretirement benefits. For the six months ended June 30, 2007 and 2006, PNM contributed $3.1 million and $3.1 million, respectively, to trusts for other postretirement benefits. PNM expects to make contributions totaling $6.0 million during 2007 to trusts for other postretirement benefits. RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	Six Months Ended June 30,
	Pension Plan						Other Postretirement Benefits						Executive Retirement Program
	2008			2007			2008			2007			2008		2007
							(In thousands)

Components of Net Periodic
Benefit Cost (Income)
Service cost	$	-		$	72		$	356		$	1,264		$	28	$	28
Interest cost		16,634			15,906			4,172			3,856			568		544
Expected long-term return on assets		(20,672	)		(20,389	)		(3,064	)		(2,927	)		-		-
Amortization of net loss		962			1,944			2,408			2,922			26		46
Amortization of prior service cost		158			158			(2,844	)		(2,844	)		6		6
Net periodic benefit cost (income)	$	(2,918	)	$	(2,309	)	$	1,028		$	2,271		$	628	$	624

PNM does not anticipate making any contributions to the pension orplan trust during 2008. For the three months ended June 30, 2008 and 2007, PNM contributed $1.8 million and $1.5 million to trusts for other postretirement benefits and $2.8 million and $3.1 million for the six months ended June 30, 2008 and 2007. PNM expects to make contributions totaling $4.9 million during the year ended December 31, 2008 to the trust for other postretirement benefits. Disbursements under the executive retirement ~~plans~~program, which are funded by the Company and considered to be contributions to the plan, were $0.4 million and $0.4 million in the three months ended June 30, 2008 and 2007 and $0.8 million and $0.8 million in the six months ended June 30, 2008 and 2007, and are expected to total $1.5 million during ~~2007.~~

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~
~~PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY~~
~~TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES~~2008.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

TNMP Plans

The following tables present the components of the TNMP Plans’ net periodic benefit cost (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


	Six Months Ended June 30,
							Other Postretirement						Executive Retirement
	Pension Plan						Benefits						Program				Three Months Ended June 30,
	2007			2006			2007			2006			2007		2006		Pension Plan						Other Postretirement Benefits						Executive Retirement Program
	(In thousands)																2008			2007			2008			2007			2008		2007
																							(In thousands)
Components of Net Periodic
Benefit Cost (Income)
Service cost	$	—		$	—		$	196		$	212		$	—	$	—	$	-		$	-		$	71		$	98		$	-	$	-
Interest cost		2,114			2,170			330			355			38		38		1,061			1,057			179			165			19		19
Expected long-term return on assets		(3,420	)		(3,508	)		(228	)		(228	)		—		—		(1,659	)		(1,710	)		(122	)		(114	)		-		-
Amortization of net gain		(4	)		—			(78	)		—			—		—		(36	)		(2	)		(68	)		(39	)		-		-
Amortization of prior service cost		—			—			30			30			—		—		-			-			15			15			-		-

Net Periodic Benefit Cost (Income)	$	(1,310	)	$	(1,338	)	$	250		$	369		$	38	$	38	$	(634	)	$	(655	)	$	75		$	125		$	19	$	19

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	Six Months Ended June 30,
	Pension Plan						Other Postretirement Benefits						Executive Retirement Program
	2008			2007			2008			2007			2008		2007
							(In thousands)
Components of Net Periodic
Benefit Cost (Income)
Service cost	$	-		$	-		$	142		$	196		$	-	$	-
Interest cost		2,122			2,114			358			330			38		38
Expected long-term return on assets		(3,318	)		(3,420	)		(244	)		(228	)		-		-
Amortization of net gain		(72	)		(4	)		(136	)		(78	)		-		-
Amortization of prior service cost		-			-			30			30			-		-
Net Periodic Benefit Cost (Income)	$	(1,268	)	$	(1,310	)	$	150		$	250		$	38	$	38

TNMP does not anticipate making any contributions to the pension ortrust during 2008. For the three months ended June 30, 2008 and 2007, TNMP made no and $0.3 million contributions to the trust for other postretirement benefit and made $0.2 million and $0.3 million for the six months ended June 30, 2008 and 2007. TNMP expects to make contributions totaling $0.4 million during the year ended December 31, 2008 to the trust for other postretirement benefits. Disbursements under the executive retirement ~~plans~~program, which are funded by the Company and considered to be contributions to the plan, were less than $0.1 million in the three months and six months ended June 30, 2008 and 2007, and are expected to total $0.2 million during ~~2007.~~

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~
~~PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY~~
~~TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES~~2008.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

(~~9) Commitments and Contingencies~~

(9)	Commitments and Contingencies

~~OVERVIEW~~

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 costs in accordance with SFAS 5, when it is probable that a ~~SFAS 5~~ liability has been incurred and the amount of expected 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 or cash flows, although the outcome of litigation, investigations and other legal proceedings is inherently uncertain.

~~COMMITMENTS AND CONTINGENCIES RELATED TO THE ENVIRONMENT~~

~~PNM~~Commitments and Contingencies Related to the Environment

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~~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, as amended effective July 1, 2007, 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~~has established 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.reasonable

PNM RESOURCES, INC. AND SUBSIDIARIES

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

cost threshold that began at 1 percent of all customers’ aggregated overall annual electric charges, increasing by 0.2 percent annually until 2011, at which time it will be 2 percent, and then increasing by 0.25 percent annually until reaching 3 percent in 2015.

On July 1, 2008, PNM filed its annual renewable energy plan for 2009. Costs incurred under a NMPRC-approved plan are authorized to be included for recovery in a future rate proceeding. PNM requested: (1) approval to continue its program for purchasing RECs from customers with photovoltaic (“PV”) distributed generation systems sized no larger than 10 kW at a price of $0.13 per REC per kWh generated, which was initially approved in December 2005, beyond the currently authorized budget and cost recovery in order to avoid a suspension of the program that would otherwise be necessary by early 2010; (2) approval to implement a program to acquire RECs from customers with PV systems sized greater than 10 kW and up to 1 MW at a price of $0.13 per REC per kWh generated and for cost recovery; and (3) approval to supplement the plan with any new projects that result for the two requests for proposals (“RFPs”) that PNM has recently issued for renewable resources. One of the RFPs was jointly issued with three other electric providers for a concentrated solar power project using solar parabolic trough technology that would be located in New Mexico. The second RFP was for diverse non-wind renewable energy. PNM’s filing also reported on PNM's termination of the biomass project described below and indicated that PNM may need additional resources to meet the renewable energy portfolio standard requirement for 2010 and the diversity requirements for 2011.

The Clean Air Act

On April 22, 1999, the EPA announced final regional haze rules. These regulations required states to submit state implementation plans (“SIPs”) by December 2007 to demonstrate “reasonable progress” towards achieving natural visibility conditions in certain “Class I Areas,” including several on the Colorado Plateau. SIPs are required to consider and potentially apply BART for certain older major stationary sources.

In 2005, the EPA issued the final rule addressing regional haze and guidelines for BART determinations. ~~The 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 agencies, can be used by western states. New Mexico 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~~particulates be done for each of the four units at SJGS. ~~The Company~~PNM submitted the analysis to the NMED in early June 2007. Based on the results of the BART analysis, PNM did not recommend that any additional pollution control equipment be installed on any of the SJGS units beyond that which is being installed. PNM believes the controls being installed constitute BART. The NMED is presently reviewing the analysis. Potentially, additional nitrogen oxide emission reductions could be required. The nature and cost of compliance with these potential requirements cannot be determined at this time.

In addition, EPA Region 9 requested APS to perform a BART analysis for Four Corners. APS completed the analysis and submitted it to the EPA on January 30, 2008. The EPA will now review the submission and determine what constitutes BART for Four Corners. APS’ recommendations include the installation of certain pollution control equipment that it believes constitutes BART. Once APS receives the EPA’s final determination, Four Corners will have five years to complete the installation of the equipment and to achieve the emission limits established by EPA Region 9. Until the EPA makes a final determination on this matter, the Company cannot accurately estimate the expenditures that may be required. As a result, PNM’s current environmental expenditure estimates do not include amounts for Four Corners BART expenditures.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

While the Company continues to monitor these matters, at the present time the Company cannot predict whether the agencies will agree with either PNM’s or APS’ BART recommendations or, if the agencies disagree with those recommendations for SJGS or Four Corners, the nature of the BART controls the agencies may ultimately mandate and the resulting financial or operational impact.

New Source Review Rules

In 2003, the EPA issued a rule 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 U.S. 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, although the U.S. Supreme Court agreed to hear an appeal of the ~~Fourth~~ U.S. Circuit Court of Appeals for the Fourth Circuit ruling in favor of Duke Energy ~~Corp~~Corporation 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~~a consent decree of May 10, 2005. As a result, PNM filed petitions with the ~~United States~~U.S. 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~~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~~stipulated order entered by the ~~Stipulated Order~~court 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~~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~~As of June 30, 2008, PNM’s share of the ~~years 2005~~total amount of stipulated penalties is $3.2 million of which $3.0 million had been deposited into the escrow account and ~~2006, PNM has placed $1.2 million into escrow as potential stipulated penalties.~~the remaining amount was deposited subsequently. 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. To date, the NMED has taken no further action with respect to the requested information.

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,

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 Nation 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,~~

On April 30, 2007, the EPA ~~proposed~~adopted a source specific FIP to set air quality standards at certain power plants, including Four Corners. On July 26, 2006, the Sierra Club sued the EPA in an attempt to force the EPA to issue a 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 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~~maintain and enhance dust ~~within 18 months after the FIP becomes effective. APS filed a Petition for Review on~~suppression methods. On July 2, 2007, APS, the plant operator, filed a petition for review in the ~~United States Circuit~~U.S. District 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 ~~also filed a Petition for Review with the Tenth Circuit Court on~~has intervened in this action. On July 6, 2007, ~~challenging whether~~ the ~~FIP complies~~Sierra Club and other parties filed a petition for review with the ~~requirements of~~same court challenging the FIP’s compliance with the Clean Air ~~Act. The~~Act and APS has intervened in their action. In APS’ lawsuit, APS challenges two key provisions of the FIP: a 20% opacity limit on certain fugitive dust emissions, which the EPA filed a motion to remand and vacate in early December 2007, and a 20% stack opacity limit on Units 4 and 5. Briefing in this case is now complete and oral argument occurred in May 2008. APS anticipates that the court will issue its opinion before the end of 2008. Although the Company ~~is unable to determine~~cannot predict the ~~impact~~outcome or the timing of these matters, ~~on its results of operations and financial position.~~

~~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)~~

~~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. PNMCompany does not ~~currently expect this FIP to~~believe that they will have a material adverse ~~effect~~impact on ~~its~~the Company’s financial position, results of operations or cash ~~flows or liquidity.~~flows.

Santa Fe Generating Station

PNM and the NMED conducted investigations of gasoline and chlorinated solvent groundwater contamination detected beneath ~~PNM’s~~the site of the 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~~meets 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

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

the well and the remediation facilities called for under the latest amended Settlement Agreement. The well continues to operate and meets federal drinking water standards. PNM is not able to assess the duration of this project.

PNM has been verbally informed that the Superfund Oversight Section of the NMED is conducting an investigation into the chlorinated solvent contamination in the vicinity of the site of the former Santa Fe Generating ~~Station site.~~Station. The investigation will study possible sources for the chlorinated solvents in the groundwater. In December 2007, PNM provided certain groundwater data at the request of the NMED. 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. The Office of Surface Mining is in the process of developing revisions to the Surface Mining Control and Reclamation Act (“SMCRA”) Title IV and V that would specifically address the placement of coal combustion products (“CCP’s”) in surface mines. PNM understands that these revisions do not represent a major overhaul of the SMCRA regulations and ~~SJCC have been participating~~will continue to support the mine placement of CCP’s. PNM expects the proposed regulations to be published by the end of summer 2008.

EPA is currently working on a Notice of Data Availability (“NODA”) on the placement of CCP’s in ~~various sessions sponsored by~~surface impoundments and landfill. The NODA allows additional data and information to be collected and could cause EPA to ~~consider rulemaking for~~revisit its current regulations on the disposal of ~~coal combustion products. The rulemaking would be pursuant to the Bevill Amendment of the Resource Conservation and Recovery Act.~~CCP’s in surface impoundments or landfill. 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.~~position, because the majority of the CCP’s from SJGS are placed in the mine and not surface impoundments or landfills.

In June, the U.S. House of Representatives Subcommittee on Energy and Mineral Resources conducted an oversight hearing on how the federal government should address the health and environmental risks of coal combustion wastes. This is the first of a number of hearings the subcommittee will hold. PNM cannot predict the outcome of these hearings but does not believe additional regulations will result.

Gila River Indian Reservation Superfund Site

By letter dated April 25, 2008, the EPA informed PNM that it may be a PRP in the Gila River Indian Reservation Superfund Site in Maricopa County, Arizona. PNM, along with SRP, APS and EPE, owns a parcel of property on which a transmission pole and a portion of a transmission line are located. The property abuts the Gila River Indian Community boundary and, at one time, may have been part of an airfield where crop dusting took place. Currently, the EPA is only seeking payment from PNM and other PRPs for past cleanup-related costs involving contamination from the crop dusting. Based upon the total amount of cleanup costs reported by the EPA in its letter to PNM, the resolution of this matter is not expected to have a material adverse impact on PNM’s financial position, results of operations, or cash flows.

Other Commitments and Contingencies

PVNGS Liability and Insurance Matters

The PVNGS participants have insurance 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 million and the balance by an industry-wide retrospective assessment program. If losses at any nuclear power plant covered by the program exceed the accumulated funds, PNM could be assessed retrospective premium adjustments. The maximum assessment per reactor under the program for each nuclear incident is $100.6 million, subject to an annual limit of $15.0 million per incident, to be periodically adjusted for inflation. Based on PNM’s 10.2% interest in the three PVNGS units, PNM’s maximum

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

potential assessment per incident for all three units is $30.8 million, with an annual payment limitation of $4.6 million.

The PVNGS participants maintain “all risk” (including nuclear hazards) insurance for property damage to, and decontamination of, property at PVNGS in the aggregate amount of $2.75 billion, a substantial portion of which must first be applied to stabilization and decontamination. The participants have also secured insurance against portions of any increased cost of generation or purchased power and business interruption resulting from a sudden and unforeseen accidental outage of any of the three units. The property damage, decontamination, and replacement power coverages are provided by Nuclear Electric Insurance Limited (“NEIL”). PNM is subject to retrospective assessments under all NEIL policies if NEIL’s losses in any policy year exceed accumulated funds. The maximum amount of retrospective assessments PNM could incur under the current NEIL policies totals $7.4 million. The insurance coverage discussed in this and the previous paragraph is subject to policy conditions and exclusions.

NRC Matters

In October 2006, the NRC conducted an inspection of the PVNGS emergency diesel generators after a ~~Palo Verde~~PVNGS 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~~PVNGS’ safety injection systems, resulted in PVNGS Unit 3 being placed in the “multiple/repetitive degraded cornerstone” column of the NRC’s Action Matrix (“Column 4”), which has resulted in an enhanced NRC inspection ~~regimen.~~regime. Although only PVNGS Unit 3 is in NRC’s Column 4, in order to adequately assess the need for improvements, APS management has been conducting site-wide assessments of equipment and operations.

Preliminary work in support of the NRC’s enhanced inspection regime took place throughout the summer of 2007. On June 21, 2007, the NRC issued aan initial confirmatory action letter confirming APS’ commitments ~~as operator,~~ regarding specific actions APS will take to improve ~~Palo Verde’s~~PVNGS’ performance. From October 1, 2007, through November 2, 2007, a team of NRC inspectors performed on-site in-depth inspections of PVNGS equipment and operations. The NRC’s inspection results were presented at a public meeting on December 19, 2007, and documented in an NRC letter to APS dated February 1, 2008. The inspection report indicated that the facility is being operated safely but also identified certain performance deficiencies. On December 31, 2007, APS submitted its improvement plan to the NRC, which addresses issues identified by APS management during its site-wide assessments of equipment and operations that occurred during 2007. The NRC reviewed the adequacy of this improvement plan and issued a revised confirmatory action letter on February 15, 2008 that outlines the actions APS must take in order for the NRC to return the PVNGS site to the NRC’s routine inspection and assessment process. This revised confirmatory action letter was anticipated as part of the NRC’s inspection procedure. On March 31, 2008, APS submitted to the NRC a revision to its improvement plan to address issues raised by the NRC in its inspection report. The NRC will continue to provide increased oversight at PVNGS until the facility demonstrates sustained performance improvement. 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 resolutioncooperate fully with the NRC ~~in an attempt to resolve~~throughout 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~~process.

~~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 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~~In 2005, 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.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Conflicts at 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 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’~~several gas leaseholders and has other 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.claimants. PNM cannot predict the outcome of any future disputes between SJCC and ~~Western Gas or~~ other gas leaseholders.

Republic Savings Bank Litigation

In 1992, Meadows Resources, Inc., an inactive subsidiary of PNMR, and its subsidiaries (“Plaintiffs”) filed suit against the Federal government in the United States Court of Claims, alleging breach of contract arising from the seizure of Republic Savings Bank (“RSB”). RSB was seized and liquidated after the Financial Institutions Reform, Recovery and Enforcement Act (“FIRREA”) prohibited certain accounting practices authorized by contracts with the Federal government. The Federal government filed a counterclaim alleging breach of obligation to maintain RSB’s net worth and moved to dismiss Meadows’ claims for lack of standing.

Discovery was completed in 1999 and Plaintiffs filed a motion for summary judgment in December 1999 on the issue of liability and on the issue of damages. The Federal government filed a cross motion for summary judgment and opposed Plaintiffs’ motion.

On January 25, 2008, the judge in this matter entered his opinion granting the Federal government’s motion to dismiss Meadows for lack of standing, denying the Federal government’s motion for summary judgment and granting the remaining Plaintiffs’ motion for summary judgment on the issues of liability and damages, awarding the remaining Plaintiffs damages in the amount of $14.9 million. The Court determined that Plaintiffs should receive restitution damages in the amount of $17 million for the initial cash contribution into RSB, reduced by the Federal government’s contribution of $3 million and enhanced by the $0.9 million profit received by the FDIC upon selling the business of RSB. Meadows received payment from the FDIC in October 2004 in the amount of $0.3 million, representing the final distribution of the receivership. This payment reduces the amount of damages owed to $14.6 million.

The Company is unable to predict the ultimate outcome of this litigation as both parties have rights to seek rehearing and appeal.

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~~of these in relation to the Company are summarized below.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

California Refund Proceeding

SDG&E 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 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 cost

PNM RESOURCES, INC. AND SUBSIDIARIES

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(Unaudited)

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 (October 2, 2000 through June 20, 2001). Included in PNM’s submittal were objections to the limited amount of time the FERC allowed for sellers to complete their respective submittals, and the FERC’s arbitrary decision to allow only marketers, and not load serving entities such as PNM, to include a return component in their cost filings. PNM participated with certain other 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.~~equity, which is still pending before FERC. In November 2007, FERC issued an order denying other rehearing petitions regarding the cost recovery calculation methodology, including the appropriateness of earning a return by load serving entities. This was not an order on PNM’s specific rehearing request. However, to preserve its rights to appeal the issues, PNM filed an appeal in the Ninth Circuit Court of Appeals on these cost recovery rehearing orders. While PNM believes it has meritorious legal arguments, the Company cannot predict the outcome of this cost recovery proceeding at this time.

As previously reported, there have been a number of additional appeals pending before the ~~United States~~U.S. Court of Appeals for the 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. The Ninth Circuit has held a number of mediation conferences in which PNM has participated, regarding these and the multiple other appeals pending before it, to assess the opportunities for ~~settlement, in which PNM has participated.~~settlement. The Ninth Circuit issued an order initially declaring a 45-day ~~time out~~time-out period to allow parties the opportunity to assess the recent court decisions and the potential for settlement of cases. ~~In October 2006, the~~The Ninth Circuit ~~extended~~has continued to extend 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.~~Circuit. Representatives of PNM continue to attend and participate in the mediation and case management 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~~August 2007, the Ninth Circuit further extended the time-out period for settlement discussions to continue until ~~August 13,~~November 2007. In October 2007, PNM attended an additional case management conference hosted by the Ninth Circuit. The time-out period established by the Ninth Circuit expired in mid-November 2007. Subsequently, the Ninth Circuit issued its mandate in the Lockyer v. FERC case and allowed the appellate process to continue in other pending appeals. As a result, various petitions for rehearing of the court’s prior decisions have been filed in the Ninth Circuit. PNM participated with a group of sellers in a petition for rehearing in the CPUC v. FERC appeal. The petitions for rehearing are currently pending before the Ninth Circuit.

In December 2007, the Ninth Circuit issued the mandate in the Lockyer v. FERC case and formally remanded this proceeding back to FERC. See California Attorney General Complaint below.

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 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

PNM RESOURCES, INC. AND SUBSIDIARIES

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Ninth ~~Circuit, which is still pending.~~Circuit. As a participant in the proceedings before ~~the~~ FERC, PNM is also ~~participating~~participated in the appeal proceedings. Oral argument in the case was held in January 2007. In August 2007, the Ninth Circuit issued its decision on ~~January 8,~~appeal and determined that FERC erred in excluding certain purchases in the Pacific Northwest spot markets from consideration in the Pacific Northwest refund proceeding, and that FERC should have taken into account evidence of manipulation in the California spot markets that was presented after the original evidentiary proceeding. The court remanded the case to FERC to reconsider its decision to deny refunds, in light of the evidence of market manipulation and the various recent Ninth Circuit decisions, but did not require FERC to order refunds. In September 2007, the Ninth Circuit extended the time period for filing petitions for rehearing on their decision until November 16, 2007. At the conclusion of the time-out period, several parties filed petitions for rehearing of the Ninth Circuit’s decision. PNM did not participate in any of the petitions for rehearing but continues to monitor the appeal. 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~~appeal.

~~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,~~However, PNM entered into a settlement of certain matters outside the scope of the docket related to historic parking and lending transactions, under which PNM agreed not to provide parking and lending services prospectively without first meeting certain requirements agreed to with the FERC staff. Additionally, PNM agreed to pay $1.0 million in settlement to ~~the~~ FERC to obtain satisfaction of all issues related to any potential liability stemming from the provision of parking and lending services historically. In July 2005, ~~the~~ FERC issued its order granting the staff’s motion to dismiss PNM from the Gaming Partnerships docket. In its order, ~~the~~ FERC found that PNM did not engage in prohibited gaming practices as defined in the FERC’s Gaming Partnership Order and also approved the settlement on the parking and lending services. ~~The~~ FERC also denied the California parties’ request to keep the docket open as to PNM and terminated the PNM docket. Subsequently, the California parties filed their petition for rehearing at ~~the~~ FERC objecting to ~~the~~ FERC’s dismissal of PNM from the Gaming Partnership investigation and objecting to the settlement reached with the FERC staff. The petition for rehearing is pending before FERC and 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. In October 2007, Enron entered a settlement with the final parties litigating against them and filed the settlement at FERC, which is still pending before FERC.

In November 2007, FERC staff initiated a settlement proceeding designed to determine how the proceeds from the penalty amounts should be allocated among participants in the Cal PX and Cal ISO markets (Phase II Distribution proceedings). PNM has participated in several settlement conferences regarding proposed allocations of these funds. The ~~parties will now have the opportunity to file exceptions before the matter goes to FERC.~~settlement process is still ongoing. PNM cannot predict the ~~final~~ultimate outcome of this proceeding.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

California Power Exchange and Pacific Gas and Electric Bankruptcies

In 2001, ~~Southern California Edison Company~~SCE and the major purchasers of power from the Cal ISO and Cal PX defaulted on payments due to the Cal ISO for power purchased from the Cal PX in 2000. These defaults caused the Cal PX to seek bankruptcy protection. PG&E subsequently also sought bankruptcy protection. PNM has filed its proofs of claims in the Cal PX and PG&E bankruptcy proceedings. Amounts due to PNM from the Cal ISO or Cal PX for power sold to them in 2000 and 2001 total ~~approximately~~ $7.9 million. Both the PG&E and Cal PX bankruptcy cases have confirmed plans of reorganization in which the claims of various creditors have been specially classified and are waiting a final determination by ~~the~~ FERC before the claims are actually paid. The PG&E bankruptcy case has an escrow account and the Cal PX bankruptcy has established a settlement account, both of which are awaiting final determination by ~~the~~ FERC setting the level of claims and allocating the funds.

~~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. The Ninth Circuit issued a decision in September 2004 upholding the FERC’s authority to establish the market-based rate framework under the Federal Power Act, but held that ~~the~~ FERC violated its administrative discretion by declining to investigate whether it should order refunds from sellers who failed to provide transaction-specific reports to ~~the~~ FERC as required by its rules. The Ninth Circuit determined that ~~the~~ FERC has the authority to order refunds for these transactions if it elects to do so and remanded the case back to ~~the~~ FERC for further proceedings, including a determination as to whether additional refunds are appropriate. In October 2004, PNM joined the group of competitive Sellers and filed a petition for rehearing at the Ninth Circuit. In July 2006, the Ninth Circuit denied rehearing. In December 2006, PNM joined a group of sellers in filing a petition for writ of certiorari in the ~~United States~~U.S. Supreme Court challenging the decision by the Ninth Circuit. On June 18, 2007, the U.S. Supreme Court denied the Petition for Certiorari filed by various competitive sellers, including PNM. In November 2007, the Ninth Circuit’s time-out period expired and in December 2007, the Ninth Circuit issued its mandate remanding the case back to FERC.

Upon remand to FERC, numerous parties filed motions at FERC regarding the appropriate procedures to occur on remand for the disposition of the case. In March 2008, FERC issued its order on remand indicating that it will establish trial type hearings to determine if specific Sellers’ violation of FERC’s quarterly reporting requirements led to an unjust and unreasonable rate for these Sellers in Cal ISO and Cal Px markets during the 2000-2001 time period. The order required sellers to submit revised quarterly reports to FERC for review. PNM filed its quarterly sales transaction reports per FERC’s order. The order also established settlement procedures for the matters. An initial settlement conference was held in April 2008. PNM has participated in these settlement proceedings. Several parties filed petitions for rehearing of FERC’s order. PNM participated with the other members of the Competitive Sellers Group to respond to the petition for rehearing. The petitions for rehearing are currently pending before FERC. The Company cannot predict the ultimate outcome of the FERC proceeding on remand, or whether PNM will be ultimately directed to make any additional refunds as the result of the decision.

California Antitrust Litigation

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 June 2005, the lawsuit was removed to Federal Court. 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. Briefs ~~have been~~were filed in

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

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(Unaudited)

the case by the parties, ~~but~~and oral argument ~~has not yet been scheduled. The Company cannot predict~~was held in March 2008. In April 2008, by memorandum opinion, the Ninth Circuit affirmed the District Court’s dismissal of the complaint. No petition for rehearing of the decision was filed by the California Attorney General. As such, the Ninth Circuit’s decision became final ~~outcome of this litigation nor whether PNM will be required~~and the case is now over as to ~~make refunds or pay damages under these claims.~~PNM.

Regional Transmission Issues

In July 2005, the FERC issued an order terminating its proceeding on standard market design, stating that since issuance of the standard market design notice of proposed rulemaking, the electric industry has made significant progress in the development of voluntary RTOs and ISOs. In September 2005, ~~the~~ FERC issued a ~~Notice of Inquiry~~NOI 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 became effective in May 2007. Order 890 addressed several elements of transmission service, including: (1) requiring greater consistency and transparency in calculating available transfer capacity for transmission; (2) requiring transparent transmission planning and customer access to 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 service utilized for network generation resources, but still left uncertain the transmission used for such resources that pre-dated transmission open access. PNM filed a 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~~
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rehearing seeking clarification of this issue in regards to 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 NOPR. In December 2007, FERC issued its order on rehearing and clarified and revised some aspects of its initial order and rule designated as Order ~~890 is still pending before~~890-A. FERC did not specifically rule on the ~~FERC.~~request PNM filed for clarification on transmission used for network generation resources. The order reiterated its general rule on this topic, which had no impact on PNM operations. In January 2008, multiple parties filed requests for rehearing of Order 890-A. PNM did not join any of these rehearing requests. The Company ~~is awaiting FERC action on rehearing requests.~~ cannot predict the outcome of the final rule.

The Company’s transmission group ~~has been working to prepare~~completed the numerous FERC compliance filings required by Order 890. On May 30, 2007, the Company posted its initial 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 the required compliance ~~filings. PNM~~filings and will participate in FERC’s technical ~~conference on~~conferences regarding Order 890 reliability standards. ~~The Company cannot predict what impact the 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 the Company. The audit covers the period from January 2004 to the present and will examine the Company’s compliance with the FERC standards of conduct and OASIS requirements, compliance of 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 make periodic reports every quarter thereafter per the staff’s recommendation. There were no significant findings 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 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 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 this litigation.

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

Biomass Project

PNM ~~has~~ entered into a 20-year contract for the purchase of 3532 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 the start of construction by July 2, 2007. The biomass project owner was unable to complete the financial closing on April 2, 2007 or to start construction by July 2, 2007. As a result, PNM delivered a ~~Remediable Event~~remediable event of ~~Default~~default letter to the biomass project owner. The operator ~~has~~ declared a force majeure over failure to obtain an air permit. The air permit was subsequently approved on October 2, 2007.

The biomass project owner filed an application in August 2007 for a renewable energy production tax credit in connection with the project. The project owner’s application was initially denied, on grounds that the owner had not demonstrated the project was a qualifying facility for the credit because it had not shown there was a sufficient amount of wood fuel under contract. The project owner filed an appeal and ultimately obtained the

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

production tax credit. PNM expected the biomass facility to begin commercial operations in late 2009 or early 2010, provided adequate financing was obtained by June 1, 2008. However, financing was not obtained by that date, and PNM notified the owner on June 12, 2008, of the immediate termination of the agreement. On June ~~18, 2007,~~23, 2008, the owner advised PNM ~~sent a letter~~that it disputed the basis for the termination. PNM is unable to predict the ~~operator conditionally accepting the notice~~outcome 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.this matter.

~~Valencia Energy Facility~~

Valencia

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~~built, owns and ~~operate~~operates the facility while PNM will be the sole purchaser of the electricity generated. The ~~total projected construction cost for~~Valencia facility began commercial operation on May 30, 2008. For financial accounting purposes PNM consolidates the ~~facility is from $100 million to $105 million. The term~~plant under FIN 46R since it absorbs the majority of the ~~power purchase agreement is for 20 years beginning June 1, 2008, with~~variability in the ~~full output~~cash flows 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 is evaluating the accounting treatment of this PPA.plant. See Note 16.

On May 31, 2007, the office of the ~~New Mexico Attorney General~~AG and the ~~Utility Staff~~staff of the NMPRC filed a ~~Petition For Formal Review~~petition for formal review requesting the NMPRC to investigate the ~~power purchase agreement~~PPA and related transactions relating to ~~the~~ Valencia ~~Energy Facility~~ to determine, among other things, whether the transactions are prudent, appropriate and consistent with NMPRC rules, and to establish the ratemaking treatment of the ~~power purchase agreement.~~PPA. On June 21, 2007, the NMPRC ordered PNM to respond to the ~~Petition~~petition so that the NMPRC could ascertain PNM’s position on the matters raised before proceeding further with processing the ~~Petition.~~petition. In its ~~Response,~~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 ~~Staff~~staff’s and ~~Attorney General’s~~AG’s request for determination of the ratemaking treatment for the agreement. ~~To date,~~On November 6, 2007, the NMPRC ~~has taken no further action on~~issued an order, which appointed a hearing examiner and directed her to consider the ~~petition.~~issues raised in the petition and the response, including whether PNM’s actions in entering into the PPA and in reporting that transaction to the NMPRC were consistent with statute and NMPRC rules. The Company is unable to predict the outcome of this matter.

~~(10) Regulatory and Rate Matters~~

~~PNMR~~

(10)	Regulatory and Rate Matters

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 and other parties filed a non-unanimous 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. Subsequently, on August 24, 2006, the 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 the NUS on November 2, 2006. The 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 ~~the~~a Texas district ~~court, in Austin, Texas.~~court. TNMP and ~~FCP~~First Choice have intervened and will defend the PUCT’s Final Order approving the NUS.

First Choice Request for ERCOT Alternative Dispute Resolution

On June 30, 2008, First Choice filed a request for alternative dispute resolution with ERCOT alleging that ERCOT incorrectly applied its protocols with respect to congestion management during the first quarter of 2008. First Choice requests that ERCOT resolve the dispute by restating certain elements of its first quarter 2008

PNM RESOURCES, INC. AND SUBSIDIARIES

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Energy Agreement~~

~~In 2003,~~congestion management data and by refunding to First Choice ~~and Constellation executed a power supply agreement that resulted~~allegedly overstated congestion management charges. The amount at issue in ~~Constellation being the primary supplier of power for~~ First Choice’s ~~customers through~~claim can only be determined by running ERCOT market models with corrected inputs but First Choice believes that the ~~end~~amount is significant. ERCOT protocols provide that ERCOT will notify potentially impacted market participants and subsequently consider the merits of ~~2006. Additionally, Constellation has agreed~~First Choice’s allegations. The Company is unable to ~~supply power in certain transactions under~~predict the ~~agreement beyond the date when that commitment expired.~~outcome of this matter.

In 2004, FCPSP, a bankruptcy remote entity, was created pursuant to the agreement with Constellation to hold all customer contracts previously held by First Choice. Constellation received a lien against the assets of FCPSP to cover the settlement exposure and the mark-to-market exposure rather than requiring FCPSP to post alternate collateral for the purchase of power supply. In addition, FCPSP is restricted by covenants that limit the size of FCPSP’s unhedged market positions and require that sales by FCPSP retain a positive retail margin. The agreement does not, however, permit Constellation to demand additional collateral irrespective of its credit exposure under the agreement. If, however, a change in electricity or gas forward prices increases Constellation’s credit exposure to FCPSP beyond a limit based on Constellation’s liens in cash and accounts receivable, Constellation will have no obligation to supply additional power to customers of FCPSP unless FCPSP provides letters of credit or other collateral acceptable to Constellation, and FCPSP will be constrained in its ability to sign up additional customers until that credit shortfall is corrected. The existing pricing mechanism under the Constellation power supply agreement expired on December 31, 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 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 NMPRC to approve an increase in the service fees charged to its 481,000 natural gas ~~customers. The proposal would increase~~customers, including 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~~customers, which would not be affected by the fee increase. The petition requested an increase in base gas service rates of $22.6 million and an increase in miscellaneous on-demand service rates of ~~approximately~~ $0.2 million. The request was 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 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. ~~A hearing on the case was conducted before a hearing examiner in December 2006.~~ 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 and the AG filed ~~a Notice of Appeal~~appeals with the New Mexico Supreme Court. The AG’s appeal seeks reversal of the NMPRC decision on one issue – weather normalization. PNM’s appeal seeks reversal of the NMPRC determination of the required return on equity and on four cost-of-service accounting issues. If PNM’s appeal is successful in all respects and the AG’s appeal is unsuccessful, PNM’s authorized annual revenue would increase by about $10 million. If PNM’s appeal is unsuccessful in all respects and the AG’s appeal is upheld, PNM’s annual revenues would decrease by $6.8 million. The Supreme Court ~~on July 27, 2007 and~~ has ~~until August 27, 2007~~scheduled oral argument for September 16, 2008. PNM is unable to ~~file which components will be appealed.~~

~~PNM RESOURCES, INC. AND SUBSIDIARIES~~
~~PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY~~
~~TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES~~predict the outcome of these appeals.

~~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 iswas designed to provide PNM’s electric utility an opportunity to earn a 10.75% return on equity. The application also ~~requests~~requested authorization to implement a ~~Fuel and Purchased Power Adjustment Clause~~FPPAC 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. Hearings were held in December 2007. At the hearing PNM adjusted its revenue increase request to $76.9 million. On April 24, 2008, the NMPRC issued a final order in the case that resulted in a revenue increase of $34.4 million. The rate increase provides for a 10.1% return on equity. New rates reflecting the $34.4 million increase were effective for bills rendered on and after May 1, 2008. In its final order, the NMPRC disallowed recovery of costs associated with the RECs used to meet the New Mexico Renewable Energy Portfolio Standards that were being deferred as regulatory assets, but did allow PNM the opportunity to seek recovery in the next rate case if it can demonstrate that it incurred an actual incremental cost for its compliance with the RPS. The NMPRC ~~initially suspended operation~~also ruled that recovery of coal mine decommissioning costs should be capped at $100 million. The order results in PNM being unable to assert it is probable, as defined under GAAP, that the ~~proposed~~costs previously deferred on PNM’s balance sheet will be recoverable through future rates charged to its customers. Accordingly, as of March 31, 2008, PNM recorded regulatory disallowances for pre-tax write offs of $19.6 million for coal mining decommissioning costs and $10.6 million for deferred REC costs. PNM is evaluating whether it will be successful in meeting the criteria set forth by the NMPRC. PNM has appealed the treatment of coal mine decommissioning and the RECs to the New Mexico Supreme Court. The AG has moved to intervene. To the extent PNM is successful in demonstrating these costs are recoverable through future rate proceedings, the costs will be restored to PNM’s balance sheet. The Company is unable to predict the outcome of this matter.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Emergency FPPAC

On March 20, 2008, PNM and the International Brotherhood of Electrical Workers Local No. 611, filed a joint motion in the general electric rate case requesting NMPRC authorization to implement an Emergency FPPAC on an interim basis. The motion requested immediate authority to implement an Emergency FPPAC for a period of 24 months or until the effective date of new rates ~~through December~~in PNM’s next rate case, whichever is earlier.

On May 22, 2008, following an evidentiary hearing, the NMPRC issued a final order that approved the Emergency FPPAC with certain modifications relating to power plant performance and the treatment of revenue from SO2 allowances. The Emergency FPPAC permits PNM to recover its actual fuel and purchased power costs up to $0.024972 per kWh, which is an increase of $0.008979 per kWh above the fuel costs included in base rates. PNM is unable to predict if actual fuel and purchased power costs will exceed the cap during the period the Emergency FPPAC is in effect. PNM implemented the Emergency FPPAC as modified on June 2, 2008 and expects to recover $58 million to $62 million annually. Motions for rehearing were filed by NMPRC staff and intervenors on June 12, 2008 and June 23, ~~2007, but subsequently extended~~2008. PNM filed timely responses to these motions. The NMPRC denied the ~~suspension through February 21,~~motions for rehearing on July 8, 2008. ~~A hearing~~Appeals from the final order may be filed within 30 days from the last date on which a rehearing motion is ~~scheduled~~denied. The Albuquerque Bernalillo County Water Utility Authority filed an appeal on August 1, 2008. PNM is unable to ~~begin October 1, 2007. A recommended decision of~~predict if other appeals will be filed or the ~~hearing examiner is due by December 31, 2007.~~final outcome.

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 under the remaining contracts.~~energy. PNM requested that the FERC investigate these charges for the period 2001 through 2004, and going forward. PNM had previously intervened in the Golden Spread Electric Coop complaint case against SPS for the same matter. Fuel cost charges for 2005 and 2006 are being addressed as part of the finding in the Golden Spread fuel charge adjustment clause case pending before the FERC, in which PNM is an intervenor. 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.decision. 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.

Additionally, in November 2005, SPS filed an electric rate case proposing to ~~unbundled~~unbundle and raise rates charged to customers effective July 2006. PNM intervened in the case and objected to the proposed rate increase. In September 2006, PNM and SPS filed a settlement agreement at FERC in which PNM settled ~~its~~certain limited 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~~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.~~staff. On October 19, 2006, PNM, SPS and FERC ~~Trial Staff~~staff each filed reply comments contending that opposition to the limited settlement was without merit. The Settlement Judge and the ~~Administrative Law Judge~~ALJ have certified the contested partial settlement and sent it to ~~the~~ FERC for final approval. The limited 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 the fuel cost adjustment clause case or the pending petitions for rehearing in 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~~However, FERC removed the Golden Spread item from its agenda. ~~PNM cannot predict if~~In September 2007, FERC open meeting agenda again indicated the ~~settlement will be approved~~Golden Spread complaint case initial decision was on the docket for consideration by the ~~FERC or what the outcome of the fuel cost adjustment clause proceeding at the FERC will be.~~FERC. SPS and Golden Spread

PNM RESOURCES, INC. AND SUBSIDIARIES

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~TNMP~~

filed a motion to defer FERC action on the initial decision to provide yet additional time for them to reach settlement. PNM and another intervenor in the case filed their opposition to the motion requesting the FERC to proceed to issue an order on the initial decision of the ALJ. However, FERC removed the Golden Spread item from its open meeting agenda and did not issue an order on the initial decision. In November 2007, SPS again filed a motion at FERC to defer action on the Golden Spread case alleging it was close to settlement with Golden Spread. The motion was unopposed and granted. In December 2007, SPS, Golden Spread and Occidental Petroleum filed a settlement at FERC. The settling parties recognized the need for FERC to rule on the ALJ’s recommended decision in the Golden Spread complaint case. PNM did not oppose the settlement.

In April 2008, FERC issued its order in the Golden Spread complaint case and affirmed in part and reversed in part the ALJ’s initial decision. FERC affirmed the decision of the ALJ that SPS violated its tariffs, and did not overturn the ALJ’s decision requiring SPS to make refunds. However, FERC did truncate the refund period to the period beginning January 1, 2005. Additionally, there was no identification of the amount of refunds owed to PNM in the order. In a separate order issued on the same day, FERC approved the SPS-Golden Spread settlement entered in the case. The Company filed a petition for rehearing of FERC’s order, as did other entities, including SPS, which are still pending before FERC. PNM cannot predict the final outcome of the case at FERC.

Gas Utility Assets Sale and Service Abandonment

On March 11, 2008, PNM filed its application at the NMPRC seeking regulatory approval for the sale of the gas utility assets and approval for the abandonment of its natural gas utility service in New Mexico. In a separate application filed simultaneously at the NMPRC, NMGC requested approval to purchase PNM Gas’s utility assets, requested the issuance of a Certificate of Convenience and Necessity to operate the gas utility and provide natural gas utility service in New Mexico, and for various other regulatory approvals. On March 17, 2008, PNM and NMGC filed a joint motion to consolidate the applications before the NMPRC. By order dated March 27, 2008, the NMPRC consolidated the two applications into one docket and appointed a hearing examiner in the case to hear the case. Discovery has commenced in the case. The Company filed testimony with the NMPRC in March 2008 for approvals required for the sale of its gas utility service and for transition services to be provided to NMGC. PNM and NMGC continue to respond to discovery requests. Hearings have been rescheduled to begin September 12, 2008. On August 12, 2008, the NMPRC staff, the AG, PNM and NMGC filed a motion to vacate the current procedural schedule and to move the hearing date to start on September 16, 2008. This motion indicates the filing parties have agreed to a stipulation resolving the issues in the proceeding and anticipate that stipulation will be filed on August 20, 2008. The motion was conditionally approved on August 13, 2008. PNM is unable to predict the outcome of the case.

NMPRC Inquiry on Fuel and Purchased Power Adjustment Clauses

On October 16, 2007, the NMPRC opened a NOI that may lead to establishing simple and consistent rules for the implementation of FPPACs for all investor-owned utilities and electric cooperatives in New Mexico. The investor-owned utilities and electric cooperatives were asked to respond to a series of questions; the responses will be discussed at a future workshop. The NMPRC staff was directed to make a filing dealing with the need for consistency of the fuel clauses, streamlining, and whether a single methodology would be beneficial and should be applied to all of the utilities. PNM filed its comments on December 3, 2007.

NMPRC Rulemaking On Disincentives to Energy Efficiency Programs

On January 29, 2008, the NMPRC issued a NOI to identify disincentives in utility expenditures on energy efficiency and measures to mitigate those disincentives, including specific ratemaking alternatives. In a procedural order issued April 1, 2008, the NMPRC determined that the proceeding should be conducted as a rulemaking and appointed a Hearing Examiner to conduct workshops as part of the process. Workshops have begun and will continue at least through August 2008. A revised rule is expected to be approved by the end of 2008.

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Investigation Into Executive Compensation

On December 11, 2007, the NMPRC issued an order docketing an investigation into whether the level of compensation paid to executives by investor-owned New Mexico utilities is reasonable and prudent. The order required all such utilities to submit certain information and documents by January 11, 2008. PNM made the required filing. No further proceedings are scheduled at this time.

PVNGS Unit 2 Lease Interest Transfer

On June 29, 2007, a wholly-owned subsidiary of PNMR purchased 100% of a trust, which owns a 2.26% 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. In January 2008, PNM filed an application at the NMPRC seeking approval to acquire the beneficial ownership interest in the trust from the PNMR subsidiary. PNM requested recovery of the costs of acquiring the Unit 2 interest through inclusion in its electric rates. The filing also requested certain variances from NMPRC filing and reporting requirements normally required for general diversification filings. Discovery has commenced in the proceeding and the Company has been responding to discovery requests made by NMPRC staff and intervenors in the case. The procedural schedule has changed several times, and the hearing in the case is currently set for October 2008. The Company cannot predict the outcome of this proceeding at this time.

In April 2008, PNM also filed an application at FERC seeking FERC approval of the proposed acquisition of the PVNGS Unit 2 interest. FERC established a comment date in early May 2008, and no comments or interventions were filed in the docket. On June 30, 2008, FERC issued its order approving the transfer of the PVNGS Unit 2 interest to PNM.

TNMP ~~Competitive Transition Charge~~

TNMP 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.~~costs and the Supreme Court has requested response to those filings.

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 ~~has~~ appealed that decision to the Texas Third Court of Appeals in Austin, ~~Texas and has filed its briefs. Oral argument occurred May 9, 2007 and~~Texas. On January 31, 2008, the Court ~~took~~of Appeals affirmed the ~~matter under advisement.~~District Court and PUCT decisions. TNMP and other parties have filed a request with the Texas Supreme Court to review the Court of Appeals decision.

Interest Rate for Calculating Carrying Charges on TNMP’s Stranded Cost

The PUCT approved an amendment to the true-up rule at 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 ~~stranded cost.~~CTC. The PUCT concluded that the correct rate at which a utility should accrue carrying costs through a ~~stranded cost~~CTC 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 new rate will affect TNMP by lowering the previously approved carrying cost rate of 10.93%. This change in carrying charges will affect the rates set in TNMP’s stranded cost filing. The rule went into effect on July 20, 2006, and TNMP ~~has~~ made its compliance filing. Because the PUCT staff disagreed with TNMP’s calculation of the ~~interest~~carrying cost 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~~a

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

carrying cost 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~~20, 2007 open meeting, the PUCT unanimously rejected the proposed order regarding the calculation of TNMP’s on-going ~~interest~~carrying cost rate for the CTC. The PUCT approved the 8.31% ~~interest~~ rate proposed by TNMP and the PUCT ~~Staff.~~staff. The PUCT ~~will issue~~issued a ~~signed~~ final order and ~~then~~ TNMP ~~will be required to make~~made a compliance filing to ~~implement~~put the new ~~rates.~~rates that were to go into effect on February 1, 2008. Intervenors have asserted objections to the compliance filing and those objections are pending at the PUCT. PUCT staff urges that the PUCT make the new rate effective as of December 27, 2007 when the PUCT’s order establishing the correct rate became final. In response to intervenors, the ALJ has suspended TNMP’s February 1, 2008 rate implementation pending a hearing. The hearing has been completed and the parties are awaiting a recommended decision from the ALJ.

60-Day Rate Review

In November 2005, TNMP made its required 60-day rate review filing. TNMP’s case establishes a ~~competition transition charge~~CTC 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 Base Rate 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~~CTC 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~~

(11)

EnergyCo

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~~See Note 22 of the Notes 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~~Consolidated Financial Statements 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 COMPANY AND 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.

~~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 obligationsAnnual Reports 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 ECJV.

Effective August 1, 2007, EnergyCo completed the acquisition of the 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 existing NRG Cedar Bayou Generating Station near Houston. EnergyCo anticipates the construction of the project will be completed in the summer of 2009, at which time 275 MW of electricity will be available for sale by EnergyCo. EnergyCo expects to fund its portion of the 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,~~Form 10-K. 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~~

~~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

Results of Operations

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
				(In thousands)
Operating revenues	$	304,462		$	14,366		$	478,540		$	14,366
Cost of sales		259,927			4,561			457,097			4,561
Gross margin		44,535			9,805			21,443			9,805
Non-fuel operations and maintenance expenses		4,947			799			9,603			799
Administrative and general expenses		7,697			2,314			13,799			3,647
Impairment of intangible assets		21,795			-			21,795			-
Depreciation and amortization expense		7,658			1,528			15,227			1,528
Interest expense		4,789			818			11,357			818
Taxes other than income tax		3,609			1,004			7,269			1,004
Other (income) and deductions		(449	)		(34	)		(706	)		(43	)
Earnings (loss) before income taxes		(5,511	)		3,376			(56,901	)		2,052
Income taxes (benefit)(1)		91			-			(293	)		-
Net earnings (loss)	$	(5,602	)	$	3,376		$	(56,608	)	$	2,052

50 percent of net earnings (loss)	$	(2,801	)	$	1,688		$	(28,304	)	$	1,026
Amortization of basis difference in EnergyCo		278			584			698			584
PNMR equity in net earnings (loss) of EnergyCo	$	(2,523	)	$	2,272		$	(27,606	)	$	1,610

(1) Represents the Texas Margin Tax, which is considered an income tax.

PNM RESOURCES, INC. AND SUBSIDIARIES

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~(12) Related Party Transactions~~

Financial Position

	June 30, 2008		December 31, 2007
	(In thousands)

Current assets	$	247,095	$	119,255
Net property, plant and equipment		898,642		853,492
Deferred assets		254,130		297,197
Total assets		1,399,867		1,269,944

Current liabilities		288,556		88,812
Long-term debt		700,778		650,778
Other long-term liabilities		60,869		34,344
Total liabilities		1,050,203		773,934

Owners’ equity	$	349,664	$	496,010

50 percent of owners’ equity	$	174,832	$	248,005
Unamortized PNMR basis difference in EnergyCo		225		89
PNMR equity investment in EnergyCo	$	175,057	$	248,094

SFAS 141 requires that EnergyCo individually value each asset and liability received in the Altura and Altura Cogen Power Plant transactions and initially record them on its balance sheet at the determined fair value. For both transactions, this accounting results in a significant amount of amortization since the acquired contracts’ pricing terms differ significantly from fair value at the date of acquisition and emission allowances, while acquired from government programs without future cost to EnergyCo, have historically had significant market value. During the three months and six months ended June 30, 2008, EnergyCo recorded amortization of contracts acquired of $(0.3) million and $1.0 million, which is recorded in operating revenues, and amortization on emission allowances of $1.2 million and $5.3 million, which is recorded in cost of sales.

In July 2008, a federal appeals court ruling by the U.S. Court of Appeals for the District of Columbia Circuit Court invalidated CAIR. This ruling appears to remove the need for emissions allowance credits under the CAIR program. EnergyCo currently carries $153.5 million in inventory for emissions allowances, $34.6 million of which fall under the CAIR program, from the purchase of the Altura Cogen plant and contribution of the Twin Oaks plant. EnergyCo is currently evaluating what impacts this ruling might have on the value of this inventory.

The contribution of Altura created a basis difference between PNMR’s recorded investment in EnergyCo and 50 percent of EnergyCo’s equity. While the portion of the basis difference related to contract amortization will only continue through 2010, other basis differences, including a difference related to emission allowances, will continue to exist through the life of the Altura plant. For the three months and six months ended June 30, 2008, the basis difference adjustment detailed above of $0.2 million and $0.6 million relates mainly to contract amortization with insignificant offsets related to the other minor basis difference components.

EnergyCo intends to have an active hedging program that covers a multi-year period. The level of hedging at any given time varies depending on current market conditions and other factors. Economic hedges that do not qualify for or are not designated as cash flow hedges or normal purchases/sales under SFAS 133 are derivative instruments that are required to be marked to market. Changes in the fair value of economic hedges resulted in an increase in net earnings of $8.1 million in the three months ended June 30, 2008 and a reduction of net earnings of $39.0 million in the six months ended June 30, 2008 as a result of higher power prices. Due to the extreme market volatility experienced in the first quarter in the ERCOT market, EnergyCo made the decision to exit the speculative trading business and close out the speculative trading positions. In May 2008, EnergyCo closed out all remaining

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

speculative positions. EnergyCo recognized speculative trading losses of $2.4 million in the first quarter of 2008 and less than $0.1 million in the second quarter of 2008. No additional costs are expected related to speculative trading.

The assets of Altura transferred to EnergyCo included the development rights for a possible 600-megawatt expansion of the Twin Oaks plant, which was classified as an intangible asset. EnergyCo has made a strategic decision not to pursue the Twin Oaks expansion at this time and, in the three months ended June 30, 2008, has written off the development rights as an impairment of intangible assets amounting to $21.8 million.

(12)	Related Party Transactions

PNMR, PNM, TNMP, and EnergyCo are considered related parties as defined in SFAS 57. PNMR Services Company provides corporate services to PNMR, its subsidiaries, 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~~2007 Annual Reports on Form ~~10-K/A (Amendment No. 1).~~10-K.

See Note 11 for information concerning ~~EnergyCo and Note 14 for information concerning the transfer of operations from TNMP to PNM.~~EnergyCo. The table below summarizes the nature and amount of other related party transactions of PNMR, PNM and 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 — — — —

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
	(In thousands)
Transmission, distribution and related services billings:
PNM to TNMP	$	-	$	-	$	-	$	126
TNMP to PNMR		14,909		16,873		29,319		33,386

Shared services billings from PNMR to:
PNM*	$	23,544	$	23,697	$	46,411	$	49,595
TNMP		5,038		4,587		9,815		10,117

Services billings from PNMR to EnergyCo	$	4,749	$	2,344	$	7,224	$	3,414

Income tax sharing payments from:
PNMR to PNM	$	-	$	-	$	1,855	$	-
PNMR to TNMP		-		-		858		-

Capital expenditure billings from PNMR to:
PNM	$	-	$	-	$	-	$	99
TNMP		-		-		-		18

Interest payments:
TNMP to PNMR	$	28	$	324	$	117	$	592

* PNM shared services include billings to PNM Gas of $6.0 million and $8.1 million for the three months ended and $12.1 million and $16.6 million for the six months ended June 30, 2008 and 2007.

PNM RESOURCES, INC. AND SUBSIDIARIES

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~(13) New Accounting Pronouncements~~

(13)	New Accounting Pronouncements

Note 21 of Notes to Consolidated Financial Statements in the ~~2006~~2007 Annual Reports on Form ~~10-K/A (Amendment No. 1)~~10-K 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 4 regarding the implementation of SFAS 157, SFAS 159, and FSP FIN 39-1.

SFAS 161 – Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133

In March 2008, the FASB released SFAS 161, which is effective for years beginning after November 15, 2008 and changes the disclosure requirements for ~~discussion concerning~~derivative instruments and hedging instruments. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, results of operation, and cash flows. The Company is currently reviewing the ~~adoption~~requirements of ~~FIN 48 as of~~SFAS 161 and will implement the required disclosures no later than January 1, ~~2007.~~2009.

~~(14) Discontinued Operations~~

~~In connection with~~SFAS 162 – The Hierarchy of Generally Accepted Accounting Principles

The current GAAP hierarchy, as set forth in the ~~acquisition~~American Institute of ~~TNP and its principal subsidiaries, TNMP and First Choice, the NMPRC stipulated that all TNMP’s New Mexico operations would transfer~~Certified Public Accountants Statement on Auditing Standards No. 69, has been criticized because (1) it is directed to the ~~ownership~~auditor rather than the entity, (2) it is complex, and (3) it ranks FASB Statements of ~~PNM.~~Financial Accounting Concepts, which are subject to the same level of due process as FASB Statements of Financial Accounting Standards, below industry practices that are widely recognized as generally accepted but that are not subject to due process. The Board concluded that the GAAP hierarchy should reside in the accounting literature established by the FASB and issued this Statement to achieve that result. This ~~transfer took place on January 1, 2007 when TNMP transferred~~statement is effective 60 days following the SEC’s approval. The Company has reviewed the impact of SFAS 162 and does not believe it will result in a change in current practice.

(14)	Discontinued Operations

As discussed in Note 2, PNM entered into an agreement to sell its ~~New Mexico operational~~gas operations, which comprise the PNM Gas segment. Under GAAP, the assets and liabilities of PNM Gas are considered to ~~PNMR through redemption~~be held-for-sale beginning December 31, 2007 and presented as discontinued operations on the accompanying balance sheets. The PNM Gas results of ~~TNMP’s common stock. PNMR contemporaneously contributed~~operations are excluded from continuing operations and presented as discontinued operations on the ~~TNMP New Mexico operational assets and liabilities~~statements of earnings. Prior periods have been recast to ~~PNM.~~

be consistent with this presentation. In accordance with SFAS 144, ~~and EITF 03-13, the Company determined that the New Mexico operations component of TNMP~~no depreciation is ~~required to be reported~~recorded on assets held for sale in 2008. Summarized financial information for PNM Gas is as discontinued operations in the TNMP Condensed Consolidated Statements of Operations for the period January 1, 2006 through June 30, 2006. Due to the fact the net assets were distributed to TNMP’s parent, PNMR, the assets and liabilities were considered “held and used” up until the date of 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 return regulation. Subsequent to the 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, which represent their fair value within the regulatory environment.follows:

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 are 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 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

PNM RESOURCES, INC. AND SUBSIDIARIES

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~The following table summarizes the TNMP New Mexico assets and liabilities transferred to PNM:~~

Results of Operations

~~(15) Income Taxes~~

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
				(In thousands)
Operating revenues	$	95,568		$	75,112		$	316,024		$	291,569
Cost of energy		64,917			45,068			225,747			206,776
Gross margin		30,651			30,044			90,277			84,793
Operating expenses		22,991			23,808			44,433			47,089
Depreciation and amortization		-			5,473			-			11,074
Operating income		7,660			763			45,844			26,630
Other income (deductions)		502			(493	)		1,443			625
Net interest charges		(3,576	)		(2,898	)		(6,547	)		(5,844	)
Segment earnings before income taxes		4,586			(2,628	)		40,740			21,411
Income taxes		1,824			(1,040	)		15,479			8,477
Segment earnings (loss)	$	2,762		$	(1,588	)	$	25,261		$	12,934

	June 30,			December 31,
	2008			2007
	(In thousands)
ASSETS
Cash and cash equivalents	$	25		$	28
Accounts receivable and unbilled revenues, net		50,181			89,699
Regulatory and other current assets		27,480			30,334
Total current assets		77,686			120,061
Gas plant in service		758,351			743,664
Accumulated depreciation and amortization		(241,876	)		(245,741	)
Construction work in progress		19,803			22,411
Net utility plant		536,278			520,334
Regulatory and other assets		5,150			6,205
	$	619,114		$	646,600

LIABILITIES AND EQUITY
Accounts payable and accrued expenses	$	18,313		$	68,458
Regulatory and other current liabilities		24,409			27,545
Total current liabilities		42,722			96,003
Regulatory liabilities		73,790			72,727
Deferred credits and other liabilities		15,524			17,121
Total deferred credits and other liabilities		89,314			89,848
Equity		487,078			460,749
	$	619,114		$	646,600

PNM RESOURCES, INC. AND SUBSIDIARIES

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Estimated interest income related~~

PNM’s cost-of-gas revenues collected from sales-service customers are recovered in accordance with NMPRC regulations through the PGAC and represent a pass-through of the cost of natural gas to ~~refunds expected to be received~~the customer. The NMPRC has approved an agreement regarding the hedging strategy of PNM and the implementation of a price management fund program which includes a continuous monthly balancing account with a carrying charge. This carrying charge has the effect of keeping PNM whole on purchases of gas since it is ~~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~~compensated for the ~~six months ended June 30, 2007 was $0.1 million~~time value of money that exists due to any delay in collections from customers.

PNM uses call options and financial swaps to facilitate the hedge strategy. PNM Gas also enters into physical gas contracts to meet the needs of its retail sales-service customers. Costs and gains and losses for ~~PNMR. Due to~~these instruments are deferred and recovered through the ~~settlement discussed above, during for the three months ended June 30, 2007, PNMR reversed interest expense of $4.8 million previously recorded.~~PGAC with no income statement effect. At June 30, 2008, PNM Gas had $1.7 million of current assets and current liabilities related to these instruments. At December 31, 2007, ~~PNMR~~PNM Gas had ~~accumulated accrued interest receivable~~$7.1 million of ~~$4.3 million~~current assets and ~~accumulated accrued interest payable~~current liabilities related to these instruments. At June 30, 2008, PNM Gas derivatives were valued using Level 2 and Level 3 inputs as defined in SFAS 157.

(15)	Business Improvement Plan

As discussed in Note 24 of ~~$2.1 million; PNM had accumulated interest receivable~~the Notes to Consolidated Financial Statements in the 2007 Annual Reports on Form 10-K, the Company has undertaken a business improvement process that includes a comprehensive cost structure analysis of ~~$0.3 million~~its operations and ~~accumulated interest payable~~a benchmarking analysis to similar-sized utilities. The Company is now in the process of ~~$0.1 million;~~implementing a series of initiatives designed to manage future operational costs, maintain financial strength and ~~TNMP had accumulated interest receivable of $4.0 million.~~strengthen its regulated utilities. The multi-phase process includes a business improvement plan to streamline internal processes and reduce the Company’s work force. The utility-related process enhancements are designed to improve and centralize business functions.

The Company ~~files~~has existing plans providing severance benefits to employees who are involuntarily terminated due to elimination of their positions. Under SFAS 112, the severance benefits payable under the Company’s existing plans should be recorded when it is probable that a ~~federal consolidated~~liability has been incurred 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 under federal income tax examination. Additionally, the ~~reporting years 2003-2006 are currently under Texas franchise tax examination. Based on~~amount can be reasonably estimated. At June 30, 2008, the Company assessed the status of the business improvement plan process and the ~~process involved in finalizing these examinations, it is not possible to estimate the impact, if any, upon the Company’s previously recorded uncertain tax positions.~~

~~(16) Restatement~~

(16)	Variable Interest Entities

Information regarding the Company’s assessment of potential variable interest entities is contained in Note 9 of Notes to the ~~Condensed~~ Consolidated Financial Statements in the 2007 Annual Reports on Form 10-K.

On April 18, 2007, PNM entered into a power purchase agreement to purchase all of the electric capacity and energy from Valencia, a natural gas-fired power plant near Albuquerque, New Mexico. Valencia became operational on May 30, 2008. A third-party built, owns and operates the facility while PNM is the sole purchaser of the electricity generated. The total construction cost for ~~such~~the facility was $90.0 million. The term of the power purchase agreement is for 20 years beginning June 1, 2008, with the full output of the plant estimated to be 145 MW. PNM has the option to purchase and own up to 50% of the plant or the variable interest entity. PNM estimates that the plant will typically operate during peak periods ~~as appropriate. This restatement does not impact~~of energy demand in summer (less than 18% of the ~~Condensed Consolidated Financial Statements~~time on an annual basis).

PNM has evaluated the accounting treatment of ~~TNMP.~~this arrangement and concluded that the third party entity that owns Valencia is a variable interest entity and that PNM is the primary beneficiary of the entity under FIN 46R since it will absorb the majority of the variability in the cash flows of the plant. As the primary beneficiary, PNM has consolidated the entity in its financial statements beginning on the commercial operations date. Accordingly, the assets, liabilities, operating expenses, and cash flows of Valencia are included in the consolidated financial

PNM RESOURCES, INC. AND SUBSIDIARIES

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~The following is a summary~~

statements of PNM although PNM has no legal ownership interest or voting control of the ~~corrections described above:~~variable interest entity. The owner’s equity and net income of Valencia are considered attributable to minority interest. The owner’s equity is included in other deferred credits and the net income is included in other income and deductions. PNM did not consolidate the variable interest entity prior to May 30, 2008 since PNM had no financial risk.

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
Summarized financial information for Valencia is as follows:


*		~~Net earnings also appears in the Consolidated Statements of Cash Flows and Consolidated Statements of Comprehensive Income (Loss)~~May 30, 2008 to

**		~~Deferred credits was combined into other liabilities in the~~ June 30, ~~2006 Form 10-Q, as originally filed~~

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~~2008
	(In thousands)
**
~~Net earnings available for common stock also appears in the Consolidated Statements of Comprehensive~~ Operating revenues	$ 1,416
Operating expenses	190
Interest expense	225
Income ~~(Loss)~~attributable to minority interest	$ 1,001

	June 30, 2008
	(In thousands)
~~***~~
~~Deferred credits was combined into other~~ Current assets	$ 1,472
Net property, plant and equipment	90,041
Total assets	91,513

Short-term debt	86,651
Other current liabilities ~~in the June 30, 2006 Form 10-Q, as originally filed~~	5,016
Total liabilities	91,667

Owner' equity - minority interest	$ (154)

As of June 30, 2008, the utility plant serves as collateral for the obligations of this variable interest entity. As of June 30, 2008, the short-term debt of variable interest entity is to its parent and is non-recourse to both PNMR and PNM. Subsequent to June 30, 2008, the variable interest entity restructured its financial arrangements with its parent through a new short-term debt obligation of $75.2 million.

(17)	Impairment of Goodwill and Other Intangible Assets

Under the provisions of SFAS 142, the Company evaluates its goodwill and non-amortizing intangible assets for impairment annually at the reporting unit level or more frequently if circumstances indicate that the goodwill or intangible assets may be impaired. The goodwill and other intangible assets were recorded upon PNMR’s acquisition of TNP and were pushed down to the businesses acquired. In connection with the transfer of TNMP’s New Mexico operations to PNM, $102.8 million of goodwill was transferred to PNM.

The Company performed its annual testing of these assets as of April 1, 2008. Application of the impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated using a discounted cash flow methodology. This analysis requires significant judgments, including estimation of

~~ITEM 2. MANAGEMENT’S DISCUSSION~~
68

PNM RESOURCES, INC. AND ~~ANALYSIS~~SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL ~~CONDITION AND RESULTS OF OPERATIONS~~STATEMENTS

(Unaudited)

future cash flows, which is dependent on internal forecasts, estimation of long-term growth rates for the business and determination of appropriate weighted average cost of capital for each reporting unit. Changes in these estimates and assumptions could materially affect the determination of fair value and the conclusion of impairment for each reporting unit.

The market capitalization of PNMR’s common stock has been significantly below book value during 2008, which is an indicator that intangible assets may be impaired. In addition, changes in the ERCOT market in which First Choice operates have significantly impacted its results of operations. The first step of the impairment test for goodwill requires that the Company compare the fair value of each reporting unit with its carrying value, including goodwill. For non-amortizing intangibles, the Company compares the fair value of the intangible asset to its recorded value. As a result of this analysis, the Company concluded there was an indication of impairment in the reporting units having goodwill and that the First Choice trade name was impaired. This conclusion requires the Company to perform the second step of the SFAS 142 impairment analysis, determining the amount of goodwill impairment to be recorded. The amount is calculated by comparing the implied fair value of the goodwill to its carrying amount. This exercise requires the Company to allocate the fair value determined in step one to the individual assets and liabilities of the reporting unit. Any remaining fair value would be the implied fair value of goodwill on the testing date. To the extent the recorded amount of goodwill of a reporting unit exceeds the implied fair value determined in step two, an impairment loss is reflected in results of operations. Although the impairments of goodwill have no income tax effects, the impairment of the First Choice trade name does have an income tax effect.

Because of the timing and complexity of the calculations required in the second step of the impairment analysis related to the goodwill of First Choice, the Company anticipates finalizing this analysis in the third quarter of 2008. However, a preliminary estimate of the goodwill impairment has been recorded based on the calculations performed to date and may be revised. Neither the impairments recorded as of June 30, 2008 nor changes to the estimated amounts impact the Company’s cash flows. A summary of goodwill and non-amortizing intangible assets and pre-tax impairments recorded in the three months ended June 30, 2008 is as follows:

	Balance		Balance
	before		after
	Impairment		Impairment		Impairment
Goodwill:
First Choice	$	131,768	$	88,559	$	43,209
PNM		102,775		51,632		51,143
TNMP		261,121		226,665		34,456
Total PNMR	$	495,664	$	366,856		128,808

Other intangible assets - First Choice trade name	$	68,774	$	61,403		7,371

Total impairment					$	136,179

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 is presented on a combined basis, including certain information applicable to PNM and TNMP. The MD&A for PNM and TNMP ~~only includes a narrative analysis of results of operations~~is presented as 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. A reference to a “Note” in this Item 2 refers to the accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) included in Item 1, unless otherwise specified. Certain of the tables below may not visually add due to rounding.

MD&A ~~gives effect~~FOR PNMR

The overall strategy of PNMR is to concentrate business efforts on its core regulated and unregulated electric businesses. PNMR intends to focus on its regulated electric business by selling its gas operations, which is expected to close near the end of 2008. PNMR expects to use the net after-tax proceeds to retire debt, fund future electric capital expenditures and for other corporate purposes. The growth of the unregulated electric business is expected from the further development of EnergyCo. The strategic growth of EnergyCo was initiated with PNMR’s contribution of Altura on June 1, 2007 and continued with EnergyCo’s acquisition of the Altura Cogen Power Plant in August 2007 and with EnergyCo’s ongoing joint development project for the Cedar Bayou IV Generating Station with NRG Energy, Inc. On August 11, 2008, PNMR announced that it has decided to pursue strategic alternatives for First Choice.


	June 30,		December 31,		June 30,		December 31,
	2007		2006		2008		2007
	(In thousands)				(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	58,050	$	123,419	$	137,877	$	17,763
Special deposits		1,094		5,146		3,354		1,717
Accounts receivable, net of allowance for uncollectible accounts of $6,436 and $6,899		137,951		168,126
Accounts receivable, net of allowance for uncollectible accounts of $7,017 and $6,021						149,644		134,325
Unbilled revenues		100,311		116,878		96,564		74,896
Other receivables		99,091		73,744		66,816		90,002
Inventories		58,963		63,329
Materials, supplies, and fuel stock						44,330		41,312
Regulatory assets		12,321		17,507		249		157
Derivative instruments		91,600		59,312		245,613		49,257
Income taxes receivable		50,960		65,210		46,818		39,189
Current assets of discontinued operations						77,686		120,061
Other current assets		73,667		63,414		71,134		37,198


Total current assets		684,008		756,085		940,085		605,877


Other Property and Investments:
Investment in PVNGS lessor notes		203,862		257,659		183,884		192,226
Equity investment in EnergyCo		198,144		—		175,057		248,094
Investments held by NDT		136,424		123,143		130,806		139,642
Other investments		54,996		46,577		40,348		47,749
Non-utility assets, net of accumulated depreciation of $1,291 and $1,365		7,084		7,565

Non-utility property, net of accumulated depreciation of $1,946 and $1,570						9,876		6,968

Total other property and investments		600,510		434,944		539,971		634,679


Utility Plant:
Electric plant in service		3,743,584		4,263,068		4,240,902		3,920,071
Gas plant in service		751,736		721,168
Common plant in service and plant held for future use		123,616		157,064		141,619		128,119

		4,618,936		5,141,300		4,382,521		4,048,190
Less accumulated depreciation and amortization		1,662,465		1,639,156		1,502,790		1,464,625
						2,879,731		2,583,565
		2,956,471		3,502,144
Construction work in progress		312,161		230,871		164,877		299,574
Nuclear fuel, net of accumulated amortization of $20,353 and $14,008		35,263		28,844

Nuclear fuel, net of accumulated amortization of $15,454 and $15,395						59,609		52,246

Net utility plant		3,303,895		3,761,859		3,104,217		2,935,385


Deferred Charges and Other Assets:
Regulatory assets		545,739		553,564		442,756		481,872
Pension asset		10,163		8,853		21,965		17,778
Goodwill		494,513		495,738		366,856		495,664
Other intangible assets, net of accumulated amortization of $2,707 and $2,052		76,547		102,202
Other intangible assets, net of accumulated amortization of $4,017 and $3,362						67,866		75,892
Derivative instruments		27,548		39,886		39,363		45,694
Non-current assets of discontinued operations						541,428		526,539
Other deferred charges		50,030		77,703		62,286		52,756


Total deferred charges and other assets		1,204,540		1,277,946		1,542,520		1,696,195
					$	6,126,793	$	5,872,136

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


	June 30,		December 31,		June 30,			December 31,
	2007		2006		2008			2007
	(In thousands, except share information)				(In thousands, except share information)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term debt	$	559,670	$	764,345	$	426,651		$	665,900
Current installments of long-term debt		148,935		3,298		470,334			449,219
Accounts payable		167,512		214,229		158,850			148,955
Accrued interest and taxes		58,379		98,789		50,714			57,766
Regulatory liabilities		17,577		1,172		4,885			-
Derivative instruments		105,840		68,575		263,238			53,832
Current liabilities of discontinued operations						42,722			96,003
Other current liabilities		114,052		225,653		134,873			112,394


Total current liabilities		1,171,965		1,376,061		1,552,267			1,584,069


Long-term Debt		1,531,850		1,765,907		1,517,007			1,231,859


Deferred Credits and Other Liabilities:
Accumulated deferred income taxes		579,586		586,283		560,334			600,187
Accumulated deferred investment tax credits		28,531		30,236		25,330			26,825
Regulatory liabilities		392,570		389,330		337,471			332,372
Asset retirement obligations		63,789		61,338		69,753			66,466
Accrued pension liability and postretirement benefit cost		131,126		134,799		57,789			60,022
Derivative instruments		19,632		14,581		40,769			55,206
Non-current liabilities of discontinued operations						89,314			89,848
Other deferred credits		135,797		155,860		164,278			121,342


Total deferred credits and other liabilities		1,351,031		1,372,427		1,345,038			1,352,268


Total liabilities		4,054,846		4,514,395		4,414,312			4,168,196


Commitments and Contingencies (See Note 9)

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

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
Common stock outstanding (no par value, 120,000,000 shares authorized: issued
and outstanding 86,390,701 and 76,814,491 shares)						1,286,708			1,042,974
Accumulated other comprehensive income (loss), net of income tax						(24,587	)		11,208
Retained earnings		669,449		635,550		438,831			638,229


Total common stockholders’ equity		1,726,578		1,704,910		1,700,952			1,692,411

					$	6,126,793		$	5,872,136
	$	5,792,953	$	6,230,834


	Six Months Ended June 30,
	2007			2006
				(As Restated,			Six Months Ended June 30,
				See Note 16)			2008			2007
	(In thousands)						(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:
Net earnings (loss)							$	(192,123	)	$	49,906
Adjustments to reconcile net earnings (loss) to net cash flows from operating activities:
Depreciation and amortization		97,093			79,651			79,991			97,093
Allowance for equity funds used during construction		(876	)		(73	)
Amortization of prepayments on PVNGS firm-sales contracts								(4,084	)		-
Deferred income tax expense (benefit)		13,062			(7,920	)		(23,498	)		13,062
Equity in net earnings of EnergyCo		(1,610	)		—
Equity in net (earnings) loss of EnergyCo								27,606			(1,610	)
Net unrealized losses on derivatives		7,940			1,864			5,174			7,940
Realized gains on investments held by NDT		(3,001	)		(2,054	)
Realized (gains) losses on investments held by NDT								4,382			(3,001	)
Realized loss on Altura contribution		3,637			—			-			3,637
Impairment loss on intangible assets		3,380			—
Carrying charges on regulatory assets and liabilities		(513	)		(4,922	)
Impairment of goodwill and other intangible assets								136,179			3,380
Amortization of fair value of acquired Twin Oaks sales contract		(35,073	)		(16,878	)		-			(35,073	)
Stock based compensation expense		5,250			5,513			2,431			5,250
Excess tax benefit from stock-based payment arrangements		(8	)		(908	)
Regulatory disallowances								30,248			-
Other, net		(561	)		(9	)		(1,140	)		(1,958	)
Changes in certain assets and liabilities:
Accounts receivable		23,680			55,214
Unbilled revenues		16,567			17,047
Regulatory assets		(1,752	)		20,878
Accounts receivable and unbilled revenues								(900	)		40,247
Materials, supplies, fuel stock, and natural gas stored								(5,936	)		(5,337	)
Other current assets								(17,909	)		(908	)
Other assets		(2,792	)		(7,819	)		(4,482	)		1,701
Accrued pension liability and postretirement benefit costs		(4,549	)		(5,409	)
Accounts payable		(42,325	)		(88,716	)		(41,485	)		(42,325	)
Accrued interest and taxes		(14,709	)		35,402			(15,559	)		(14,709	)
Deferred credits		(17,567	)		(9,168	)
Other current liabilities								32,953			(7,987	)
Other liabilities		(7,987	)		(2,234	)		428			(22,116	)

Net cash flows from operating activities		87,192			111,443			12,276			87,192


Cash Flows From Investing Activities:
Utility plant additions		(213,070	)		(128,568	)		(162,005	)		(213,070	)
Proceeds from sales of investments held by NDT		62,697			45,534			77,047			62,697
Purchases of investments held by NDT		(66,903	)		(45,738	)		(77,650	)		(66,903	)
Proceeds from sales of utility plant		25,041			—			1,184			25,041
Return of principal on PVNGS lessor notes		11,953			11,297			10,986			11,953
Change in restricted special deposits								3,696			(12,240	)
Investments in EnergyCo		(2,540	)		—			-			(2,540	)
Distributions from EnergyCo		362,275			—			-			362,275
Twin Oaks acquisition		—			(481,015	)
Other, net		(6,977	)		2,309			(3,332	)		5,263

Net cash flows from investing activities		172,476			(596,181	)		(150,074	)		172,476


	June 30,		December 31,		June 30,		December 31,
	2007		2006		2008		2007
	(In thousands)				(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	1,430	$	11,886	$	44,499	$	4,303
Special deposits		774		376		3,034		1,397
Accounts receivable, net of allowance for uncollectible accounts of $1,571 and $1,788		107,545		122,648
Accounts receivable, net of allowance for uncollectible accounts of $1,061 and $729						88,365		78,094
Unbilled revenues		45,339		81,166		38,280		32,039
Other receivables		79,619		62,040		53,703		79,842
Affiliate accounts receivable		1,166		8,905		-		271
Inventories		57,052		51,801
Materials, supplies, and fuel stock						42,925		39,771
Regulatory assets		12,321		17,507		249		157
Income taxes receivable		—		13,222
Derivative instruments		38,459		27,750		30,653		14,859
Current assets of discontinued operations						77,686		120,061
Other current assets		54,515		51,231		43,169		28,926


Total current assets		398,220		448,532		422,563		399,720


Other Property and Investments:
Investment in PVNGS lessor notes		245,014		257,659		217,902		231,582
Investments held by NDT		136,424		123,143		130,806		139,642
Other investments		26,510		15,634		15,424		20,733
Non-utility property		976		966		976		976


Total other property and investments		408,924		397,402		365,108		392,933


Utility Plant:
Electric plant in service		2,890,200		2,742,795		3,359,109		3,055,953
Gas plant in service		751,736		721,168
Common plant in service and plant held for future use		18,237		72,806		17,400		18,237

		3,660,173		3,536,769		3,376,509		3,074,190
Less accumulated depreciation and amortization		1,373,124		1,279,349		1,178,193		1,157,775
						2,198,316		1,916,415
		2,287,049		2,257,420
Construction work in progress		294,565		191,403		131,326		259,386
Nuclear fuel, net of accumulated amortization of $20,353 and $14,008		35,263		28,844

Nuclear fuel, net of accumulated amortization of $15,454 and $15,395						59,609		52,246

Net utility plant		2,616,877		2,477,667		2,389,251		2,228,047


Deferred Charges and Other Assets:
Regulatory assets		406,299		410,979		314,438		348,719
Pension asset						5,777		2,859
Derivative instruments		19,837		12,504		6,961		37,359
Goodwill		102,601		—		51,632		102,775
Non-current assets of discontinued operations						541,428		526,539
Other deferred charges		65,304		66,465		71,941		64,449


Total deferred charges and other assets		594,041		489,948		992,177		1,082,700
					$	4,169,099	$	4,103,400

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


	June 30,		December 31,		June 30,			December 31,
	2007		2006		2008			2007
	(In thousands, except share information)				(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities:
Short-term debt	$	242,070	$	251,300	$	86,651		$	321,000
Current installments of long-term debt						299,991			299,969
Accounts payable		81,556		138,577		72,200			72,864
Affiliate accounts payable		14,958		16,898		16,202			19,948
Accrued interest and taxes		47,650		41,340		36,010			26,385
Regulatory liabilities		17,577		1,172		4,885			-
Derivative instruments		55,735		43,096		38,727			17,896
Current liability of discontinued operations						42,722			96,003
Other current liabilities		69,166		82,262		89,068			59,468


Total current liabilties		528,712		574,645

Total current liabilities						686,456			913,533

Long-term Debt		1,005,639		987,205		1,055,709			705,701


Deferred Credits and Other Liabilities:
Accumulated deferred income taxes		394,973		368,256		402,650			409,430
Accumulated deferred investment tax credits		28,207		29,404		25,234			26,634
Regulatory liabilities		351,578		335,196		289,857			285,782
Asset retirement obligations		63,076		60,493		68,981			65,725
Accrued pension liability and postretirement benefit cost		126,187		129,595		54,037			56,101
Derivative instruments		11,560		14,100		10,122			47,597
Non-current liabilities of discontinued operations						89,314			89,848
Other deferred credits		104,073		112,990		138,322			98,295


Total deferred credits and liabilities		1,079,654		1,050,034		1,078,517			1,079,412


Total liabilities		2,614,005		2,611,884		2,820,682			2,698,646


Commitments and Contingencies (See Note 9)

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

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
Common stock outstanding (no par value, 40,000,000 shares authorized: issued
and outstanding 39,117,799 shares)						932,523			932,523
Accumulated other comprehensive income (loss), net of income tax						(10,191	)		7,580
Retained earnings		444,321		415,875		414,556			453,122


Total common stockholder’s equity		1,392,528		1,190,136		1,336,888			1,393,225

					$	4,169,099		$	4,103,400
	$	4,018,062	$	3,813,549


	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


	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


	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


	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


	•	·	Development, ~~operation~~ownership, and ~~ownership~~active management of diverse generation ~~assets; and~~fleet


	•	·	Wholesale marketing ~~and trading~~ to ~~optimize its assets.~~capture the extrinsic value of the generating fleet

	Three Months Ended June 30, 2008												Six Months Ended June 30, 2008
							Earnings (Loss)												Earnings (Loss)
							Before			Segment									Before			Segment
	Total			Gross			Income			Earnings			Total			Gross			Income			Earnings
	Revenues			Margin			Taxes			(Loss)			Revenues			Margin			Taxes			(Loss)
	(In millions)
Increased rate recovery including emergency FPPAC	$	11.5		$	11.5		$	11.5		$	6.9		$	11.5		$	11.5		$	11.5		$	6.9
Regulated sales growth		1.8			1.0			1.0			0.6			7.6			2.3			2.3			1.4
Generation and purchased power cost increases		-			(0.7	)		(0.7	)		(0.4	)		-			(9.3	)		(9.3	)		(5.6	)
Regulated plant availability		24.7			8.3			5.7			3.4			9.3			(13.3	)		(28.2	)		(17.0	)
Sales of SO2 allowances		(13.1	)		(13.1	)		(13.1	)		(7.9	)		(13.2	)		(13.2	)		(13.2	)		(8.0	)
Unregulated margins		(1.3	)		0.6			0.6			0.4			29.5			2.8			2.8			1.7
Gain on sale of merchant portfolio		2.9			2.9			2.9			1.8			5.1			5.1			5.1			3.1
Net unrealized economic hedges		54.9			12.2			12.2			7.4			41.2			17.4			17.4			10.5
Operational costs		-			-			(4.8	)		(2.9	)		-			-			(2.2	)		(1.3	)
NDT		-			-			(2.6	)		(1.6	)		-			-			(7.2	)		(4.3	)
Regulatory disallowances		-			-			-			-			-			-			(30.2	)		(18.2	)
Impairment of goodwill		-			-			(51.1	)		(51.1	)		-			-			(51.1	)		(51.1	)
Other		4.4			0.8			(7.3	)		(4.3	)		7.0			(0.1	)		(10.6	)		(7.2	)
Total increase (decrease)	$	85.8		$	23.5		$	(45.7	)	$	(47.7	)	$	98.0		$	3.2		$	(112.9	)	$	(89.1	)


	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


(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~~(in thousands) 119.5 and ~~146,549~~138.9 and customers of TNMP Electric for the three months ended June 30, 2008 and 2007 and ~~2006~~121.9 and ~~133,235 and 147,782~~141.4 customers for the six months ended June 30, ~~2007~~2008 and ~~2006~~2007 who have chosen First Choice as their REP. These customers are also included in the First Choice segment.


(1)		The GWh sales reported above include ~~487.3~~433.0 and ~~635.1~~487.3 GWhs for the three months ended June 30, 2008 and 2007 and ~~2006~~828.0 and 960.3 ~~and 1,110.0~~ GWhs for the six months ended June 30, ~~2007~~2008 and ~~2006~~2007 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.~~


	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


(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)~~	(2)	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.~~


	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


	PNM		PNMR		PNMR
	Separate		Separate		Consolidated		PNMR	PNM	TNMP	PNMR
	(In millions)						Separate	Separate	Separate	Consolidated
								(In millions)
Financing Capacity:
Revolving credit facility	$	400.0	$	600.0	$	1,000.0	$ 600.0	$ 400.0	$ 200.0	$ 1,200.0
Local lines of credit		13.5		15.0		28.5	10.0	8.5	-	18.5

Delayed draw term loan facility							-	150.0	-	150.0
Letter of credit facility							-	100.0	-	100.0
Term loan credit facility							-	-	150.0	150.0
Total financing capacity	$	413.5	$	615.0	$	1,028.5	$ 610.0	$ 658.5	$ 350.0	$ 1,618.5


Commercial paper program maximum	$	300.0	$	400.0	$	700.0	$ 400.0	$ 300.0	$ -	$ 700.0


Amounts outstanding as of August 1, 2007:
Amounts outstanding as of August 4, 2008:
Commercial paper program	$	268.6	$	362.8	$	631.4	$ -	$ -	$ -	$ -
Revolving credit facility		—		—		—	235.0	-	-	235.0
Local lines of credit		—		—		—	-	-	-	-

Delayed draw term loan facility							-	-	-	-
Term loan credit facility							-	-	150.0	150.0
Total short-term debt outstanding		268.6		362.8		631.4	235.0	-	150.0	385.0

Letters of credit		3.1		30.5		33.6	122.2	27.8	1.5	151.5


Total short term-debt and letters of credit	$	271.7	$	393.3	$	665.0	$ 357.2	$ 27.8	$ 151.5	$ 536.5


Remaining availability as of August 1, 2007	$	141.8	$	221.7	$	363.5

Remaining availability as of August 4, 2008							$ 252.8	$ 630.7	$ 198.5	$ 1,082.0
Cash balances as of August 4, 2008							$ 54.8	$ 54.4	$ -	$ 109.2


		PNMR		PNM		TNMP

S&P
Senior unsecured notes		~~BBB-~~BB-		~~BBB~~BB+		~~BBB~~BB+
Commercial paper		A3B-2		A3B-2		*
Preferred stock	*		B		*
Moody’s
Senior unsecured notes		~~Baa3~~Ba2		~~Baa2~~Baa3		Baa3
Commercial paper		P3NP		P2P-3		*
Preferred stock		*		~~Ba1~~Ba2		*


	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,
TNMP	2007			2006

Common equity		59.1	%		54.9	%
Long-term debt		40.9	%		45.1	%

Total capitalization		100.0	%		100.0	%

PNM
Common equity	49.5	%	57.8	%
Preferred stock	0.4	%	0.5	%
Long-term debt	50.1	%	41.7	%
Total capitalization	100.0	%	100.0	%

TNMP
Common equity	70.9	%	57.8	%
Long-term debt	29.1	%	42.2	%
Total capitalization	100.0	%	100.0	%


	•	·	The potential unavailability of cash from PNMR’s subsidiaries or EnergyCo due to regulatory, statutory 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,


	•	·	Insurance coverage available for claims made in litigation,


•		~~Conditions affecting the Company’s ability to access the financial markets, or EnergyCo’s access to additional debt financing following the utilization of its existing credit facility,~~

•	·	Weather,


	•	·	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,