PNM RESOURCES INC - Quarter Report: 2009 May (Form 10-Q)

f10q_050609pnmr.htm

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

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

For the quarterly period ended March 31, 2009



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)
	577 N. Garden Ridge Blvd.
	Lewisville, Texas 75067
	(972) 420-4189

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

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

Indicate by check mark whether the registrants have submitted electronically and posted on its corporate Web sites, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES___ NO___ (No Interactive Data Files required to be submitted)

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

Large accelerated filer ü

Accelerated filer

Non-accelerated filer

Indicate by check mark whether 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

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

As of April 30, 2009, 86,620,391 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 April 30, 2009 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 April 30, 2009 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 is separately filed by PNMR, PNM and TNMP. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other 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 each other 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	4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
PNM RESOURCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Loss)	6
Condensed Consolidated Balance Sheets	7
Condensed Consolidated Statements of Cash Flows	9
Condensed Consolidated Statements of Changes in PNMR 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	16
Condensed Consolidated Statements of Changes in PNM 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	20
Condensed Consolidated Balance Sheets	21
Condensed Consolidated Statements of Cash Flows	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	65
AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	83
ITEM 4. CONTROLS AND PROCEDURES	89
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	90
ITEM 1A. RISK FACTORS	90
ITEM 6. EXHIBITS	91
SIGNATURE	93

GLOSSARY

Definitions:
Afton		Afton Generating Station
AG		New Mexico Attorney General
ALJ		Administrative Law Judge
Altura		Optim Energy Twin Oaks, LP; formerly known as Altura Power L.P.
Altura Cogen		Optim Energy Altura Cogen, LLC; formerly known as Altura Cogen, LLC (the CoGen Lyondell Power Generation Facility)
AOCI		Accumulated Other Comprehensive Income
APS		Arizona Public Service Company, which is the operator and a co-owner of PVNGS and Four Corners
APB		Accounting Principles Board
BART		Best Available Retrofit Technology
Board		Board of Directors of PNMR
Cal PX		California Power Exchange
Cascade		Cascade Investment, L.L.C.
Continental		Continental Energy Systems, L.L.C.
CRHC		Cap Rock Holding Corporation, a subsidiary of Continental
CTC		Competition Transition Charge
Decatherm		Million BTUs
Delta		Delta-Person Limited Partnership
DOE		Department of Energy
ECJV		ECJV Holdings, LLC
EIP		Eastern Interconnection Project
EITF		Emerging Issues Task Force
EnergyCo		EnergyCo, LLC, a limited liability company, owned 50% by each of PNMR and ECJV; now known as Optim Energy
EPA		United States Environmental Protection Agency
EPE		El Paso Electric Company
ERCOT		Electric Reliability Council of Texas
ESPP		Employee Stock Purchase Plan
FASB		Financial Accounting Standards Board
FERC		Federal Energy Regulatory Commission
FIN		FASB Interpretation Number
FIP		Federal Implementation Plan
First Choice		First Choice Power, L. P. and Subsidiaries
Four Corners		Four Corners Power Plant
FPPAC		Fuel and Purchased Power Adjustment Clause
FSP		FASB Staff Position
GAAP		Generally Accepted Accounting Principles in the United States of America
GEaR		Gross Earnings at Risk
GHG		Greenhouse Gas Emissions
GWh		Gigawatt hours
IBEW		International Brotherhood of Electrical Workers, Local 611
KWh		Kilowatt Hour
LBB		Lehman Brothers Bank, FSB, a subsidiary of LBH
LBH		Lehman Brothers Holdings Inc.
LCC		Lyondell Chemical Company
Lordsburg		Lordsburg Generating Station
Luna		Luna Energy Facility
MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Moody’s		Moody’s Investor Services, Inc.
MW		Megawatt
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
NDT		Nuclear Decommissioning Trusts for PVNGS
Ninth Circuit		United States Court of Appeals for the Ninth Circuit

NMED	New Mexico Environment Department
NMGC	New Mexico Gas Company, a subsidiary of Continental
NMPRC	New Mexico Public Regulation Commission
NOX	Nitrogen Oxides
NOI	Notice of Inquiry
NRC	United States Nuclear Regulatory Commission
O&M	Operations and Maintenance
OCI	Other Comprehensive Income
Optim Energy	Optim Energy, LLC, a limited liability company, owned 50% by each of PNMR and ECJV; formerly known as EnergyCo
PG&E	Pacific Gas and Electric Co.
PNM	Public Service Company of New Mexico and Subsidiaries
PNM Facility	PNM’s $400 Million Unsecured Revolving Credit Facility
PNMR	PNM Resources, Inc. and Subsidiaries
PNMR Facility	PNMR’s $600 Million Unsecured Revolving Credit Facility
PPA	Power Purchase Agreement
PRP	Potential Responsible Party
PUCT	Public Utility Commission of Texas
PVNGS	Palo Verde Nuclear Generating Station
REC	Renewable Energy Certificates
REP	Retail Electricity Provider
RFP	Request for Proposal
RMC	Risk Management Committee
SEC	United States Securities and Exchange Commission
SFAS	FASB Statement of Financial Accounting Standards
SJCC	San Juan Coal Company
SJGS	San Juan Generating Station
SO2	Sulfur Dioxide
SPS	Southwestern Public Service Company
SRP	Salt River Project
S&P	Standard and Poor’s Ratings Services
TECA	Texas Electric Choice Act
Term Loan Agreement	PNM’s $300 Million Unsecured Delayed Draw Term Loan Facility
TNMP Bridge Facility	TNMP’s $100 Million Bridge Term Loan Credit Agreement
TNMP Facility	TNMP’s $200 Million Unsecured Revolving Credit Facility
TNMP	Texas-New Mexico Power Company and Subsidiaries
TNP	TNP Enterprises, Inc. and Subsidiaries
Twin Oaks	Assets of Twin Oaks Power, L.P. and Twin Oaks Power III, L.P.
Valencia	Valencia Energy Facility
VaR	Value at Risk

Accounting Pronouncements (as amended and interpreted):

FIN 46R	FIN 46R “Consolidation of Variable Interest Entities an Interpretation of ARB No. 51”
FSP FAS 157-2	FSP FAS 157-2 “Effective Date of FASB Statement No. 157”
SFAS 5	SFAS No. 5 “Accounting for Contingencies”
SFAS 57	SFAS No. 57 “Related Party Disclosures”
SFAS 106	SFAS No. 106 “Employers' Accounting for Postretirement Benefits Other Than Pensions”
SFAS 112	SFAS No. 112 “Employers’ Accounting for Postemployment Benefits – an amendment of FASB Statements No. 5 and 43”
SFAS 128	SFAS No. 128 “Earnings per Share”
SFAS 133	SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”
SFAS 141	SFAS No. 141 “Business Combinations”
SFAS 144	SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”
SFAS 157	SFAS No. 157 “Fair Value Measurements”
SFAS 160	SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51”
SFAS 161	SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133”

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(Unaudited)

	Three Months Ended March 31,
	2009			2008
	(In thousands, except per share amounts)
Operating Revenues:
Electric	$	385,803		$	364,403
Other		62			100
Total operating revenues		385,865			364,503

Operating Expenses:
Cost of energy		181,248			234,380
Administrative and general		62,138			47,362
Energy production costs		48,557			51,204
Regulatory disallowances		-			30,248
Depreciation and amortization		36,071			34,037
Transmission and distribution costs		14,017			13,376
Taxes other than income taxes		13,931			12,867
Total operating expenses		355,962			423,474
Operating income (loss)		29,903			(58,971	)

Other Income and Deductions:
Interest income		5,223			5,530
Gains (losses) on investments held by NDT		(4,382	)		(3,705	)
Other income		23,164			890
Equity in net earnings (loss) of Optim Energy		1,395			(25,083	)
Other deductions		(2,360	)		(3,882	)
Net other income (deductions)		23,040			(26,250	)

Interest Charges:
Interest on long-term debt		24,200			18,908
Other interest charges		4,749			8,927
Total interest charges		28,949			27,835

Earnings (Loss) before Income Taxes		23,994			(113,056	)

Income Taxes (Benefit)		7,587			(42,053	)

Earnings (Loss) from Continuing Operations		16,407			(71,003	)

Earnings from Discontinued Operations, net of Income
Taxes of $43,842 and $13,655		81,675			22,499

Net Earnings (Loss)		98,082			(48,504	)

Earnings Attributable to Valencia Non-controlling Interest		(2,579	)		-

Preferred Stock Dividend Requirements of Subsidiary		(132	)		(132	)

Net Earnings (Loss) Attributable to PNMR	$	95,371		$	(48,636	)

Earnings (Loss) from Continuing Operations Attributable to PNMR per Common Share:
Basic	$	0.15		$	(0.93	)
Diluted	$	0.15		$	(0.93	)
Net Earnings (Loss) Attributable to PNMR per Common Share:
Basic	$	1.04		$	(0.63	)
Diluted	$	1.04		$	(0.63	)

Dividends Declared per Common Share	$	0.125		$	0.230

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

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31,		December 31,
	2009		2008
	(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	70,470	$	140,619
Special deposits		3,480		3,480
Accounts receivable, net of allowance for uncollectible accounts of $18,659 and $21,466		102,949		119,174
Unbilled revenues		66,368		81,126
Other receivables		89,149		73,083
Materials, supplies, and fuel stock		47,450		49,397
Regulatory assets		1,537		1,541
Derivative instruments		72,259		51,250
Income taxes receivable		-		49,584
Current assets of discontinued operations		-		107,986
Other current assets		83,928		75,393

Total current assets		537,590		752,633

Other Property and Investments:
Investment in PVNGS lessor notes		154,172		168,729
Equity investment in Optim Energy		254,279		239,950
Investments held by NDT		107,992		111,671
Other investments		31,833		32,966
Non-utility property, net of accumulated depreciation of $2,938 and $2,582		8,768		9,135

Total other property and investments		557,044		562,451

Utility Plant:
Electric plant in service		4,387,225		4,329,169
Common plant in service and plant held for future use		156,907		147,576
		4,544,132		4,476,745
Less accumulated depreciation and amortization		1,569,235		1,545,950
		2,974,897		2,930,795
Construction work in progress		186,405		202,556
Nuclear fuel, net of accumulated amortization of $19,671 and $16,018		67,283		58,674

Net utility plant		3,228,585		3,192,025

Deferred Charges and Other Assets:
Regulatory assets		490,334		629,141
Goodwill		321,310		321,310
Other intangible assets, net of accumulated amortization of $4,822 and $4,672		27,017		27,167
Derivative instruments		29,500		25,620
Non-current assets of discontinued operations		-		561,915
Other deferred charges		86,182		75,720

Total deferred charges and other assets		954,343		1,640,873
	$	5,277,562	$	6,147,982

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

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31,			December 31,
	2009			2008
	(In thousands, except share information)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term debt	$	145,600		$	744,667
Current installments of long-term debt		38,004			205,694
Accounts payable		102,952			174,068
Accrued interest and taxes		141,595			51,618
Regulatory liabilities		8,776			1,746
Derivative instruments		61,340			33,951
Current liabilities of discontinued operations		-			77,082
Other current liabilities		113,793			139,562

Total current liabilities		612,060			1,428,388

Long-term Debt		1,530,906			1,379,011

Deferred Credits and Other Liabilities:
Accumulated deferred income taxes		437,792			572,719
Accumulated deferred investment tax credits		22,437			23,834
Regulatory liabilities		327,911			327,175
Asset retirement obligations		66,732			63,492
Accrued pension liability and postretirement benefit cost		243,713			246,136
Derivative instruments		14,769			6,934
Non-current liabilities of discontinued operations		-			94,615
Other deferred credits		143,994			149,237

Total deferred credits and other liabilities		1,257,348			1,484,142

Total liabilities		3,400,314			4,291,541

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

Equity:
PNMR Convertible Preferred Stock, Series A without mandatory redemption requirements
(no stated value, 10,000,000 shares authorized: issued and outstanding 477,800 shares)		100,000			100,000
PNMR common stockholders’ equity:
Common stock outstanding (no par value, 120,000,000 shares authorized: issued
and outstanding 86,607,560 and 86,531,644 shares)		1,288,536			1,288,168
Accumulated other comprehensive income (loss), net of income taxes		(27,743	)		30,948
Retained earnings		411,239			327,290
Total PNMR common stockholders’ equity		1,672,032			1,646,406
Non-controlling interest in Valencia		93,687			98,506
Total equity		1,865,719			1,844,912

	$	5,277,562		$	6,147,982

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

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2009			2008
	(In thousands)
Cash Flows From Operating Activities:
Net earnings (loss)	$	98,082		$	(48,504	)
Adjustments to reconcile net earnings (loss) to net cash flows from operating activities:
Depreciation and amortization		42,305			39,855
Amortization of pre-payments on PVNGS firm-sales contracts		(6,330	)		-
Bad debt expense		14,908			4,127
Deferred income tax expense (benefit)		(85,899	)		(24,849	)
Equity in net (earnings) loss of Optim Energy		(1,395	)		25,083
Net unrealized losses on derivatives		6,955			18,015
Realized losses on investments held by NDT		4,382			3,705
Gain on sale of PNM Gas		(111,006	)		-
Gain on reacquired debt		(7,467	)		-
Stock based compensation expense		1,070			1,983
Regulatory disallowances		-			30,248
Other, net		333			(2,891	)
Changes in certain assets and liabilities:
Customer accounts receivable and unbilled revenues		(3,211	)		5,964
Materials, supplies, and fuel stock		2,098			525
Other current assets		(1,034	)		9,156
Other assets		1,386			(360	)
Accounts payable		(79,025	)		(17,754	)
Accrued interest and taxes		139,815			(12,873	)
Other current liabilities		(26,815	)		(9,168	)
Other liabilities		(4,440	)		2,562
Net cash flows from operating activities		(15,288	)		24,824

Cash Flows From Investing Activities:
Utility plant additions		(75,442	)		(77,793	)
Proceeds from sales of investments held by NDT		44,391			36,635
Purchases of investments held by NDT		(44,724	)		(36,760	)
Proceeds from sale of PNM Gas		640,620			-
Return of principal on PVNGS lessor notes		11,458			10,645
Reduction in restricted special deposits		-			2,554
Other, net		(15,596	)		(3,183	)
Net cash flows from investing activities		560,707			(67,902	)

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

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2009			2008
	(In thousands)
Cash Flows From Financing Activities:
Short-term borrowings (repayments), net		(599,067	)		71,100
Long-term borrowings		309,242			-
Repayment of long-term debt		(314,079	)		-
Issuance of common stock		620			1,309
Proceeds from stock option exercise		-			86
Purchase of common stock to satisfy stock awards		(803	)		(1,140	)
Excess tax (shortfall) from stock-based payment arrangements		(519	)		(380	)
Dividends paid		(11,546	)		(17,934	)
Payments received on PVNGS firm-sales contracts		7,634			-
Other, net		(7,075	)		(3	)
Net cash flows from financing activities		(615,593	)		53,038

Change in Cash and Cash Equivalents		(70,174	)		9,960
Cash and Cash Equivalents at Beginning of Period		140,644			17,791
Cash and Cash Equivalents at End of Period	$	70,470		$	27,751

Supplemental Cash Flow Disclosures:
Interest paid, net of capitalized interest	$	29,240		$	41,321
Income taxes paid (refunded), net	$	(1,777	)	$	(4,176	)

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

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PNMR COMMON STOCKHOLDERS’ EQUITY

(Unaudited)

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

Balance at December 31, 2008		86,531,644	$	1,288,168		$	30,948		$	327,290		$	1,646,406
Purchase of common stock to satisfy stock awards		-		(803	)		-			-			(803	)
Tax shortfall from stock-based compensation arrangements		-		(519	)		-			-			(519	)
Stock based compensation expense		-		1,070			-			-			1,070
Sale of common stock		48,633		406			-			-			406
Common stock issued to ESPP		27,283		214			-			-			214
Net earnings attributable to PNMR		-		-			-			95,371			95,371
Total other comprehensive income (loss)		-		-			(58,691	)		-			(58,691	)
Dividends declared on common stock		-		-			-			(11,422	)		(11,422	)
Balance at March 31, 2009		86,607,560	$	1,288,536		$	(27,743	)	$	411,239		$	1,672,032

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

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	Three Months Ended March 31,
	2009			2008
	(In thousands)

Net Earnings (Loss)	$	98,082		$	(48,504	)

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 $(255) and $1,501		390			(2,291	)
Reclassification adjustment for (gains) included in
net earnings (loss), net of income tax expense
of $195 and $902		(298	)		(1,377	)

Pension liability adjustment, net of income tax (expense) benefit
of $42,487 and $0		(64,830	)		-

Fair Value Adjustment for Designated Cash Flow Hedges:
Change in fair market value, net of income tax (expense) benefit
of $(10,794) and $6,789		15,137			(10,206	)
Reclassification adjustment for (gains) losses included in
net earnings (loss), net of income tax expense (benefit)
of $6,101and $2,251		(9,090	)		(3,352	)

Total Other Comprehensive Income (Loss)		(58,691	)		(17,226	)

Comprehensive Income (Loss)		39,391			(65,730	)

Comprehensive Income Attributable to Valencia Non-controlling Interest		(2,579	)		-

Preferred Stock Dividend Requirements of Subsidiary		(132	)		(132	)

Comprehensive Income (Loss) Attributable to PNMR	$	36,680		$	(65,862	)

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

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(Unaudited)

	Three Months Ended March 31,
	2009			2008
	(In thousands)

Electric Operating Revenues	$	231,955		$	252,664

Operating Expenses:
Cost of energy		101,533			135,693
Administrative and general		29,690			26,826
Energy production costs		50,944			53,583
Regulatory disallowances		-			30,248
Depreciation and amortization		22,428			20,970
Transmission and distribution costs		9,073			8,907
Taxes other than income taxes		7,801			7,019
Total operating expenses		221,469			283,246
Operating income (loss)		10,486			(30,582	)

Other Income and Deductions:
Interest income		5,961			6,091
Gains (losses) on investments held by NDT		(4,382	)		(3,705	)
Other income		316			547
Other deductions		(866	)		(2,314	)
Net other income and deductions		1,029			619

Interest Charges:
Interest on long-term debt		17,185			10,530
Other interest charges		22			3,573
Total interest charges		17,207			14,103

Earnings (Loss) before Income Taxes		(5,692	)		(44,066	)

Income Taxes (Benefit)		(3,348	)		(17,089	)

Earnings (Loss) from Continuing Operations		(2,344	)		(26,977	)

Earnings from Discontinued Operations, net of Income
Taxes of $43,842 and $13,655		81,675			22,499

Net Earnings (Loss)		79,331			(4,478	)

Earnings Attributable to Valencia Non-controlling Interest		(2,579	)		-

Net Earnings (Loss) Attributable to PNM		76,752			(4,478	)

Preferred Stock Dividends Requirements		132			132

Net Earnings (Loss) Available for PNM Common Stock	$	76,620		$	(4,610	)

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

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31,		December 31,
	2009		2008
	(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	63,690	$	46,596
Special deposits		3,430		3,430
Accounts receivable, net of allowance for uncollectible accounts of $1,293 and $1,345		63,312		74,257
Unbilled revenues		31,232		37,350
Other receivables		86,419		72,096
Affiliate accounts receivable		304		-
Materials, supplies, and fuel stock		45,707		47,254
Regulatory assets		1,537		1,541
Derivative instruments		46,321		28,852
Current assets of discontinued operations		-		107,986
Other current assets		48,537		49,690

Total current assets		390,489		469,052

Other Property and Investments:
Investment in PVNGS lessor notes		184,273		200,711
Investments held by NDT		107,992		111,671
Other investments		9,675		9,951
Non-utility property		976		976

Total other property and investments		302,916		323,309

Utility Plant:
Electric plant in service		3,470,222		3,430,818
Common plant in service and plant held for future use		17,619		17,400
		3,487,841		3,448,218
Less accumulated depreciation and amortization		1,218,075		1,204,424
		2,269,766		2,243,794
Construction work in progress		161,606		156,997
Nuclear fuel, net of accumulated amortization of $19,671 and $16,018		67,283		58,674

Net utility plant		2,498,655		2,459,465

Deferred Charges and Other Assets:
Regulatory assets		357,822		494,481
Derivative instruments		18,786		17,744
Goodwill		51,632		51,632
Non-current assets of discontinued operations		-		561,915
Other deferred charges		56,262		51,137

Total deferred charges and other assets		484,502		1,176,909
	$	3,676,562	$	4,428,735

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

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31,			December 31,
	2009			2008
	(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities:
Short-term debt	$	-		$	340,000
Current installments of long-term debt		36,000			36,000
Accounts payable		66,289			90,502
Affiliate accounts payable		14,751			17,607
Accrued interest and taxes		186,870			50,125
Regulatory liabilities		8,776			1,746
Derivative instruments		21,352			7,884
Current liability of discontinued operations		-			77,082
Other current liabilities		70,169			93,131

Total current liabilities		404,207			714,077

Long-term Debt		1,019,720			1,019,717

Deferred Credits and Other Liabilities:
Accumulated deferred income taxes		277,083			414,995
Accumulated deferred investment tax credits		22,437			23,834
Regulatory liabilities		294,163			292,146
Asset retirement obligations		65,919			62,696
Accrued pension liability and postretirement benefit cost		227,728			229,683
Derivative instruments		2,380			569
Non-current liabilities of discontinued operations		-			94,615
Other deferred credits		118,879			124,929

Total deferred credits and liabilities		1,008,589			1,243,467

Total liabilities		2,432,516			2,977,261

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

Equity:
PNM common stockholder’s equity
Common stock outstanding (no par value, 40,000,000 shares authorized: issued
and outstanding 39,117,799 shares)		932,523			932,523
Accumulated other comprehensive income (loss), net of income tax		(41,483	)		17,746
Retained earnings		247,790			391,170
Total PNM common stockholder’s equity		1,138,830			1,341,439
Non-controlling interest in Valencia		93,687			98,506
Total equity		1,232,517			1,439,945

	$	3,676,562		$	4,428,735

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

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2009			2008
	(In thousands)
Cash Flows From Operating Activities:
Net earnings (loss)	$	79,331		$	(4,478	)
Adjustments to reconcile net earnings (loss) to net cash flows from operating activities:
Depreciation and amortization		25,934			25,077
Amortization of prepayments on PVNGS firm-sales contracts		(6,330	)		-
Deferred income tax expense		(87,666	)		(5,574	)
Net unrealized (gains) losses on derivatives		5,887			(10,332	)
Realized losses on investments held by NDT		4,382			3,705
Gain on sale of PNM Gas		(111,006	)		-
Regulatory disallowances		-			30,248
Other, net		262			(1,543	)
Changes in certain assets and liabilities:
Accounts receivable and unbilled revenues		(2,171	)		(4,850	)
Materials, supplies, and fuel stock		1,698			414
Other current assets		9,496			25,757
Other assets		4,504			(565	)
Accounts payable		(32,121	)		(9,917	)
Accrued interest and taxes		136,943			2,076
Other current liabilities		(28,197	)		(3,567	)
Other liabilities		(3,380	)		799
Net cash flows from operating activities		(2,434	)		47,250

Cash Flows From Investing Activities:
Utility plant additions		(65,715	)		(68,566	)
Proceeds from sales of NDT investments		44,391			36,635
Purchases of NDT investments		(44,724	)		(36,760	)
Proceeds from sale of PNM Gas		640,620			-
Return of principal on PVNGS lessor notes		13,339			12,304
Reduction in restricted special deposits		-			2,554
Other, net		(15,911	)		423
Net cash flows from investing activities		572,000			(53,410	)

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

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2009			2008
	(In thousands)
Cash Flows From Financing Activities:
Short-term borrowings (repayments), net		(340,000	)		24,004
Payments received on PVNGS firm-sales contracts		7,634			-
Dividends paid		(220,132	)		(132	)
Other, net		-			(308	)
Net cash flows from financing activities		(552,498	)		23,564

Change in Cash and Cash Equivalents		17,068			17,404
Cash and Cash Equivalents at Beginning of Period		46,622			4,331
Cash and Cash Equivalents at End of Period	$	63,690		$	21,735

Supplemental Cash Flow Disclosures:
Interest paid, net of capitalized interest	$	14,462		$	23,110
Income taxes paid (refunded), net	$	-		$	(1,855	)

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

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

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

(Unaudited)

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

Balance at December 31, 2008		39,117,799	$	932,523	$	17,746		$	391,170		$	1,341,439
Net earnings attributable to PNM		-		-		-			76,752			76,752
Total other comprehensive income (loss)		-		-		(59,229	)		-			(59,229	)
Dividends on preferred stock		-		-		-			(132	)		(132	)
Dividends on common stock		-		-		-			(220,000	)		(220,000	)
Balance at March 31, 2009		39,117,799	$	932,523	$	(41,483	)	$	247,790		$	1,138,830

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

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	Three Months Ended March 31,
	2009			2008
	(In thousands)

Net Earnings (Loss)	$	79,331		$	(4,478	)

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 $(255) and $1,501		390			(2,291	)
Reclassification adjustment for (gains) included in
net earnings, net of income tax expense
of $195 and $902		(298	)		(1,377	)

Pension liability adjustment, net of income tax benefit
of $42,487 and $0		(64,830	)		-

Fair Value Adjustment for Designated Cash Flow Hedges:
Change in fair market value, net of income tax (expense)
benefit of $(7,459) and $700		11,381			(1,067	)
Reclassification adjustment for (gains) losses included in
net earnings, net of income tax expense (benefit)
of $3,849 and $599		(5,872	)		(914	)

Total Other Comprehensive Income (Loss)		(59,229	)		(5,649	)

Comprehensive Income (Loss)		20,102			(10,127	)

Comprehensive Income Attributable to Valencia Non-controlling Interest		(2,579	)		-

Comprehensive Income (Loss) Attributable to PNM	$	17,523		$	(10,127	)

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

	Three Months Ended March 31,
	2009			2008
	(In thousands)
Electric Operating Revenues	$	41,225		$	42,228

Operating Expenses:
Cost of energy		8,595			7,812
Administrative and general		8,329			6,570
Depreciation and amortization		8,598			8,359
Transmission and distribution costs		4,941			4,464
Taxes, other than income taxes		4,677			4,440
Total operating expenses		35,140			31,645
Operating income		6,085			10,583

Other Income and Deductions:
Interest income		-			2
Other income		417			414
Other deductions		(25	)		(19	)
Net other income and deductions		392			397

Interest Charges:
Interest on long-term debt		1,012			4,408
Other interest charges		3,083			581
Net interest charges		4,095			4,989

Earnings Before Income Taxes		2,382			5,991

Income Taxes		961			2,261

Net Earnings	$	1,421		$	3,730

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31,		December 31,
	2009		2008
	(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	59	$	124
Special deposits		50		50
Accounts receivable		11,219		11,457
Unbilled revenues		4,594		6,421
Other receivables		1,872		480
Affiliate accounts receivable		5,004		7,110
Materials and supplies		1,718		1,625
Income taxes receivable		-		9
Other current assets		409		958

Total current assets		24,925		28,234

Other Property and Investments:
Other investments		556		550
Non-utility property		2,111		2,111

Total other property and investments		2,667		2,661

Utility Plant:
Electric plant in service		834,240		815,588
Common plant in service and plant held for future use		488		488
		834,728		816,076
Less accumulated depreciation and amortization		296,294		291,228
		538,434		524,848
Construction work in progress		17,700		30,948

Net utility plant		556,134		555,796

Deferred Charges and Other Assets:
Regulatory assets		132,512		134,660
Goodwill		226,665		226,665
Other deferred charges		29,095		23,982

Total deferred charges and other assets		388,272		385,307

	$	971,998	$	971,998

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31,			December 31,
	2009			2008
	(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities:
Short-term debt	$	-		$	150,000
Short-term debt – affiliate		38,800			14,100
Current installments of long-term debt		-			167,690
Accounts payable		3,850			11,846
Affiliate accounts payable		1,943			1,238
Accrued interest and taxes		26,878			35,118
Other current liabilities		2,508			3,111

Total current liabilities		73,979			383,103

Long-term Debt		309,242			-

Deferred Credits and Other Liabilities:
Accumulated deferred income taxes		110,105			111,193
Regulatory liabilities		33,748			35,028
Asset retirement obligations		726			711
Accrued pension liability and postretirement benefit cost		15,985			16,453
Derivative instruments		840			-
Other deferred credits		2,803			1,820

Total deferred credits and other liabilities		164,207			165,205

Total liabilities		547,428			548,308

Commitments and Contingencies (See Note 9)

Common Stockholder’s Equity:
Common stock outstanding ($10 par value, 12,000,000 shares authorized:
issued and outstanding 6,358 shares)		64			64
Paid-in-capital		427,320			427,320
Accumulated other comprehensive income (loss), net of income tax		(683	)		(142	)
Retained earnings (deficit)		(2,131	)		(3,552	)

Total common stockholder’s equity		424,570			423,690

	$	971,998		$	971,998

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2009			2008
	(In thousands)
Cash Flows From Operating Activities:
Net earnings	$	1,421		$	3,730
Adjustments to reconcile net earnings to
net cash flows from operating activities:
Depreciation and amortization		10,317			9,321
Deferred income tax expense (benefit)		(789	)		(1,484	)
Other, net		13			(681	)
Changes in certain assets and liabilities:
Accounts receivable and unbilled revenues		2,065			(596	)
Materials and supplies		(93	)		(5	)
Other current assets		(144	)		545
Other assets		(11	)		37
Accounts payable		(7,996	)		(1,560	)
Accrued interest and taxes		(8,230	)		(2,995	)
Other current liabilities		2,209			4,991
Other liabilities		(796	)		220
Net cash flows from operating activities		(2,034	)		11,523

Cash Flows From Investing Activities-
Utility plant additions		(8,052	)		(8,669	)
Net cash flows from investing activities		(8,052	)		(8,669	)

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2009			2008
	(In thousands)
Cash Flow From Financing Activities:
Short-term borrowings (repayments), net		(150,000	)		-
Short-term borrowings – affiliate		24,700			(2,904	)
Long-term debt issuance		309,242			-
Repayment of long-term debt		(167,690	)		-
Other, net		(6,231	)		(50	)
Net cash flows from financing activities		10,021			(2,954	)

Change in Cash and Cash Equivalents		(65	)		(100	)
Cash and Cash Equivalents at Beginning of Period		124			187
Cash and Cash Equivalents at End of Period	$	59		$	87

Supplemental Cash Flow Disclosures:
Interest paid, net of capitalized interest	$	8,650		$	5,269
Income taxes paid (refunded), net	$	(935	)	$	(858	)

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER’S EQUITY

(Unaudited)

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

Balance at December 31, 2008		6,358	$	64	$	427,320	$	(142	)	$	(3,552	)	$	423,690
Net earnings		-		-		-		-			1,421			1,421
Total other comprehensive income (loss)		-		-		-		(541	)		-			(541	)
Balance at March 31, 2009		6,358	$	64	$	427,320	$	(683	)	$	(2,131	)	$	424,570

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended March 31,
	2009			2008
	(In thousands)

Net Earnings	$	1,421		$	3,730

Other Comprehensive Income (Loss):

Fair Value Adjustment for Designated Cash Flow Hedges:
Change in fair market value, net of income tax (expense)
benefit of $300 and $0		(541	)		-

Total Other Comprehensive Income (Loss)		(541	)		-

Comprehensive Income	$	880		$	3,730

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

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1)	Significant Accounting Policies and Responsibility for Financial Statements

Financial Statement Preparation

In the opinion of management, the accompanying unaudited interim Condensed Consolidated Financial Statements reflect all normal and recurring accruals and adjustments that are necessary to present fairly the consolidated financial position at March 31, 2009 and December 31, 2008, and the consolidated results of operations, comprehensive income, and cash flows for the three months ended March 31, 2009 and 2008. The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual 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 2008 Annual Reports on Form 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, and First Choice. PNM consolidates the PVNGS Capital Trust and Valencia. PNMR shared services’ administrative and general expenses, which represent costs that are primarily driven by corporate level activities, are allocated to the business segments. Other significant intercompany transactions between PNMR, PNM, and TNMP include energy purchases and sales, transmission and distribution services, 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.

Presentation

The Notes to Condensed Consolidated Financial Statements include disclosures for PNMR, PNM, and TNMP. For discussion purposes, this report will use the term “Company” when discussing matters of common applicability to PNMR, PNM and TNMP. Discussions regarding only PNMR, PNM or TNMP will be indicated as such. Certain amounts in the 2008 Condensed Consolidated Financial Statements and Notes thereto have been reclassified to conform to the 2009 financial statement presentation.

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)

(2)	Disposition

PNM Gas Sale

On January 12, 2008, PNM reached a definitive agreement to sell its natural gas operations, which comprised the PNM Gas segment, to NMGC, a subsidiary of Continental, for $620 million in cash, subject to adjustment based on the actual level of working capital at closing. 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. Under the termination agreement, Continental agreed to pay PNMR $15.0 million upon the closing of the PNM Gas transaction. PNM completed the sale of PNM Gas on January 30, 2009 and recognized a gain of $72.9 million, after income taxes of $38.1 million in 2009, which is included in discontinued operations on the Condensed Consolidated Statements of Earnings (Loss). PNMR recognized an additional pre-tax gain of $15.0 million due to the CRHC termination payment, which is included in other income on the Condensed Consolidated Statements of Earnings (Loss). In connection with the sale, PNM retained obligations under the frozen PNM pension and executive retirement plans for employees transferred to NMGC. PNM had a regulatory asset related to these plans, which was removed from regulatory assets and transferred to AOCI. The after-tax charge to AOCI was $64.8 million.

PNM used proceeds from the sale to retire short-term debt and paid a dividend of $220.0 million to PNMR. The remaining funds were invested in a money market fund and will be used to pay income taxes on the gain from the sale. PNMR used the dividend from PNM and the $15.0 million from Continental to retire debt. There were no material prior relationships between the PNMR and Continental parties other than in respect of the transactions described herein. PNM and PNMR Services Company will provide certain corporate administrative and customer service support at cost to NMGC under a transition services agreement. The agreement term began January 30, 2009 and will continue for twelve months, subject to early termination. See Note 14 for financial information concerning PNM Gas, which is classified as discontinued operations in the accompanying financial statements.

(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. A reconciliation of the segment presentation to the GAAP financial statements is provided.

PNM Electric

PNM Electric 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 as well as the sale of transmission to third parties. PNM Electric also 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. See Note 10. Although the FERC has jurisdiction over the wholesale rates, they are not subject to traditional regulation.

TNMP Electric

TNMP Electric is a regulated utility operating in Texas. TNMP’s operations are subject to traditional rate regulation by the PUCT. TNMP provides regulated transmission and distribution services in Texas under the TECA.

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 Gas

PNM Gas distributed natural gas to most of the major communities in New Mexico, subject to traditional rate regulation by the NMPRC. The customer base of PNM Gas included both sales-service customers and transportation-service customers. PNM Gas purchased natural gas in the open market and sold it at cost to its sales-service customers. As a result, increases or decreases in gas revenues resulting from gas price fluctuations did not impact gross margin or earnings. As described in Note 2, PNM completed the sale of its gas operations on January 30, 2009. PNM Gas is reported as discontinued operations in the accompanying financial statements and is not included in the segment information presented below. Financial information regarding PNM Gas is presented in Note 14.

First Choice

First Choice is a certified retail electric provider operating in Texas, which allows it to provide electricity to residential, small commercial, and governmental customers. Although First Choice is regulated in certain respects by the PUCT, it is not subject to traditional rate of return regulation.

Optim Energy

Optim Energy is treated as a separate segment for PNMR. PNMR’s investment in Optim Energy is held in the Corporate and Other segment and is accounted for using the equity method of accounting. Optim Energy’s revenues and expenses are not included in PNMR’s consolidated revenues and expenses or the following tables. See Note 11.

Corporate and Other

PNMR Services Company is included in the Corporate and Other segment.

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 operating segment. TNMP operates in only one reportable segment. Therefore, tabular segment information is not presented for PNM and TNMP.

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 SEGMENT INFORMATION

	PNM			TNMP			First			Corporate
Three Months Ended March 31, 2009	Electric			Electric			Choice			and Other			Consolidated
							(In thousands)
Operating revenues	$	231,944		$	31,922		$	122,174		$	(175	)	$	385,865
Intersegment revenues		11			9,303			-			(9,314	)		-
Total revenues		231,955			41,225			122,174			(9,489	)		385,865
Cost of energy		101,533			8,595			80,423			(9,303	)		181,248
Gross margin		130,422			32,630			41,751			(186	)		204,617
Other operating expenses		97,508			17,947			29,332			(6,144	)		138,643
Depreciation and amortization		22,428			8,598			518			4,527			36,071
Operating income		10,486			6,085			11,901			1,431			29,903

Interest income		5,961			-			35			(773	)		5,223
Equity in net earnings of Optim Energy		-			-			-			1,395			1,395
Other income (deductions)		(4,932	)		392			-			20,962			16,422
Net interest charges		(17,207	)		(4,095	)		(999	)		(6,648	)		(28,949	)

Segment earnings (loss) before income taxes		(5,692	)		2,382			10,937			16,367			23,994

Income taxes (benefit)		(3,348	)		961			3,899			6,075			7,587

Segment earnings (loss) from continuing operations		(2,344	)		1,421			7,038			10,292			16,407

Earnings attributable to Valencia non-controlling interest		(2,579	)		-			-			-			(2,579	)
Preferred stock dividend requirements of subsidiary		(132	)		-			-			-			(132	)

Segment earnings (loss) from continuing operations attributable to PNMR	$	(5,055	)	$	1,421		$	7,038		$	10,292		$	13,696

At March 31, 2009:
Total Assets	$	3,676,562		$	971,998		$	245,885		$	383,117		$	5,277,562
Goodwill	$	51,632		$	226,665		$	43,013		$	-		$	321,310

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			TNMP			First			Corporate
Three Months Ended March 31, 2008	Electric			Electric			Choice			and Other			Consolidated
							(In thousands)
Operating revenues	$	252,639		$	27,818		$	84,169		$	(123	)	$	364,503
Intersegment revenues		25			14,410			-			(14,435	)		-
Total revenues		252,664			42,228			84,169			(14,558	)		364,503
Cost of energy		135,693			7,812			105,268			(14,393	)		234,380
Gross margin		116,971			34,416			(21,099	)		(165	)		130,123
Other operating expenses		126,583			15,474			15,455			(2,455	)		155,057
Depreciation and amortization		20,970			8,359			470			4,238			34,037
Operating income (loss)		(30,582	)		10,583			(37,024	)		(1,948	)		(58,971	)

Interest income		6,091			2			476			(1,039	)		5,530
Equity in net earnings (loss) of Optim Energy		-			-			-			(25,083	)		(25,083	)
Other income (deductions)		(5,472	)		395			(65	)		(1,555	)		(6,697	)
Net interest charges		(14,103	)		(4,989	)		(294	)		(8,449	)		(27,835	)

Segment earnings (loss) before income taxes		(44,066	)		5,991			(36,907	)		(38,074	)		(113,056	)

Income taxes (benefit)		(17,089	)		2,261			(12,843	)		(14,382	)		(42,053	)

Segment earnings (loss) from continuing operations		(26,977	)		3,730			(24,064	)		(23,692	)		(71,003	)

Preferred stock dividend requirements of subsidiary		(132	)		-			-			-			(132	)

Segment earnings (loss) from continuing operations attributable to PNMR	$	(27,109	)	$	3,730		$	(24,064	)	$	(23,692	)	$	(71,135	)

At March 31, 2008:
Total Assets*	$	3,505,550		$	972,514		$	485,426		$	349,961		$	5,313,451
Goodwill	$	102,775		$	261,121		$	131,768		$	-		$	495,664

* Excludes total assets of PNM Gas discontinued operations of $650,150.

(4)	Energy Related Derivative Contracts and Fair Value Disclosures

Energy Related Derivative Contracts

Overview

The Company is exposed to certain risks relating to its ongoing business operations. The primary objective for the use of derivative instruments, including energy contracts, options, and futures, is to manage price risk associated with forecasted purchases of energy or fuel used to generate electricity, or to manage anticipated generation capacity in excess of forecasted demand from existing customers. Substantially all of the Company’s energy related derivative contracts are entered into to manage commodity risk and the Company does not currently engage in speculative trading. The Company ceased speculative trading in the second quarter of 2008. Effective January 1, 2009, the Company adopted SFAS 161, which enhanced disclosures for derivative instruments and hedging activities.

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)

Commodity Risk

Marketing and procurement of energy often involve market risks associated with managing energy commodities and establishing open positions in the energy markets, primarily on a short-term basis. The Company routinely enters into various derivative instruments such as forward contracts, option agreements and price basis swap agreements to economically hedge price and volume risk on power commitments and fuel requirements and to minimize the risk of market fluctuations in wholesale portfolios. The Company monitors the market risk of its commodity contracts using VaR and GEaR calculations to maintain total exposure within management-prescribed limits.

PNM’s unregulated operations are managed primarily through a net asset-backed marketing strategy, whereby PNM’s aggregate net open forward contract position is covered by its forecasted excess generation capabilities or market purchases. PNM would be exposed to market risk if its generation capabilities were to be disrupted or if its retail load requirements were to be greater than anticipated. If all or a portion of the net open contract position were required to be covered as a result of the aforementioned unexpected situations, commitments would have to be met through market purchases.

First Choice is responsible for energy supply related to the sale of electricity to retail customers in Texas. TECA contains no provisions for the specific recovery of fuel and purchased power costs. The rates charged to First Choice customers are negotiated with each customer. As a result, changes in purchased power costs can affect First Choice’s operating results with respect to margins and changes in retail customer load requirements. First Choice is exposed to market risk to the extent that it has not hedged fixed price load commitments or to the degree that market price movements affect customer retention, customer additions or customer attrition. Additionally, volumetric fluctuations in First Choice retail load requirements due to weather or other conditions may subject First Choice to market risk. First Choice’s strategy is to minimize its exposure to fluctuations in market energy prices by matching sales contracts with supply instruments designed to preserve targeted margins.

Accounting for Derivatives

Under derivative accounting and related rules for energy contracts, the Company accounts for its various derivative instruments for the purchase and sale of energy based on the Company’s intent. Energy contracts that meet the definition of a derivative under SFAS 133 and do not qualify for the normal sales and purchases exception are recorded on the balance sheet at fair value at each period end. The changes in fair value are recognized in earnings unless specific hedge accounting criteria are met. Derivatives that meet the normal sales and purchases exception within SFAS 133 are not marked to market but rather recorded in results of operations when the underlying transaction settles.

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 and the methods utilized to assess the effectiveness of the hedges. Changes in the fair value of contracts qualifying for cash flow hedge accounting are included in AOCI to the extent effective. Ineffectiveness gains and losses were immaterial for the three months ended March 31, 2009 and 2008. 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 AOCI when the hedged transaction settles and impacts earnings. Based on market prices at March 31, 2009, after-tax gains of $11.3 million for PNMR and $19.4 million for PNM would be reclassified from AOCI 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 March 31, 2009, the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows is through December 2011.

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 contracts recorded at fair value that do not qualify or are not designated for hedge accounting are classified as economic hedges or trading transactions. Economic hedges are defined as derivative instruments, including long-term power agreements, used to economically hedge generation assets, purchased power and fuel 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. Trading transactions include speculative transactions, which the Company ceased in 2008. Also included in this category are transactions that lock in margin with no forward market risk and are not economic hedges; changes in the fair value of these transactions are reflected on a net basis in operating revenues.

Note 8 of Notes to Consolidated Financial Statements in the 2008 Annual Reports on Form 10-K contains information regarding energy related derivative contracts. See Note 7 for additional information regarding an interest rate swap.

Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value is based on current market quotes as available and is supplemented by modeling techniques and assumptions made by the Company to the extent quoted market prices or volatilities are not available. External pricing input availability varies based on commodity location, market liquidity, and term of the agreement. 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. The Company regularly assesses the validity and availability of pricing data for its derivative transactions. Although management uses its best judgment in estimating the fair value of these instruments, there are inherent limitations in any estimation technique.

At March 31, 2009, amounts recognized for the right to reclaim cash collateral are $7.5 million for PNMR and $2.6 million for PNM. PNMR and PNM had obligations to return cash collateral of $0.3 million.

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)

Commodity Derivatives

PNMR’s commodity derivative instruments are summarized as follows:

	Economic Hedges						Trading Transactions						Qualified Cash Flow Hedges
	March 31, 2009			December 31, 2008			March 31, 2009			December 31, 2008			March 31, 2009			December 31, 2008
Type of Derivative				(In thousands)
Current Assets
Energy contracts	$	5,519		$	1,558		$	14,396		$	7,810		$	32,114		$	25,528
Swaps and futures		11,464			3,724			8,563			11,659			17			367
Options		52			417			-			-			134			187
Total		17,035			5,699			22,959			19,469			32,265			26,082

Deferred Charges
Energy contracts		414			2,060			5,494			5,490			18,264			15,683
Swaps and futures		128			-			4,997			2,104			203			283
Options		-			-			-			-			-			-
Total		542			2,060			10,491			7,594			18,467			15,966

Total Assets		17,577			7,759			33,450			27,063			50,732			42,048

Current Liabilities
Energy contracts		(5,321	)		(2,963	)		(10,951	)		(6,415	)		-			-
Swaps and futures		(20,717	)		(8,565	)		(11,968	)		(11,727	)		(7,681	)		(2,134	)
Options		(517	)		(1,102	)		-			-			(4,185	)		(1,045	)
Total		(26,555	)		(12,630	)		(22,919	)		(18,142	)		(11,866	)		(3,179	)

Long-term Liabilities
Energy contracts		-			-			(5,957	)		(3,852	)		-			-
Swaps and futures		(2,309	)		(551	)		(3,588	)		(2,513	)		(2,075	)		(18	)
Options		-			-			-			-			-			-
Total		(2,309	)		(551	)		(9,545	)		(6,365	)		(2,075	)		(18	)

Total Liabilities		(28,864	)		(13,181	)		(32,464	)		(24,507	)		(13,941	)		(3,197	)

Net Total Assets and Total Liabilities	$	(11,287	)	$	(5,422	)	$	986		$	2,556		$	36,791		$	38,851

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 and flattened remaining speculative positions. At March 31, 2009 and December 31, 2008, the trading transactions column of the above table includes $22.1 million and $19.1 million of current assets, $10.5 million and $7.6 million of deferred charges, $22.3 million and $18.1 million of current liabilities, and $9.5 million and $6.4 million of long-term liabilities related to the flattened speculative positions of First Choice. No significant additional costs are expected related to speculative trading.

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’s commodity derivative instruments are summarized as follows:

	Economic Hedges						Trading Transactions						Qualified Cash Flow Hedges
	March 31, 2009			December 31, 2008			March 31, 2009			December 31, 2008			March 31, 2009			December 31, 2008
Type of Derivative				(In thousands)
Current Assets
Energy contracts	$	2,000		$	388		$	869		$	342		$	32,114		$	25,529
Swaps and futures		11,338			2,588			-			5			-			-
Total		13,338			2,976			869			347			32,114			25,529

Deferred Charges
Energy contracts		414			2,060			-			-			18,264			15,684
Swaps and futures		108			-			-			-			-			-
Total		522			2,060			-			-			18,264			15,684

Total Assets		13,860			5,036			869			347			50,378			41,213

Current Liabilities
Energy contracts		(1,438	)		(1,567	)		(614	)		(80	)		-			-
Swaps and futures		(19,296	)		(6,218	)		-			(6	)		(4	)		(13	)
Total		(20,734	)		(7,785	)		(614	)		(86	)		(4	)		(13	)

Long-term Liabilities
Energy contracts		-			-			-			-			-			-
Swaps and futures		(2,307	)		(551	)		-			-			(73	)		(18	)
Total		(2,307	)		(551	)		-			-			(73	)		(18	)

Total Liabilities		(23,041	)		(8,336	)		(614	)		(86	)		(77	)		(31	)

Net Total Assets and Total Liabilities	$	(9,181	)	$	(3,300	)	$	255		$	261		$	50,301		$	41,182

The following table presents the effect of PNMR’s and PNM’s commodity derivative instruments, excluding qualified cash flow hedging instruments, on earnings for the three months ended March 31, 2009:

	Gain (Loss) Recognized in Earnings
	Location	Economic Hedges			Trading Transactions
		(In thousands)

PNMR	Electric operating revenues	$	3,804		$	(5	)
	Cost of energy		(14,065	)		-
	Total gain (loss)	$	(10,261	)	$	(5	)

PNM	Electric operating revenues	$	3,804		$	61
	Cost of energy		(11,783	)		-
	Total gain (loss)	$	(7,979	)	$	61

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 following table presents the impact, excluding tax effects, of PNMR’s and PNM’s qualified commodity cash flow hedge instruments on OCI, as well as the location and amount of income reclassified from AOCI as the hedged transactions settled and impacted earnings for the three months ended March 31, 2009:

	Gain (Loss)
	Recognized			Reclassified from AOCI into Earnings
	In OCI			Location		Amount
	(In thousands)				(In thousands)

PNMR	$	(1,232	)	Electric operating revenues		$	9,676
				Cost of energy			(2,161	)
				Total		$	7,515


PNM	$	9,119		Electric operating revenues		$	9,676
				Cost of energy			46
				Total		$	9,722

Commodity contract volume positions are presented by Decatherms for gas related contracts and by MWh for power related contracts. The table below presents the PNMR’s and PNM’s net volume positions at March 31, 2009:

	Decatherms							MWh
	Economic Hedges		Trading Transactions			Qualified Cash Flow Hedges		Economic Hedges		Trading Transactions		Qualified Cash Flow Hedges

Type of Derivative
PNMR
Energy contracts		750,000		-			-		34,825		5		(1,382,490	)
Swaps and futures		9,337,250		(511,941	)		10,382,750		329,575		-		165,025
Options		-		-			-		-		-		-

PNM
Energy contracts		750,000		-			-		13,225		5		(1,382,490	)
Swaps and futures		8,770,000		-			-		311,975		-		-

In connection with managing its commodity risks, the Company enters into master agreements with certain counterparties. If the Company is in a net liability position under an agreement: some agreements provide that the counterparties can request collateral from the Company if the Company’s credit rating is downgraded; other agreements provide that the counterparty may request collateral to provide it with “adequate assurance” that the Company will perform; and others have no provision for collateral.

The table below presents information about the Company’s contingent requirements to provide collateral under commodity contracts having an objectively determinable collateral provision that are in net liability positions as of March 31, 2009 and are not fully collateralized with cash. Contractual liability represents commodity derivative contracts recorded at fair value on the balance sheet, determined on an individual contract basis without offsetting amounts for individual contracts that are in an asset position and could be offset under master netting agreements with the same counterparty. The table only reflects cash collateral that has been posted under the existing contracts and does not reflect letters of credit under the Company’s revolving credit facilities that have been issued as collateral. Net exposure is the net contractual liability for all contracts, including those designated as normal purchases and sales, offset by existing cash collateral and by any offsets available under master netting agreements, including both asset and liability positions, as well as accounts receivable and accounts payable.

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)

Contingent Feature		Contractual Liability			Existing Cash Collateral		Net Exposure
	(In thousands)
PNMR
Credit rating downgrade		$	(41,081	)	$	2,200	$	(38,873	)

PNM
Credit rating downgrade		$	(8,720	)	$	2,200	$	(2,131	)

Fair Value Disclosures

The Company determines the fair market values of its derivative and other 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 March 31, 2009 and December 31, 2008 are as follows:

Assets and Liabilities Fair Value Measurements

	Total(1)			Quoted Prices in Active Market for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
March 31, 2009				(In thousands)
PNMR
Assets
Commodity derivatives	$	101,759		$	4,088		$	97,329		$	139
NDT		107,992			65,154			42,838			-
Total Assets		209,751			69,242			140,167			139

Liabilities
Commodity derivatives		(75,269	)		(18,651	)		(54,065	)		(2,350	)
Interest rate swap		(840	)		-			(840	)		-
Total Liabilities		(76,109	)		(18,651	)		(54,905	)		(2,350	)

Net Total Assets and Total Liabilities	$	133,642		$	50,591		$	85,262		$	(2,211	)

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	$	65,107		$	568		$	64,400		$	139
NDT		107,992			65,154			42,838			-
Total Assets		173,099			65,722			107,238			139

Liabilities
Commodity derivatives		(23,732	)		(3,297	)		(18,431	)		(2,004	)

Net Total Assets and Total Liabilities	$	149,367		$	62,425		$	88,807		$	(1,865	)

December 31, 2008
PNMR
Assets
Commodity derivatives	$	76,870		$	9,390		$	66,953		$	13
NDT		111,671			69,150			42,521			-
Rabbi Trust		811			811			-			-
Total Assets		189,352			79,351			109,474			13

Liabilities
Commodity derivatives		(40,885	)		(12,052	)		(27,897	)		(422	)
Net Total Assets and Total Liabilities	$	148,467		$	67,299		$	81,577		$	(409	)

PNM
Assets
Commodity derivatives	$	46,596		$	-		$	45,519		$	13
NDT		111,671			69,150			42,521			-
Rabbi Trust		811			811			-			-
Total Assets		159,078			69,961			88,040			13

Liabilities
Commodity derivatives		(8,453	)		(510	)		(6,457	)		(422	)
Net Total Assets and Total Liabilities	$	150,625		$	69,451		$	81,583		$	(409	)

(1) The Level 1, 2 and 3 columns in the above table are presented based on the nature of each instrument. The total column is presented based on the balance sheet classification of the instruments and reflect unit of account reclassifications between commodity derivative assets and commodity derivative liabilities of $0.2 million for PNMR and zero for PNM at March 31, 2009 and $0.5 million for PNMR and $1.1 million for PNM at December 31, 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)

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

Fair Value Measurements Using Significant Unobservable Inputs

(Level 3)

	Three Months Ended March 31,
	2009						2008
	PNMR			PNM			PNMR			PNM
Level 3 Fair Value Assets and Liabilities
Balance at beginning of period							$	2,061		$	2,679
Adoption of FAS 157								16,407			16,407
Balance at beginning of period	$	(409	)	$	(409	)		18,468			19,086
Total gains (losses) included in earnings		(2,088	)		(2,088	)		15,391			14,970
Total gains (losses) included in other comprehensive income		(413	)		-			-			-
Purchases, issuances, and settlements(1)		699			632			(913	)		(708	)
Balance at end of period	$	(2,211	)	$	(1,865	)	$	32,946		$	33,348
Total gains (losses) included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the end of the period	$	(1,522	)	$	(1,522	)	$	29,228		$	28,970

(1)	Includes fair value reversal of contracts settled, unearned and prepaid option premiums received and paid during the period for contracts still held at end of period and the 2008 sale of PNM Electric wholesale contracts.

Gains and losses (realized and unrealized) for Level 3 fair value measurements included in earnings for the three months ended March 31, 2009 and 2008 are reported in operating revenues and cost of energy as follows:

	Three Months Ended March 31,
	2009					2008
PNMR	Operating Revenues		Cost of Energy			Operating Revenues			Cost of Energy
Total gains (losses) included in earnings	$	159	$	(2,247	)	$	(741	)	$	16,132
Change in unrealized gains or (losses) relating to assets still held at reporting date	$	123	$	(1,645	)	$	2,005		$	27,223

PNM
Total gains (losses) included in earnings	$	159	$	(2,247	)	$	(1,029	)	$	15,999
Change in unrealized gains or (losses) relating to assets still held at reporting date	$	123	$	(1,645	)	$	1,662		$	27,308

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)

(5)	Earnings Per Share

In accordance with SFAS 128, dual presentation of basic and diluted earnings (loss) per share has been presented in the Condensed Consolidated Statements of Earnings (Loss) of PNMR. Information regarding the computation of earnings (loss) per share is as follows:

	Three Months Ended March 31,
	2009			2008
	(In thousands, except per share amounts)
Earnings (Loss) Attributable to PNMR:
Earnings (loss) from continuing operations	$	16,407		$	(71,003	)
Earnings from continuing operations attributable to Valencia Non-controlling Interest		(2,579	)		-
Preferred stock dividend requirements of subsidiary		(132	)		(132	)
Earnings from continuing operations attributable to PNMR		13,696			(71,135	)
Earnings from discontinued operations		81,675			22,499
Net Earnings (Loss) Attributable to PNMR	$	95,371		$	(48,636	)

Average Number of Common Shares:
Outstanding during period		86,554			76,850
Equivalents from convertible preferred stock		4,778			-
Average Shares - Basic		91,332			76,850
Dilutive Effect of Common Stock Equivalents (a) -
Stock options and restricted stock		108			-
Average Shares - Diluted		91,440			76,850

Per Share of Common Stock – Basic:
Earnings (loss) from continuing operations	$	0.15		$	(0.93	)
Earnings from discontinued operations		0.89			0.30
Net Earnings (Loss)	$	1.04		$	(0.63	)

Per Share of Common Stock – Diluted:
Earnings (loss) from continuing operations	$	0.15		$	(0.93	)
Earnings from discontinued operations		0.89			0.30
Net Earnings (Loss)	$	1.04		$	(0.63	)

(a)

Excludes the effect of anti-dilutive common stock equivalents related to out-of-the-money stock options of 3,652,432 for the three months ended March 31, 2009. Due to losses in the three months ended March 31, 2008, no potentially dilutive securities are reflected in the average number of common shares used to compute earnings (loss) per share since any impact would be anti-dilutive.

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)

(6)	Stock-Based Compensation

Information concerning stock-based compensation plans is contained in Note 13 of Notes to Consolidated Financial Statements in the 2008 Annual Reports on Form 10-K.

Stock Options

The following table represents stock option activity for the three months ended March 31, 2009:

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

Outstanding at beginning of period		3,725,907		$	21.54
Granted		778,064		$	8.20
Exercised		-		$	-
Forfeited		(73,475	)	$	18.86

Outstanding at end of period		4,430,496		$	19.24	$	128		6.80

Options exercisable at end of period		3,145,979		$	22.12		*		5.75

Options available for future grant		1,107,421

* At March 31, 2009, the exercise price of exercisable stock options is greater than the closing price of PNMR common stock on that date so the options have no intrinsic value.

The following table provides additional information concerning stock option activity:

	Three Months Ended March 31,
Options for PNMR Common Stock	2009		2008
	(In thousands, except per share amounts)

Weighted-average grant date fair value per share of options granted	$	1.62	$	1.38
Total intrinsic value of options exercised during the period	$	-	$	15

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards with the following weighted-average assumptions for options granted in the three months ended March 31, 2009:

Dividend yield	6.27	%
Expected volatility	42.03	%
Risk-free interest rates	1.56	%
Expected life (years)	4.48

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

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)

Restricted Stock

The following table summarizes nonvested restricted stock activity for the three months ended March 31, 2009:

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

Nonvested at beginning of period		195,626		$	17.43
Granted		53,000		$	6.99
Vested		(85,611	)	$	19.24
Forfeited		-		$	-

Nonvested at end of period		163,015		$	13.09

The total fair value of shares of restricted stock that vested during the three months ended March 31, 2009 was $0.7 million.

(7)	Capitalization

Information concerning financing activities is contained in Note 6 of Notes to Consolidated Financial Statements in the 2008 Annual Reports on Form 10-K.

Short-term Debt

PNMR and PNM have revolving credit facilities for borrowings up to $600.0 million under the PNMR Facility and $400.0 million under the PNM Facility that primarily expire in 2012 and local lines of credit amounting to $10.0 million and $8.5 million. TNMP had a revolving credit facility for borrowings up to $200.0 million under the TNMP Facility that was scheduled to expire May 13, 2009. The maximum borrowing amount under the TNMP Facility was reduced to $75.0 million on March 23, 2009. On April 30, 2009, TNMP entered into the $75 million TNMP Revolving Credit Facility described under Financing Activities below and the TNMP Facility terminated. PNMR and PNM also have commercial paper programs under which they may issue up to $400.0 million and $300.0 million of commercial paper. The Company has suspended the commercial paper programs due to market conditions 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. At March 31, 2009, the weighted average interest rate was 2.02% for the PNMR Facility. Short-term debt outstanding consists 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)

	March 31,		December 31,
Short-term Debt	2009		2008
	(In thousands)

PNM
Commercial paper	$	-	$	-
Revolving credit facility		-		340,000
Local lines of credit		-		-
		-		340,000
TNMP – Revolving credit facility		-		150,000
PNMR
Commercial paper		-		-
Revolving credit facility		143,000		254,667
Local lines of credit		2,600		-

	$	145,600	$	744,667

At April 30, 2009, PNMR, PNM, and TNMP had $390.6 million, $385.8 million, and $73.5 million of availability under their respective revolving credit facilities and local lines of credit, including reductions of availability due to outstanding letters of credit. Total availability at April 30, 2009, on a consolidated basis, was $849.9 million for PNMR. LBB is a lender under the PNMR Facility. LBH, the parent of LBB, has filed for bankruptcy protection. Subsequent to the bankruptcy filing by LBH, LBB declined to fund a borrowing request under the PNMR Facility amounting to $5.3 million. The availability includes $26.3 million that represents the unfunded portion of the PNMR Facility attributable to LBB. At April 30, 2009, PNM had cash investments of $17.1 million and PNMR and TNMP had no such investments.

As of March 31, 2009, TNMP had outstanding borrowings of $38.8 million from PNMR under its intercompany loan agreement.

Financing Activities

On January 5, 2009, PNMR commenced a tender offer whereby it offered to repurchase up to $150.0 million of its 9.25% senior unsecured notes due 2015. The tender offer requested the holders of the notes to submit the amount of notes they would be willing to sell to PNMR and at the price they would be willing to sell, within the range of 83% to 93% of face value, including additional compensation of 3% of face value for those holders that tendered their notes and did not withdraw them prior to the stated early participation date. Prior to expiration of the offer, $157.5 million of notes were tendered to PNMR for purchase. Under the applicable rules for this type of arrangement, PNMR was able to purchase $157.0 million of notes at the 93% cap price. On February 5, 2009, PNMR repurchased and retired these notes for $146.0 million plus accrued interest. On February 26, 2009, PNMR purchased an additional $0.4 million of the 9.25% senior unsecured notes at 93% of face value in a private transaction. PNMR recognized a pre-tax gain on these transactions of $7.5 million, net of related transaction costs and write-off of the proportionate amount or the deferred costs of the original issuance of the notes.

On October 31, 2008, TNMP entered into a $100.0 million term loan credit agreement with two lenders (the “TNMP Bridge Facility”) to provide an additional source of funds to repay TNMP’s $167.7 million of senior unsecured notes that matured January 15, 2009. On January 14, 2009, TNMP borrowed $100.0 million under the TNMP Bridge Facility. On January 15, 2009, TNMP repaid the entire principal and interest due on the $167.7 million principal amount outstanding of 6.25% senior unsecured notes utilizing the proceeds from the TNMP Bridge Facility and inter-company borrowings from PNMR.

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)

On March 23, 2009, TNMP issued $265.5 million aggregate principal amount of 9.50% First Mortgage Bonds, due 2019, Series 2009A at a price equal to 97.643% of their face value. The bonds bear interest at the rate of 9.50% per annum of their face value. TNMP may redeem some or all of the bonds at any time at a redemption price that reflects a make-whole provision, plus accrued interest. The bonds are secured by a first mortgage on substantially all of TNMP’s property.

On March 25, 2009, TNMP entered into a $50.0 million loan agreement with Union Bank, N. A. (the “2009 Term Loan Agreement”). TNMP borrowed $50.0 million under this agreement on March 30, 2009. Borrowings under the 2009 Term Loan Agreement must be repaid by March 25, 2014 and are secured by $50.0 million aggregate principal amount of TNMP first mortgage bonds (the “Series 2009B Bonds”). Through hedging arrangements, TNMP has established fixed interest rates of 6.05% for the first three years and 6.30% thereafter. The hedging obligations are also secured by the Series 2009B Bonds. The hedge is accounted for as a cash-flow hedge and its March 31, 2009 pre-tax fair value of $(0.8) million is included in other comprehensive income. The fair value determination was made using Level 2 inputs under SFAS 157.

TNMP used the proceeds received from the 9.50% First Mortgage Bonds and the 2009 Term Loan Agreement to repay the $100.0 million borrowed under the TNMP Bridge Facility and the $150.0 million outstanding under the TNMP Facility. The remaining proceeds, after offering expenses, were used to reduce intercompany borrowings from PNMR.

On April 30, 2009, TNMP entered into a new $75.0 million revolving credit facility among TNMP, certain lenders, and JPMorgan Chase Bank, N.A., as administrative agent (the “TNMP Revolving Credit Facility”), and the existing TNMP Facility was terminated. Borrowings under the TNMP Revolving Credit Facility are secured by $75.0 million aggregate principal amount of first mortgage bonds of TNMP (the “Series 2009C Bonds”). The TNMP Revolving Credit Facility, which will expire in April 2011, allows TNMP to borrow up to $75.0 million.

On February 26, 2009, the Finance Committee of the PNMR Board authorized PNMR to provide support for the debt of TNMP by approving additional loans to TNMP as a contingency in the event TNMP was unable to obtain external financing sufficient to pay amounts borrowed under the TNMP Facility and the TNMP Bridge Facility when they came due. With the completion of the financing described above, the PNMR support terminated on April 30, 2009.

Common Stock

PNMR offers new shares of PNMR common stock through the PNMR Direct Plan and an equity distribution agreement. The equity distribution agreement is currently suspended. For the three months ended March 31, 2009, PNMR sold 48,633 shares of its common stock through the PNMR Direct Plan for net proceeds of $0.4 million. PNMR also issued 27,283 shares of its common stock for $0.2 million through its ESPP during the three months ended March 31, 2009.

Convertible Preferred Stock

In November 2008, PNMR issued 477,800 shares of Series A convertible preferred stock. The Series A convertible preferred stock is convertible into PNMR common stock in a ratio of 10 shares of common stock for each share of preferred stock. The Series A convertible preferred stock is entitled to receive dividends equivalent to any dividends paid on PNMR common stock as if the preferred stock had been converted into common stock. The Series A convertible preferred stock is entitled to vote on all matters voted upon by common stockholders, except for the election of the Board. In the event of liquidation of PNMR, preferred holders would receive a preference of $0.10 per common share equivalent. After that preference, common holders would receive an equivalent liquidation preference per share and all remaining distributions would be shared ratably between common and preferred holders. The terms of the Series A convertible

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)

preferred stock result in it being substantially equivalent to common stock. Therefore, for earnings per share purposes the number of common shares into which the Series A convertible preferred stock is convertible is included in the weighted average number of common shares outstanding for periods after the Series A convertible preferred stock was issued. Similarly, dividends on the Series A convertible preferred stock are considered to be common dividends in the accompanying Condensed Consolidated Financial Statements.

(8)	Pension and Other Postretirement Benefit Plans

PNMR and its subsidiaries maintain qualified defined benefit pension plans, postretirement benefit plans providing medical and dental benefits, and executive retirement programs (“PNM Plans” and “TNMP Plans”). PNMR maintains the legal obligation for the benefits owed to participants under these plans.

Readers should refer to Note 12 of Notes to the Consolidated Financial Statements in the 2008 Annual Reports on Form 10-K for additional information on these plans.

PNM Plans

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

	Three Months Ended March 31,
	Pension Plan						Other Postretirement Benefits						Executive Retirement Program
	2009			2008			2009			2008			2009		2008
							(In thousands)

Components of Net Periodic
Benefit Cost (Income)
Service cost	$	-		$	-		$	104		$	178		$	15	$	14
Interest cost		8,610			8,317			1,847			2,086			284		284
Expected long-term return on assets		(9,691	)		(10,336	)		(1,458	)		(1,532	)		-		-
Amortization of net loss		955			481			822			1,204			7		13
Amortization of prior service cost		79			79			(1,065	)		(1,422	)		3		3
Curtailment (gain)*		-			-			(2,943	)		-			-		-
Net periodic benefit cost (income)	$	(47	)	$	(1,459	)	$	(2,693	)	$	514		$	309	$	314

* The January 2009 sale of PNM Gas resulted in the retiree medical obligation associated with the gas designated employees to cease. This action meets the definition of a curtailment under SFAS 106 and resulted in a curtailment gain.

PNM does not anticipate making any contributions to its pension plan trust during 2009. Based on current law and estimates of portfolio performance, PNM anticipates making contributions to its pension plan trust of approximately $21.7 million in 2010 and a total of $134.6 million for 2011-2013. For the three months ended March 31, 2009 and 2008, PNM contributed $0.7 million and $1.0 million to trusts for other postretirement benefits. PNM expects to make contributions totaling $4.2 million during the year ended December 31, 2009 to the trust for other postretirement benefits. Disbursements under the executive retirement program, which are funded by the Company and considered to be contributions to the plan, were $0.4 million in the three months ended March 31, 2009 and 2008, and are expected to total $1.5 million during 2009.

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)

TNMP Plans

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

	Three Months Ended March 31,
	Pension Plan						Other Postretirement Benefits						Executive Retirement Program
	2009			2008			2009			2008			2009		2008
							(In thousands)
Components of Net Periodic
Benefit Cost (Income)
Service cost	$	-		$	-		$	65		$	71		$	-	$	-
Interest cost		1,099			1,061			183			179			19		19
Expected long-term return on assets		(1,523	)		(1,659	)		(124	)		(122	)		-		-
Amortization of net gain		-			(36	)		(66	)		(68	)		-		-
Amortization of prior service cost		-			-			15			15			-		-
Net Periodic Benefit Cost (Income)	$	(424	)	$	(634	)	$	73		$	75		$	19	$	19

TNMP made no first quarter contributions to its pension plan trust in either 2009 or 2008 and no contributions are anticipated for 2009. Based on current law and estimates of portfolio performance, TNMP anticipates making contributions to its pension plan trust of approximately $1.8 million in 2010 and a total of $7.5 million for 2011-2013. For the three months ended March 31, 2009 and 2008, TNMP contributed zero and $0.2 million and expects to make contributions totaling $0.3 million during the year ended December 31, 2009 to the trust for other postretirement benefits. Disbursements under the executive retirement 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 ended March 31, 2009 and 2008, and are expected to total $0.2 million during 2009.

(9)	Commitments and Contingencies

Overview

There are various claims and lawsuits pending against the Company. The Company is also subject to federal, state and local environmental laws and regulations, and is currently participating in the investigation and remediation of numerous sites. In addition, the Company periodically enters into financial commitments in connection with its business operations. It is not possible at this time for the Company to determine fully the effect of all litigation and other legal proceedings on its results of operations or financial position. It is the Company’s policy to accrue for expected costs in accordance with SFAS 5, when it is probable that a liability has been incurred and the amount of expected costs of these items to be incurred is reasonably estimable. The Company is also involved in various legal proceedings in the normal course of its business. The legal costs for these 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, 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

Nuclear Spent Fuel and Waste Disposal

Nuclear power plant operators are required to enter into spent fuel disposal contracts with the DOE, and the DOE is required to accept and dispose of all spent nuclear fuel and other high-level radioactive wastes generated by domestic power reactors. Although the Nuclear Waste Policy Act required the DOE to develop a permanent

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)

repository for the storage and disposal of spent nuclear fuel by 1998, the DOE has announced that the repository cannot be completed before at least 2017. In November 1997, the United States Court of Appeals for the District of Columbia Circuit issued a decision preventing the DOE from excusing its own delay, but refused to order the DOE to begin accepting spent nuclear fuel. Based on this decision and the DOE’s delay, a number of utilities, including APS (on behalf of itself and the other PVNGS owners including PNM), filed damages actions against the DOE in the Court of Federal Claims and is currently pursuing that damages claim. In August 2008, the United States Court of Appeals for the Federal Circuit issued decisions in three damages actions brought by other nuclear utilities that could result in a decrease in the amount of PNM’s recoverable damages; however, additional appeals in those actions are possible and APS continues to monitor the status of those actions. The trial in the APS matter began on January 28, 2009. Testimony and evidence have been presented by both sides. The trial court has set a post-trial briefing schedule and is expected to hear closing arguments in the early summer of 2009. PNM currently estimates that it will incur approximately $46.1 million (in 2007 dollars) over the life of PVNGS for its share of the fuel costs related to the on-site interim storage of spent nuclear fuel during the operating life of the plant. PNM accrues these costs as a component of fuel expense, meaning that the charges are accrued as the fuel is burned. At March 31, 2009 and December 31, 2008, PNM had $14.9 million and $14.5 million recorded as a liability on its Consolidated Balance Sheets for interim storage costs.

The Clean Air Act

Regional Haze

In 1999, the EPA announced final regional haze rules and in 2005, the EPA issued the final rule addressing regional haze and guidelines for BART determinations. The rule calls for all states to establish goals and emission reduction strategies for improving visibility in national parks and wilderness 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.

In November 2006, the NMED requested a BART analysis for NOX and particulates for each of the four units at SJGS. PNM submitted the analysis to the NMED in early June 2007, recommending against installing additional pollution control equipment on any of the SJGS units beyond those recently installed. PNM has provided additional data in response to requests from the NMED. The NMED is presently reviewing the analysis and supplemental data. Potentially, additional NOX emission reductions could be required. The nature and cost of compliance with these potential requirements cannot be determined at this time.

In addition, EPA requested APS to perform a BART analysis for Four Corners. APS completed the analysis and submitted it to the EPA on January 30, 2008. In December 2008, APS provided additional data in response to a request from the EPA. APS’ recommendations include the installation of certain pollution control equipment that APS believes constitutes BART. Once APS receives the EPA’s final determination as to what constitutes BART for Four Corners, APS will have five years to complete the installation of the equipment and to achieve the emission limits established by the EPA. However, in order to coordinate with the plant’s other scheduled activities, APS will begin implementing initial portions of APS’ recommended plan later this year for Four Corners on a voluntary basis. Until the EPA makes a final determination on this matter, PNM 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.

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. If the agencies disagree with those recommendations for SJGS or Four Corners, the Company cannot predict the nature of the BART controls the agencies may ultimately mandate or the resulting financial or operational impact.

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)

Ozone Non-Attainment

The NMED recently published its draft recommendation of area designations for the 2008 revised ozone national ambient air quality standard. The draft recommended that San Juan County, New Mexico be designated as non-attainment for ozone. SJGS is situated in San Juan County. However, the NMED subsequently determined that the monitor indicating high ozone levels was not reliable and did not recommend to the EPA that San Juan County be designated as non-attainment. EPA will make a final designation for the status of San Juan County in March 2010. The Company cannot predict the outcome of this matter or if additional NOX controls would be required as a result of ozone non-attainment designation.

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. The Navajo Acts, enacted in 1995 by the Navajo Nation, purport to give the Navajo Nation EPA authority to promulgate regulations covering air quality, drinking water, and pesticide activities, including those activities that occur at Four Corners. In October 1995, the Four Corners participants filed a lawsuit in the District Court of the Navajo Nation, Window Rock District, challenging the applicability of the Navajo Acts as to Four Corners. The District Court stayed these proceedings pursuant to a request by the parties and the parties are seeking to negotiate a settlement.

In 2000, the Navajo Tribal Council approved operating permit regulations under the Navajo Nation Air Pollution Prevention and Control Act. The Four Corners participants believe that the regulations fail to recognize that the Navajo Nation did not intend to assert jurisdiction over Four Corners. Each of the Four Corners participants filed a petition with the Navajo 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 (“VCA”) resolving the dispute regarding the Navajo Nation Air Pollution Prevention and Control Act portion of the lawsuit. 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 VCA, APS sought 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, and the Courts have dismissed the claims accordingly. The agreement does not address or resolve any dispute relating to other aspects of the Navajo Acts.

The Company cannot currently predict the outcome of these matters.

Four Corners Federal Implementation Plan Litigation

On April 30, 2007, the EPA adopted a source specific FIP to set air quality standards at Four Corners. The FIP essentially federalizes the requirements contained in the New Mexico State Implementation Plan, which Four Corners has historically followed. The FIP also includes a requirement to maintain and enhance dust suppression methods. APS filed a petition for review in the U.S. District Court of Appeals for the Tenth Circuit seeking revisions to the FIP to clarify certain requirements and allow operational flexibility. The Sierra Club intervened in this action and with other parties filed a petition for review with the same court challenging the FIP’s compliance with the Clean Air Act. APS intervened in that action. In APS’ lawsuit, APS challenges two key provisions of the FIP: a 20% opacity limit on certain fugitive dust emissions and a 20%

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stack opacity limit on Units 4 and 5. During 2008, the EPA voluntarily moved to vacate the fugitive dust provisions of the FIP, and on April 14, 2009, the court granted EPA’s motion. The court also rejected the Sierra Club’s challenges to the FIP and ruled in favor of the 20% stack opacity limit. The Company does not believe that compliance with this limit will have a material adverse impact on the Company’s financial position, results of operations or cash flows.

Section 114 Request

On April 6, 2009, APS received a request from the EPA under Section 114 of the Clean Air Act seeking detailed information regarding projects at and operations of Four Corners. APS is in the process of responding to this request, and the Company is currently unable to predict the timing or content of EPA’s response or any resulting actions.

Santa Fe Generating Station

PNM and the NMED conducted investigations of gasoline and chlorinated solvent groundwater contamination detected beneath the site of the former Santa Fe Generating Station 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, to avoid a prolonged legal dispute, PNM agreed to a settlement agreement with the NMED under which 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. PNM will continue to operate the remediation facilities until the groundwater meets applicable federal and state standards or until such time as the NMED determines that additional remediation is not required, whichever is earlier. The well continues to operate and meets federal drinking water standards. PNM is not able to assess the duration of this project.

The Superfund Oversight Section of the NMED has conducted multiple investigations into the chlorinated solvent plume in the vicinity of the site of the former Santa Fe Generating Station In February 2008, a NMED site inspection report was submitted to the EPA, which states that neither the source nor extent of contamination has been determined and also states that the source may not be the former Santa Fe Generating Station. The NMED investigation is ongoing. The Company is unable to predict the outcome of this matter.

Coal Combustion Waste Disposal

The EPA is in the process of developing an inventory of coal combustion product (“CCP”) impoundments through the issuance of an Information Collection Request (“ICR”) to facilities that have surface impoundments that handle CCPs. This is primarily in response to the incident that occurred at Tennessee Valley Authority’s Kingston Power Plant in December 2008. This is EPA’s first step to determine the risk that these impoundments pose to the environment and it is their intent is to conduct surveys to assess impoundment integrity and safety. The agency is also developing national standards for CCP disposal and evaluating regulatory options that include regulations under non-hazardous waste standards, hazardous waste regulations, or a combination of both. The agency is expected to determine which regulatory path it will pursue some time this spring.

SJCC currently disposes of CCPs consisting of fly ash, bottom ash, and gypsum from SJGS in the surface mine pits adjacent to the plant and did not receive an ICR from the EPA. The Office of Surface Mining (“OSM”) developed draft proposed regulations for the mine placement of CCPs. OSM’s rulemaking effort is currently tabled by the Obama Administration. PNM cannot predict the outcome of the EPA’s actions regarding this matter and whether such actions will have a material adverse impact on its operations or financial position. The Company continues to advocate for the non-hazardous regulation of CCPs. It also believes the proper place for oversight of mine placement of CCPs is through the OSM and state mining and mining reclamation agencies.

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Gila River Indian Reservation Superfund Site

In April 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

Coal Supply

The coal requirements for SJGS are being supplied by SJCC, a wholly owned subsidiary of BHP Billiton. APS purchases all of Four Corners’ coal requirements from a supplier with a long-term lease of coal reserves with the Navajo Nation. In 2003, PNM completed a comprehensive review of the final reclamation costs for both the surface mines that previously provided coal to SJGS and the current underground mine providing coal. Based on this study, PNM revised its estimates of the final reclamation of the surface mine. In addition, the estimate for decommissioning the Four Corners mine was revised. Based on the most recent estimates, the final cost of surface mine reclamation is expected to be $130.5 million in future dollars excluding contract buyout costs paid to SJCC. As of March 31, 2009 and December 31, 2008, $32.2 million and $33.8 million was recognized on PNM’s Consolidated Balance Sheet for the obligation for surface mine reclamation using the fair value method to determine the liability. At March 31, 2009 and December 31, 2008, the balance on PNM’s Consolidated Balance Sheets for the reclamation liability related to underground mining activities was $1.7 million and $1.6 million.

In 2003, the NMPRC granted PNM permission to collect as a part of its rates up to $100.0 million of surface mine final reclamation costs. In the 2007 Electric Rate Case, PNM requested recovery of increased surface mine decommissioning costs, as well as underground mine reclamation costs. Recovery of the final underground mine reclamation costs was allowed; however, the NMPRC denied recovery of amounts for surface mine decommissioning in excess of $100.0 million. PNM has filed an appeal of this issue in the New Mexico Supreme Court. See Note 10. The Company cannot predict the outcome of this appeal.

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 $117.5 million, subject to an annual limit of $17.5 million per incident, to be periodically adjusted for inflation. Based on PNM’s 10.2% interest in the three PVNGS units, PNM’s maximum potential assessment per incident for all three units is $36.0 million, with an annual payment limitation of $5.4 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

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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 $7.3 million. The insurance coverage discussed in this and the previous paragraph is subject to policy conditions and exclusions.

Water Supply

Because of New Mexico’s arid climate and periodic drought conditions, there is a growing concern in New Mexico about the use of water for power plants. PNM has secured water rights in connection with the existing plants at Afton, Luna and Lordsburg. Water availability does not appear to be an issue for these plants at this time.

The “four corners” region of New Mexico, in which SJGS and Four Corners are located, experienced drought conditions during 2002 through 2004 that could have affected the water supply for PNM’s generation plants. In future years, if adequate precipitation is not received in the watershed that supplies the four corners region, the plants could be impacted. Consequently, PNM, APS and BHP Billiton have undertaken activities to secure additional water supplies for SJGS, Four Corners and related mines. PNM has reached an agreement for a voluntary shortage sharing agreement with tribes and other water users in the San Juan Basin for a term ending December 31, 2012. Further, PNM and BHP Billiton have reached agreement on a long-term supplemental contract relating to water for SJGS with the Jicarilla Apache Nation that ends in 2016. APS and BHP Billiton have entered into a similar contract for Four Corners. Although the Company does not believe that its operations will be materially affected by the drought conditions at this time, it cannot forecast the weather situation or its ramifications, or how regulations and legislation may impact the Company’s situation in the future, should the shortages occur in the future.

PVNGS Water Supply Litigation

A summons was served on APS in 1986 that required all water claimants in the Lower Gila River Watershed of Arizona to assert any claims to water on or before January 20, 1987, in an action pending in the Maricopa County Superior Court. PVNGS is located within the geographic area subject to the summons. APS’ rights and the rights of the other PVNGS participants to the use of groundwater and effluent at PVNGS are potentially at issue in this action. APS filed claims that dispute the court’s jurisdiction over PVNGS’ groundwater rights and their contractual rights to effluent relating to PVNGS and, alternatively, seek confirmation of those rights. In 1999, the Arizona Supreme Court issued a decision finding that certain groundwater rights may be available to the federal government and Indian tribes. In addition, the Arizona Supreme Court issued a decision in 2000 affirming the lower court’s criteria for resolving groundwater claims. Litigation on both these issues has continued in the trial court. No trial dates have been set in these matters. PNM does not expect that this litigation will have a material adverse impact on its results of operation or financial position.

NRC Matters

Because of several NRC findings relating to situations at PVNGS Unit 3 in 2004 and 2006, PVNGS has been subject to a heightened level of oversight by the NRC. On March 24, 2009, the NRC informed APS that it was removing PVNGS Unit 3 from the "multiple/repetitive degraded cornerstone" column of the NRC's Action Matrix (“Column 4”), removing PVNGS Units 1 and 2 from the “one degraded cornerstone” column (“Column 3”), and returning all three units of the plant to routine inspection and oversight by the NRC. This notification follows the NRC's completion of its inspections of the corrective actions taken by PVNGS to address performance deficiencies that caused the NRC to place Unit 3 into Column 4 and Units 1 and 2 into Column 3. The NRC has closed the confirmatory action letter that outlined the performance deficiencies and associated corrective actions.

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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. In 2005, the Navajo Nation and various parties announced a settlement of the Nation’s reserved surface water rights. On March 30, 2009, President Obama signed legislation confirming the settlement with the Navajo Nation. The Company cannot determine the effect, if any, of any water rights adjudication on the present arrangements for water at SJGS and Four Corners. Final resolution of the case cannot be expected for several years. The Company is unable to predict the ultimate outcome of this matter.

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. SJCC has reached settlement with several gas leaseholders and has other potential claimants. PNM cannot predict the outcome of any future disputes between SJCC and other gas leaseholders.

Right of Way Matters

Many of PNM’s electric transmission and distribution facilities are located on lands that require the grant of rights-of-way from governmental entities, Native American tribes, or private parties. Several of the agreements granting the rights-of-way may have expired or may expire within the next few years. PNM is actively reviewing these matters and negotiating with certain parties, as appropriate, for the renewal of these rights-of-way. However, there can be no assurance that all of these rights-of-way will be renewed. If PNM is not successful in renewing the rights-of-way on Native American lands, it could be forced to remove its facilities from or abandon its facilities on the property covered by the rights-of-way and seek alternative routes for its transmission or distribution facilities. With respect to non-tribal government land and private land, PNM may have condemnation rights. If rights-of-way are renewed, they may be renewed at prices that are higher than historical levels, based on current renewal experience. Rights-of-way costs have historically been recovered in rates charged to customers. PNM will seek to recover such costs in future rates.

Republic Savings Bank Litigation

In 1992, Meadows Resources, Inc. (“MRI”), 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 Federal legislation prohibited certain accounting practices previously 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 Plaintiffs’ claims for lack of standing.

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’s motion.

On January 25, 2008, the court entered its opinion granting the Federal government’s motion to dismiss MRI, 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 Plaintiffs damages in the amount of $14.9 million. MRI had previously received payment from the FDIC in the amount of $0.3 million. This payment reduces the amount of damages owed to $14.6 million.

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The matter is currently pending before the U. S. Court of Appeals for the Federal Circuit on appeal by the Federal government and cross-appeal by Plaintiffs. PNMR is unable to predict the outcome of this litigation.

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 and Western markets energy crisis of 2000-2001 and the bankruptcy filings of the Cal PX and PG&E. As a result of the conditions in the Western markets during this time period, between late-2000 and mid-2003, FERC, the California Attorney General and private parties initiated investigations, litigation, and other proceedings relevant to PNM and other sellers in the Western markets at FERC and in both California State and Federal District Courts, seeking a determination whether sellers of wholesale electric energy during the crisis period, including PNM, should be ordered to pay monetary refunds to buyers of such energy. These proceedings continue at FERC as well as before the U.S. Court of Appeals for the Ninth Circuit. PNM has participated in these proceedings at FERC, the Federal District Courts and the Ninth Circuit, including filing appeals to that court. Both FERC and the Ninth Circuit continue to hold settlement and mediation conferences, in which PNM continues to participate.

The Company cannot predict the ultimate outcome of the appeals or any FERC decision resulting therefrom. At this time, it is unclear whether PNM will ultimately be directed to make refunds as a result of these court and FERC decisions, or whether settlement may be reached.

Complaint Against Southwestern Public Service Company

In September 2005, PNM filed a complaint under the Federal Power Act against SPS. PNM argued that SPS’ rates for sale of interruptible energy were excessive and that SPS had been overcharging PNM for deliveries of energy through its fuel cost adjustment clause practices. PNM also intervened in a complaint proceeding brought by other customers raising similar arguments relating to SPS’ fuel cost adjustment clause practices (the “Golden Spread complaint proceeding”). Additionally, in November 2005, SPS filed an electric rate case at FERC proposing to 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 providing for resolution of issues relating to rates for sales of interruptible energy, but not resolving the fuel clause issues. In September 2008, FERC issued its order approving the settlement between PNM and SPS.

In April 2008, FERC issued its order in the Golden Spread complaint proceeding. FERC affirmed in part and reversed in part an ALJ’s initial decision, which had, among other things, ordered SPS to pay refunds to PNM with respect to the fuel clause issues. FERC affirmed the decision of the ALJ that SPS violated its fuel cost adjustment clause tariffs. However, FERC shortened the refund period applicable to the violation of the fuel cost adjustment clause issues. PNM and SPS have filed petitions for rehearing and clarification of the scope of the remedies that were ordered and reversal of various rulings in the order. FERC has not yet acted upon the requests for rehearing or clarification and they remain pending further decision. PNM cannot predict the final outcome of the case at FERC.

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Begay v. PNM et al

A putative class action was filed against PNM and other utilities on February 11, 2009 in the United States District Court in Albuquerque. PNM was served on March 31, 2009. Plaintiffs claim to be allottees, members of the Navajo Nation, who pursuant to the Dawes Act of 1887, were allotted ownership in land carved out of the Navajo Nation. Plaintiffs, including an allottee association, make broad, general assertions that defendants, including PNM, are right-of-way grantees with rights-of-way across the allotted lands and are either in trespass or have paid insufficient fees for the grant of rights-of-way or both. The plaintiffs, who have sued the defendants for breach of fiduciary duty, seek a constructive trust. They have also included a breach of trust claim against the United States and its Secretary of the Interior, Ken Salazar. PNM is evaluating plaintiffs’ claims. PNM is unable to determine the outcome of this case but intends to defend it vigorously.

(10)	Regulatory and Rate Matters

PNMR

First Choice 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 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 2006, TNMP, First Choice, the PUCT staff and other parties filed a non-unanimous settlement agreement (“NUS”). The PUCT unanimously approved the NUS on November 2, 2006 and 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 a Texas District Court. TNMP and First Choice have intervened in this appeal. The Company is unable to predict the outcome of this matter.

First Choice Request for ERCOT Alternative Dispute Resolution

In June 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 requested that ERCOT resolve the dispute by restating certain elements of its first quarter 2008 congestion management data and by refunding to First Choice allegedly overstated congestion management charges. The amount at issue in First Choice’s claim can only be determined by running ERCOT market models with corrected inputs but First Choice believes that the amount is significant. ERCOT protocols provide that ERCOT will notify potentially impacted market participants and subsequently consider the merits of First Choice’s allegations. The Company is unable to predict the outcome of this matter.

PNM

2007 Electric Rate Case

On February 21, 2007, PNM filed a general electric rate case (“2007 Electric Rate Case”) requesting the NMPRC approve an increase in service fees to all of PNM’s retail customers except those formerly served by TNMP. The request was designed to provide PNM’s electric utility an opportunity to earn a 10.75 percent return on equity. The application also requested authorization to implement a 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. On April 24, 2008, the NMPRC issued a final order that resulted in a revenue increase of $34.4 million. The rate increase provides for a 10.1 percent return on equity. New rates reflecting the $34.4 million

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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 renewable portfolio standard. The NMPRC also ruled that recovery of surface coal mine decommissioning costs be capped at $100 million. The order resulted in PNM being unable to assert it is probable, as defined under GAAP, that the 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 has appealed the NMPRC’s treatment of coal mine decommissioning and the RECs to the New Mexico Supreme Court. If the appeal is successful or if PNM is successful in demonstrating that these costs are recoverable through future rate proceedings, the costs will be restored to PNM’s balance sheet. In connection with the stipulation in the 2008 Electric Rate Case described below, PNM agreed to dismiss its appeal of the treatment of the REC costs if that stipulation is approved. Oral argument before the New Mexico Supreme Court is currently scheduled for May 13, 2009, but is likely to be postponed to await ruling by the NMPRC on the stipulation in the 2008 Electric Rate Case. PNM is unable to predict the outcome of this matter.

Emergency FPPAC

On March 20, 2008, PNM and the IBEW filed a joint motion in the general electric rate case requesting NMPRC authorization to implement an Emergency FPPAC on an interim basis. On May 22, 2008, the NMPRC issued a final order that approved the Emergency FPPAC with certain modifications. 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. The Albuquerque Bernalillo County Water Utility Authority and the New Mexico Industrial Energy Consumers Inc. filed notices of appeal to the New Mexico Supreme Court, which seek to have vacated the NMPRC order approving the Emergency FPPAC. The appeals have been consolidated and PNM has been granted party status. PNM is unable to predict the final outcome of these appeals.

The NMPRC order approving the Emergency FPPAC required PNM to pay for an audit of PNM’s monthly FPPAC reports and a prudence review of PNM’s fuel and purchased power costs, to be conducted by auditors selected by the NMPRC. PNM’s costs will be recoverable through future rate proceedings. On February 11, 2009, the NMPRC issued a RFP for related audit and prudence review professional services. The NMPRC order states that the prudence review shall continue until all costs flowed through the Emergency FPPAC have been subject to review. Results of the RFP are not yet known.

2008 Electric Rate Case

On September 22, 2008, PNM filed a general rate case (“2008 Electric Rate Case”) requesting the NMPRC to approve an increase in electric service rates to all PNM retail customers except those formerly served by TNMP. The proposed rates are designed to increase annual operating revenue by $123.3 million, based on a March 31, 2008 test period and calculating base fuel costs using a projection of costs for the 12 months ending March 31, 2009. PNM has also proposed a FPPAC in the general form authorized by the NMPRC, but with PNM retaining 25% of off-system sales margins and crediting 75% against fuel and purchased power costs. On September 30, 2008, the NMPRC ordered that PNM‘s proposed rates be suspended for a period of nine months from October 22, 2008 and appointed a hearing examiner to conduct a hearing and otherwise preside over the case.

On March 6, 2009, PNM, the NMPRC staff and most of the intervening parties filed a stipulation which, if approved by the NMPRC, would resolve all issues in the case, including the approval of the Resource Stipulation described below. No party opposed the stipulation. The stipulation provides for an increase in annual non-fuel revenues of $77.3 million, of which 65% ($50.2 million) will be implemented for bills beginning on July 1, 2009

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and the remaining 35% ($27.1 million) will be implemented in rates as of April 1, 2010. As an offset to the non-fuel revenue increase, PNM will implement a credit to customers totaling $26.3 million, representing the amount of revenues from past sales of SO2 allowances. This amount will be credited to ratepayers over 21 months beginning July 1, 2009. The crediting mechanism will also be used to credit customers with revenues received by PNM from future sales of SO2 allowances. If the stipulation is approved, PNM would record an expense for the regulatory disallowance and a regulatory liability for the amount to be credited to ratepayers. The stipulation also provides that a revised FPPAC will go into effect with the new rates. The stipulation provides that 100% of off-systems sales margins be credited against fuel and purchased power costs in the FPPAC. The FPPAC factor will be set annually beginning July 1, 2010. A public hearing on the stipulation before the NMPRC concluded on April 9, 2009. A decision of the NMPRC is pending. PNM is unable to predict the outcome of this matter.

Resource Stipulation

In anticipation of the 2008 Electric Rate Case, on September 10, 2008, a stipulation (the “Resource Stipulation”) executed by PNM, the NMPRC staff, the AG and the Coalition for Clean Affordable Energy, and later joined by the New Mexico Industrial Energy Consumers Inc., was filed with the NMPRC. If approved by the NMPRC, the Resource Stipulation would allow recovery in rates of costs related to and resolve all issues in the proceedings regarding 1) the Valencia PPA, 2) PNM’s proposed acquisition of an ownership interest in Unit 2 of PVNGS currently being leased, 3) the application to own and operate Lordsburg and its interest in Luna as jurisdictional assets. Hearings were held in January 2009 and the Hearing Examiner has recommended approval of the Resource Stipulation. A decision of the NMPRC is pending. The Company is unable to predict whether the NMPRC will approve the Resource Stipulation or the ultimate outcome of these proceedings.

NMPRC Inquiry on Fuel and Purchased Power Adjustment Clauses

In October 2007, the NMPRC voted to open a notice of inquiry that may eventually 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 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 has filed its comments. A workshop to discuss the comments filed by PNM and others is scheduled for May 18, 2009.

NMPRC Rulemaking on Disincentives to Energy Efficiency Programs

In January 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 and appointed a Hearing Examiner to conduct workshops as part of the process. The NMPRC proposed amendments to its energy efficiency rule that includes provisions addressing incentives for disincentives to energy efficiency and load management. PNM filed comments and testimony addressing the proposed rule on April 13, 2009. Response comments and rebuttal testimony are due May 11, 2009.

PNM Electric Energy Efficiency and Load Management Programs

The NMPRC requires public utilities to file annually a plan to implement energy efficiency and load management programs. Costs to implement approved programs are recovered through a rate rider. On September 15, 2008, PNM filed its annual plan which included new programs, modifications to existing programs and a request to recover program costs of about $10.5 million. Various parties filed testimony recommending revisions to PNM’s proposals and the calculation of carrying costs. A hearing was held on February 19, 2009. Supplemental testimony filed on March 12, 2009 by PNM and other parties proposed some revisions to the plan and sought NMPRC approval to recover approximately $12.3 million in program costs. The hearing examiner has recommended approval of PNM’s plan. A decision of the NMPRC is pending.

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)

Rates for Former TNMP Customers in New Mexico

PNM serves the former New Mexico customers of TNMP (“TNMP-NM”) under rates approved by the NMPRC in its order approving PNMR’s acquisition of TNMP. Under that order, rates charged to customers were set through December 31, 2010. In January 2009, the NMPRC directed PNM to estimate the revenue requirement increase that would be reflected in a TNMP-NM rate application for rates effective January 2011. PNM estimated that the rate increase could be between 40% and 56% depending on fuel costs. In April 2009, the NMPRC directed PNM, the NMPRC staff, and other parties to attempt to reach consensus on ways to mitigate the impact of this potential rate increase and appointed a “mediator.” The initial discussion session is scheduled for May 27, 2009. No date was set for completion of this process. PNM cannot predict the ultimate outcome of this matter.

TNMP

TNMP Competitive Transition Charge True-Up Proceeding

The purpose of the true-up proceeding was to quantify and reconcile the amount of stranded costs that TNMP may recover from its transmission and distribution customers. A 2004 PUCT decision established $87.3 million as TNMP’s stranded costs. TNMP and other parties have made a series of appeals on the ruling and it is currently before the Texas Supreme Court. TNMP is unable to predict if the Texas Supreme Court will review the decision or the ultimate outcome of this matter.

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

The PUCT approved an amendment to the true-up rule in 2006, which results in a lower interest rate that TNMP is allowed to collect on the unsecuritized true-up balance through a CTC. The PUCT concluded that the correct rate at which a utility should accrue carrying costs through a 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 revised rate affects TNMP by lowering the previously approved carrying cost rate of 10.93%. After regulatory proceedings, the PUCT issued an order approving the 8.31% rate proposed by TNMP and the PUCT staff. Various municipal intervenors (“Cities”) appealed the PUCT’s order to the District Court in Austin, Texas, with TNMP as an intervenor. The District Court affirmed the PUCT’s decision and the Cities filed an appeal in the Texas 3rd Court of Appeals. Oral argument was held on February 26, 2009. TNMP is unable to predict the ultimate outcome of this matter.

Interest Rate Compliance Tariff

Following the revision of the interest rate on TNMP’s carrying charge, TNMP filed a compliance tariff to implement the new 8.31% rate. TNMP’s filing proposed to put the new rates into effect on February 1, 2008. Intervenors asserted objections to the compliance filing. PUCT staff urged that the PUCT make the new rate effective as of December 27, 2007 when the PUCT’s order establishing the correct rate became final. After regulatory proceedings, the PUCT issued an order making the new rate retroactive to July 20, 2006. TNMP filed an appeal of this order in the District Court in Austin, Texas. While there is inherent uncertainty in this type of proceeding, TNMP believes it will ultimately be successful in overturning any ruling that the effective date should be prior to December 27, 2007.

60-Day Rate Review

In 2005, TNMP made a required 60-day rate review filing. TNMP’s case establishes a 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 “First Choice Price-To-Beat Base Rate Reset” above for further updates. In 2006, the PUCT issued a signed order which would allow TNMP to begin collecting its true-up balance, which includes

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 charges, over a 14-year period. The order also allows TNMP to collect expenses associated with several cases over a three-year period. TNMP began collecting its 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. TNMP is unable to predict the ultimate outcome of this matter.

2008 Rate Case

On August 29, 2008, TNMP filed with the PUCT for an $8.7 million increase in revenues. If approved, new rates would go into effect in September 2009. In its request, TNMP also asked for permission to implement a catastrophe reserve fund similar to those approved for other transmission and distribution companies in Texas. Catastrophe funds help pay for a utility system’s recovery from natural disasters and acts of terrorism. Once the rate case is finalized by the PUCT, TNMP may update its transmission rates annually to reflect changes in its invested capital. Updated rates would reflect the addition and retirement of transmission facilities, including appropriate depreciation, federal income tax and other associated taxes, and the approved rate of return on such facilities. On October 10, 2008, the PUCT issued a preliminary order permitting TNMP to file supplemental testimony on costs caused by Hurricane Ike. These costs may be included in rates or captured as a regulatory asset for review and approval in a subsequent proceeding.

In December 2008, the parties in the TNMP rate case requested that the case be abated and the ALJ granted the request. The abatement suspended procedural deadlines until after the submittal of supplemental testimony by TNMP relating to costs incurred during Hurricane Ike and anticipated financing costs. On March 31, 2009, TNMP filed it supplemental testimony, requesting an additional revenue increase of $15.7 million annually. This amount includes a five year amortization of Hurricane Ike restoration cost, recovery of increased interest expense associated with the recent refinancing of TNMP’s debt, and additional carrying charges on the CTC balance. Following a pre-hearing conference on April 30, 2009, the ALJ approved a procedural schedule that sets hearing on the merits for June 16-26, 2009 and contemplates a final order from the PUCT no later than October 9, 2009. Discovery on TNMP’s supplemental filing and the intervenors’ positions is ongoing. TNMP is unable to predict the ultimate outcome of this matter.

Senate Bill 769

On April 16, 2009, the Governor of Texas signed into law Senate Bill 769 (“SB 769”) concerning the recovery of hurricane costs by utilities. SB 769 authorizes the PUCT, after a full review, to permit an electric utility to obtain timely recovery of system restoration costs, and permits utilities to use securitization financing for the recovery of such costs. The proposed costs can be approved in any current or future proceeding.

(11)	Optim Energy

Optim Energy was created by PNMR and ECJV, a wholly owned subsidiary of Cascade, to serve expanding U.S. markets, principally the areas of Texas covered by ERCOT. PNMR and ECJV each have a 50 percent ownership interest in Optim Energy, a limited liability company. See Note 22 of the Notes to Consolidated Financial Statements in the 2008 Annual Reports on Form 10-K. PNMR has no commitments or guarantees with respect to Optim Energy.

Optim Energy is jointly developing a 550 MW combined-cycle natural gas unit with NRG Energy, Inc. at the existing NRG Cedar Bayou Generating Station near Houston. Optim Energy anticipates the construction of the project will be completed in June 2009, at which time 275 MW of electricity will be available for sale by Optim Energy. Optim Energy has funded its portion of the Cedar Bayou construction with borrowings under its existing credit facility and operating cash flows. At some future date and depending on appropriate market conditions, Optim Energy may arrange long-term financing of a mix of debt and equity.

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)

Optim Energy has a bank financing arrangement expiring in May 2012, 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 Optim Energy. Cascade and ECJV have guaranteed Optim Energy’s obligations on this facility and, to secure Optim Energy’s obligation to reimburse Cascade and ECJV for any payments made under the guaranty, have a first lien on all assets of Optim Energy and its subsidiaries.

Summarized financial information for Optim Energy is as follows:

Results of Operations

	Three Months Ended March 31,
	2009			2008
	(In thousands)

Operating revenues	$	78,398		$	87,768
Cost of sales		45,718			110,860
Gross margin		32,680			(23,092	)
Non-fuel operations and maintenance expenses		5,981			4,655
Administrative and general expenses		10,009			6,102
Depreciation and amortization expense		7,659			7,569
Interest expense		2,480			6,568
Taxes other than income tax		3,329			3,661
Other (income) and deductions		(56	)		(257	)
Earnings (loss) before income taxes		3,278			(51,390	)
Income taxes (benefit)(1)		162			(384	)
Net earnings (loss)	$	3,116		$	(51,006	)

50 percent of net earnings (loss)	$	1,558		$	(25,503	)
Plus amortization of basis difference in Optim Energy		(163	)		420
PNMR equity in net earnings (loss) of Optim Energy	$	1,395		$	(25,083	)

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

Financial Position

	March 31,		December 31,
	2009		2008
	(In thousands)

Current assets	$	193,920	$	151,677
Net property plant and equipment		955,012		946,420
Deferred assets		224,729		224,776
Total assets		1,373,661		1,322,873

Current liabilities		111,629		104,826
Long-term debt		745,778		730,778
Other long-term liabilities		8,156		7,763
Total liabilities		865,563		843,367

Owners’ equity	$	508,098	$	479,506

50 percent of owners’ equity	$	254,049		239,753
Unamortized PNMR basis difference in Optim Energy		230		197
PNMR equity investment in Optim Energy	$	254,279	$	239,950

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)

Optim Energy has a 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. Due to the extreme ERCOT market volatility experienced in the first quarter of 2008, Optim Energy made the decision to exit its speculative trading business and close out its speculative trading positions. Optim Energy incurred settled and forward speculative losses of $2.4 million in the first quarter of 2008. The market volatility contributed to Optim Energy recording forward mark-to-market losses of $47.1 million on its economic hedges in the first quarter of 2008. In the first quarter of 2009, Optim Energy recorded income of $9.4 million on the mark-to-market of economic hedges.

SFAS 141 requires that Optim Energy individually value each asset and liability received in the Altura (Twin Oaks) and Altura Cogen 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’ terms differed significantly from fair value at the date of acquisition and emission allowances, while acquired from government programs without future cost to Optim Energy, have significant market value. During the three months ended March 31, 2009 and 2008, Optim Energy recorded amortization of contracts acquired of $3.1 million, which reduced operating revenues, and $1.3 million, which increased operating revenues, and amortization expense on emission allowances of $1.3 million and $4.1 million, which is recorded in cost of sales.

The contribution of Altura created a basis difference between PNMR’s recorded investment in Optim Energy and 50 percent of Optim Energy’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 ended March 31, 2009 and 2008, the basis difference adjustment detailed above relates mainly to contract amortization with insignificant offsets related to the other minor basis difference components.

On January 6, 2009, LCC filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. LCC is Optim Energy’s counterparty in several agreements for power and steam sales. In addition, LCC leases Optim Energy the land for the Altura Cogen facility and provides other services, including water, to that facility. The pre-petition net amount due from LCC as of March 31, 2009 is immaterial to Optim Energy’s results and has been fully reserved. LCC has continued to perform under the existing contracts since its bankruptcy filing.

(12)	Related Party Transactions

PNMR, PNM, TNMP, and Optim Energy are considered related parties as defined in SFAS 57. PNMR Services Company provides corporate services to PNMR, its subsidiaries, and Optim Energy. Additional information concerning the Company’s related party transactions is contained in Note 20 of the Notes to Consolidated Financial Statements in the 2008 Annual Reports on Form 10-K.

See Note 11 for information concerning Optim Energy. The table below summarizes the nature and amount of other related party transactions of PNMR, PNM and TNMP:

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
	March 31,
	2009		2008
	(In thousands)

Electricity, transmission and related services billings:
TNMP to PNMR	$	9,303	$	14,410

Services billings:
PNMR to PNM*		17,028		21,428
PNMR to TNMP		5,284		4,559
PNM to TNMP		133		-
PNMR to Optim Energy		1,415		2,424
Optim Energy to PNMR		128		-

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

Interest payments:
TNMP to PNMR		430		89

* PNM shared services include billings to PNM Gas of $0.9 million and $5.5 million for the three months ended March 31, 2009 and 2008.

(13)	New Accounting Pronouncements

Note 21 of Notes to Consolidated Financial Statements in the 2008 Annual Reports on Form 10-K contains information regarding recently issued accounting pronouncements that could have a material impact on the Company. See Note 4 regarding the implementation of SFAS 161.

FSP FAS 157-2 delayed the effective date of SFAS 157 for nonfinancial assets and liabilities, until January 1, 2009, at which time it was adopted by the Company. This FSP did not have a significant impact on the Company’s March 31, 2009 financial statements. The Company will apply this FSP to the fair value determinations made by the Company in evaluating intangible assets for potential impairment, which will be performed during the second quarter of 2009; however, the Company does not anticipate it will have a significant impact.

In April 2009, the FASB issued the following FSPs, which are effective for interim and annual reporting periods ending after June 15, 2009. Early adoption is permitted for periods ending after March 15, 2009 provided that all three FSPs are adopted. The Company has not early adopted these FSPs. The Company is currently reviewing the requirements of these FSPs and will implement them and the required disclosures for the period ended June 30, 2009. The Company does not anticipate these FSPs will have a significant impact.

FSP FAS 157-4 – Determining the Fair Value When the Volume and Level Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly

FSP FAS 157-4 amends SFAS 157 by providing additional guidance on determining fair value when the volume and level of activity for an asset or liability have significantly decreased when compared to normal market activity for the asset or liability, as well as providing additional guidance for determining fair values in inactive markets.

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)

FSP FAS 107-1 and APB 28-1 – Interim Disclosures about Fair Value of Financial Instruments

FSP FAS 107-1 and APB 28-1 requires disclosures about fair value of financial instruments, currently required in annual financial statements, to be included for interim reporting periods of publicly traded companies.

FSP FAS 115-2 and FAS 124-2 – Recognition and Presentation of Other-Than-Temporary Impairments

FSP FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in interim and annual financial statements.

(14)	Discontinued Operations

As discussed in Note 2, PNM sold its gas operations, which comprised the PNM Gas segment. Under GAAP, the assets and liabilities of PNM Gas were considered to be held-for-sale at December 31, 2008 and presented as discontinued operations on the accompanying balance sheets. The PNM Gas results of operations are excluded from continuing operations and presented as discontinued operations on the statements of earnings. In accordance with SFAS 144, no depreciation is recorded on assets held for sale in 2008. Summarized financial information for PNM Gas is as follows:

Results of Operations

	Three Months Ended March 31,
	2009			2008
	(In thousands)
Operating revenues	$	65,696		$	220,455
Cost of energy		44,698			160,828
Gross margin		20,998			59,627
Operating expenses		5,817			21,443
Depreciation and amortization		-			-
Operating income		15,181			38,184
Other income (deductions)		292			941
Net interest charges		(962	)		(2,971	)
Gain on disposal		111,006			-
Segment earnings before income taxes		125,517			36,154
Income taxes		43,842			13,655
Segment earnings	$	81,675		$	22,499

(15)	Business Improvement Plan

As discussed in Note 24 of the Notes to Consolidated Financial Statements in the 2008 Annual Reports on Form 10-K, the Company began a business improvement process that included a comprehensive cost structure analysis of its operations and a benchmarking analysis to similar-sized utilities. During 2007 and 2008, the Company implemented a series of initiatives designed to manage future operational costs, maintain financial strength and 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.

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 Company 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 liability has been incurred and the amount can be reasonably estimated. No significant costs were incurred during the three months ended March 31, 2009. During the three months ended March 31, 2008, the Company recorded pre-tax severance benefits payable of $0.3 million and other costs, primarily consulting fees, related to the business improvement plan of $1.9 million. Substantially all of these costs were recorded by PNMR. As additional phases of the business improvement plan are developed, the associated costs will be analyzed and recorded.

(16)	Variable Interest Entities

Information regarding the Company’s assessment of potential variable interest entities is contained in Note 9 of Notes to the Consolidated Financial Statements in the 2008 Annual Reports on Form 10-K.

On April 18, 2007, PNM entered into a PPA to purchase all of the electric capacity and energy from Valencia, a natural gas-fired power plant near Belen, 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 the facility was $90.0 million. The term of the PPA is for 20 years beginning June 1, 2008, with the full output of the plant estimated to be 148 MW. During the term of the PPA, 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 of energy demand in summer (less than 18% of the time on an annual basis). PNM is obligated to pay fixed O&M and capacity charges in addition to variable O&M charges under this PPA. For the three months ended March 31, 2009, PNM paid $3.3 million for fixed charges and $0.8 million for variable charges. PNM does not have any other financial obligations related to Valencia and creditors of Valencia do not have any recourse against PNM’s assets.

PNM has evaluated the accounting treatment of 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 PNM 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 statements of PNM although PNM has no legal ownership interest or voting control of the variable interest entity. The owner’s equity and net income of Valencia are considered attributable to non-controlling interest. PNM did not consolidate the variable interest entity prior to May 30, 2008 since PNM had no financial risk.

The Company adopted SFAS 160 beginning January 1, 2009. SFAS 160 changes the way companies measure and present an acquisition of a non-controlling (minority) interest and changes in a controlling interest. On the balance sheet, SFAS 160 results in minority interests being reflected in stockholders’ equity rather than as liabilities. On the income statement, earnings attributable to minority interests are removed from net earnings to arrive at earnings attributable to the controlling interest. PNM and PNMR have reclassified prior periods to be consistent with this presentation.

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)

Summarized financial information for Valencia is as follows:

Results of Operations

	Three Months Ended
	March 31, 2009
	(In thousands)

Operating revenues		$	4,058
Operating expenses			(1,479	)
Earnings attributable to non-controlling interest		$	2,579

Financial Position

	March 31,		December 31,
	2009		2008
	(In thousands)

Current assets	$	5,905	$	9,925
Net property, plant and equipment		88,472		89,011
Total assets		94,377		98,936
Current liabilities		690		430
Owners’ equity – non-controlling interest	$	93,687	$	98,506

Changes in Owners Equity – Non-controlling Interest

	Three Months Ended
	March 31, 2009
	(In thousands)

Balance at beginning of period		$	98,506
Earnings attributable to non-controlling interest			2,579
Net equity transactions with Valencia’s owner			(7,398	)
Balance at end of period		$	93,687

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 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 appear visually accurate due to rounding.

MD&A FOR PNMR

BUSINESS AND STRATEGY

Overview

The overall strategy of PNMR is to “Build America’s Best Merchant Utility” through concentrated effort on its core regulated and unregulated electric businesses. PNM sold its gas operations on January 30, 2009 and is now positioned to focus on its regulated electric business. The growth of the unregulated electric business is expected through the further development of Optim Energy and from First Choice.

The focus on the electric businesses also includes environmental sustainability efforts. These efforts are comprised of various components including environmental upgrades, energy efficiency, solar generating site and technology feasibility, expansion of the renewable energy portfolio of generation resources, and climate change.

Another initiative of PNMR is the separation of its merchant operations from PNM Electric, which will be accomplished in several steps. In June 2008, PNMR completed the sale of certain wholesale power, natural gas and transmission contracts as an initial step in separating its merchant plant activities from PNM. In addition, Luna and Lordsburg are required to be separated by January 1, 2010 under an existing NMPRC regulatory order. PNM is proposing to the NMPRC that these units be included in retail rates beginning with PNM’s 2008 Electric Rate Case. See Note 10. PVNGS Unit 3, which is not subject to the separation order, can remain in PNM. PNM has entered into contracts for the sale of capacity and energy from its entire ownership interest in PVNGS Unit 3 through December 31, 2010.

Critical to PNMR’s success for the foreseeable future is the financial health of PNM, PNMR’s largest subsidiary. As discussed in Note 10, on September 22, 2008, PNM filed its 2008 Electric Rate Case requesting the NMPRC to approve an increase in electric service rates to all PNM retail customers except those formerly served by TNMP. The proposed rates are designed to increase annual operating revenue by $123.3 million. PNM has also proposed a more customary FPPAC. Stipulations have been executed with the NMPRC staff and other intervening parties that would resolve all issues in the rate case, including the inclusion of additional sources of power in determining rates. The stipulation, if approved by the NMPRC, would allow for an increase in annual non-fuel revenues of $77.3 million, 65% of which would be implemented July 1, 2009 with the remainder implemented March 31, 2010. Hearings before the NMPRC have been held and a decision is pending. PNM is unable to predict the final outcome of this matter.

On April 6, 2009, the Governor of New Mexico signed Senate Bill 477 into law, which will become effective June 19, 2009. SB 477 is designed to promote more timely recovery of reasonable costs of providing utility service in two ways. First, SB 477 requires the NMPRC, when setting rates, to use the test period that best reflects the conditions the utility will experience when new rates are anticipated to go into effect. The NMPRC is required to give due consideration that a future test period may be the one that best meets this test. A future test period is defined as one that begins no later than the time new rates are to go into effect. Traditionally, the NMPRC has used an historical test period, adjusted for known and measurable changes occurring within five months after the end of the test period, which reflects costs that could be up to two years old at the time new rates become effective. Second, SB 477 requires the NMPRC to include construction work in progress in rate base, without an offset for allowance for funds used during construction, for environmental improvement projects and generation and transmission projects for which a certificate of public convenience and necessity has been issued. This provision will allow utilities to collect costs as projects are being built rather than waiting until they are finished to include

them in rate base, so long as the projects will be used and useful no later than two years after the rate case seeking inclusion is filed.

On August 29, 2008, TNMP filed with the PUCT for an $8.7 million increase in revenues. In its request, TNMP also asked for permission to implement a catastrophe reserve fund similar to those approved for other transmission and distribution companies in Texas. Catastrophe funds help pay for a utility system’s recovery from natural disasters and acts of terrorism. Once the rate case is finalized by the PUCT, TNMP may update its transmission rates annually to reflect changes in its invested capital. The PUCT issued a preliminary order permitting TNMP to file supplemental testimony on costs caused by Hurricane Ike and costs related to financing completed in March 2009. The supplemental testimony was filed on March 31, 2009, which requested an additional revenue increase of $15.7 million. A hearing on the rate case is scheduled for June 2009. TNMP is unable to predict the outcome of this matter.

As a REP, First Choice operates in the highly competitive Texas retail market. During 2008, the Texas market experienced extreme price volatility and transmission congestion. This caused First Choice to incur losses in its speculative trading portfolio and led to termination of speculative activities. These anomalies also negatively impacted the margins realized from end use customers. These conditions were exacerbated by the impacts of Hurricane Ike and depressed economic conditions resulting in very high levels of customer turnover and levels of uncollectible accounts significantly higher than historical experience.

The recent and unprecedented disruption in the credit markets has had a significant adverse impact on numerous financial institutions, including several of the financial institutions that the Company deals with. However, at this point in time, the Company’s existing liquidity instruments have not been materially impacted by the credit environment and management does not expect that it will be materially impacted in the near future. The Company is closely monitoring its liquidity and the credit markets. In addition, there has been a significant decline in the level of prices of marketable equity securities, including those held in trusts maintained for future payments of benefits under pension and retiree medical plans. The stock market decline will likely result in increased levels of funding and expense applicable to these trusts.

In the last half of 2008 and early 2009, global economic conditions deteriorated dramatically, encompassing the U.S. residential housing market, and global and domestic equity and credit markets. The tightening of the credit markets coupled with extreme volatility in commodity markets has had a direct, negative impact on several of First Choice’s competitors in the ERCOT retail market.

Optim Energy

PNMR’s strategy for unregulated operations is focused on some of the nation’s growing power markets. PNMR intends to capitalize on the growth opportunities in these markets through its participation and ownership in Optim Energy. Optim Energy’s anticipated business lines will consist of:

·	Development, operation and ownership of diverse generation assets

·	Wholesale marketing to optimize its assets

RESULTS OF OPERATIONS

Executive Summary

A summary of net earnings (loss) attributable to PNMR is as follows:

	Three Months Ended March 31,
	2009		2008			Change
	(In millions, except per share amounts)
Earnings (loss) from continuing operations	$	13.7	$	(71.1	)	$	84.8
Earnings from discontinued operations, net of income taxes		81.7		22.5			59.2
Net earnings (loss)	$	95.4		(48.6	)	$	144.0
Average common and common equivalent shares outstanding		91.4		76.9			14.5
Earnings (loss) from continuing operations per diluted share	$	0.15	$	(0.93	)	$	1.08
Net earnings (loss) per diluted share	$	1.04	$	(0.63	)	$	1.67

The components of the change in earnings (loss) from continuing operations attributable to PNMR (in millions) are:

PNM Electric	$	22.0
TNMP Electric		(2.3	)
First Choice		31.1
Corporate and Other		18.0
Optim Energy		16.0
Net change	$	84.8

Detailed information regarding the changes in earnings (loss) from continuing and discontinued operations are included in the segment information below. The increase in the number of common and common equivalent shares is primarily due to PNMR’s convertible preferred stock. See Note 5 of Notes to Consolidated Financial Statements in the 2008 Annual Reports on Form 10-K.

Segment Information

The following discussion is based on the segment methodology that PNMR’s management uses for making operating decisions and assessing performance of its various business activities. See Note 3 for more information on PNMR’s operating segments.

The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto. Trends and contingencies of a material nature are discussed to the extent known. Refer also to Disclosure Regarding Forward Looking Statements in Item 2 and to Part II, Item 1A. Risk Factors.

PNM Electric

The table below summarizes operating results for PNM Electric:

	Three Months Ended March 31,
	2009			2008			Change
	(In millions)
Total revenues	$	232.0		$	252.7		$	(20.7	)
Cost of energy		101.5			135.7			(34.2	)
Gross margin		130.4			117.0			13.5
Other operating expenses		97.5			126.6			(29.1	)
Depreciation and amortization		22.4			21.0			1.4
Operating income (loss)		10.5			(30.6	)		41.1
Other income (deductions)		1.0			0.6			0.4
Net interest charges		(17.2	)		(14.1	)		(3.1	)
Earnings (loss) before income taxes		(5.7	)		(44.1	)		38.4
Income (taxes) benefit		3.3			17.1			(13.8	)
Preferred stock dividend requirements		(0.1	)		(0.1	)		-
Valencia non-controlling interest		(2.6	)		-			(2.6	)
Segment earnings (loss)	$	(5.1	)	$	(27.1	)	$	22.0

The table below summarizes the significant changes to total revenues, cost of energy, and gross margin:

	2009/2008 Change
	Total			Cost of			Gross
	Revenues			Energy			Margin

Regulated fuel costs and rate recovery	$	(0.2	)	$	(26.9	)	$	26.7
Unregulated margins		(53.4	)		(52.8	)		(0.6	)
Net unrealized economic hedges		32.9			49.6			(16.7	)
Consolidation of Valencia PPA		-			(4.1	)		4.1
Total increase (decrease)	$	(20.7	)	$	(34.2	)	$	13.5

The following table shows PNM Electric operating revenues by customer class, including intersegment revenues and average number of customers:

	Three Months Ended March 31,
	2009		2008			Change
	(In millions, except customers)
Residential	$	73.7	$	71.2		$	2.5
Commercial		69.9		67.5			2.4
Industrial		19.0		25.8			(6.8	)
Public authority		4.4		3.5			0.9
Other retail		3.0		2.8			0.2
Transmission		7.7		6.5			1.2
Firm requirements wholesale		7.6		12.3			(4.7	)
Other sales for resale		43.5		93.6			(50.1	)
Mark-to-market activity		3.2		(30.5	)		33.7
	$	232.0	$	252.7		$	(20.7	)
Average retail customers (thousands)		498.0		494.1			3.9

The following table shows PNM Electric GWh sales by customer class:

	Three Months Ended March 31,
	2009		2008		Change
	(Gigawatt hours)
Residential		795.7		857.7		(62.0	)
Commercial		855.5		910.3		(54.8	)
Industrial		355.2		441.8		(86.6	)
Public authority		58.8		59.6		(0.8	)
Other retail		-		-		-
Transmission		-		-		-
Firm requirements wholesale		183.6		295.0		(111.4	)
Other sales for resale		1,060.1		1,438.5		(378.4	)
Mark-to-market activity		-		-		-
		3,308.9		4,002.9		(694.0	)

In 2009, PNM electric’s regulated revenues increased associated with the base rate increase and implementation of a FPPAC during second quarter 2008. However, these increases in revenues were more than offset by decreased residential and commercial loads driven by lower per-customer usage and warmer temperatures and reduced operations of a major industrial customer.

Increased availability of base-load power plants in 2009 contributed to lower costs to serve regulated customers. The weighted-average equivalent availability factor at these plants was 81.2% in the first quarter of 2009, compared to 66.7% in the same period last year. The increase in lower-cost generation associated with lower retail loads to serve resulted in significant savings to cost of energy and margins.

Unregulated revenues and cost of energy related to unregulated margins decreased due to the sale of the merchant portfolio in June 2008. Unregulated revenues and margins increased due to more favorable pricing terms under the forward sales agreement at PVNGS, but were more than offset by decreased revenues and margins due to lower market prices achieved from sales from unregulated assets and costs incurred under the Valencia PPA.

Changes in net unrealized gains and losses on economic hedges were driven by decreasing gas and electric prices in the first quarter of 2009 on open positions, coupled with unrealized gains recorded in the same period last year on merchant contracts that were sold in the second quarter of 2008.

PNM Electric currently analyzes results associated with the Valencia PPA, which is not subject to regulation by the NMPRC, as costs of energy. See Note 10 for discussion of the proposed inclusion of Valencia PPA in regulation. Cost of energy is reduced due to the Valencia PPA being consolidated under FIN 46R. See Note 16. Consolidation results in amounts being reflected as operating expenses and non-controlling interest that otherwise would have been included in cost of energy if Valencia was not consolidated.

Operating expenses decreased due to regulatory disallowances recorded in 2008 from the NMPRC’s rate order dated April 24, 2008, which included write-offs of $10.6 million for deferred costs of RECs and $19.6 million for coal mine decommissioning costs. See Note 10 for discussion of appeal of these matters to the New Mexico Supreme Court. Administrative and general expenses have increased due to medical and pension expenses, which are offset by lower energy production costs related to timing of a major outage in the first quarter of 2008 at PVNGS.

In 2009, depreciation expense increased primarily due to the completion of the environmental upgrades on Units 1 and 3 at SJGS. The environmental upgrade of SJGS Unit 2 was completed as of March 31, 2009. This completes the environmental upgrades on all four units at SJGS.

Interest charges increased in 2009 related to higher borrowings at higher long-term interest rates.

TNMP Electric

The table below summarizes the operating results for TNMP Electric:

	Three Months Ended March 31,
	2009			2008			Change

Total revenues	$	41.2		$	42.2		$	(1.0	)
Cost of energy		8.6			7.8			0.8
Gross margin		32.6			34.4			(1.8	)
Other operating expenses		17.9			15.5			2.4
Depreciation and amortization		8.6			8.4			0.2
Operating income		6.1			10.6			(4.5	)
Other income (deductions)		0.4			0.4			-
Net interest charges		(4.1	)		(5.0	)		0.9
Earnings before income taxes		2.4			6.0			(3.6	)
Income (taxes)		(1.0	)		(2.3	)		1.3
Segment earnings	$	1.4		$	3.7		$	(2.3	)

The table below summarizes the significant changes to total revenues, cost of energy, and gross margin:

	2009/2008 Change
	Total			Cost of		Gross
	Revenues			Energy		Margin

Customer usage/load	$	(1.7	)	$	-	$	(1.7	)
Other		0.7			0.8		(0.1	)
Total increase (decrease)	$	(1.0	)	$	0.8	$	(1.8	)

The following table shows TNMP Electric operating revenues by customer class, including intersegment revenues, and average number of customers:

	Three Months Ended March 31,
	2009		2008		Change
	(In millions, except customers)
Residential	$	14.4	$	15.3	$	(0.9	)
Commercial		16.0		16.6		(0.6	)
Industrial		3.0		3.2		(0.2	)
Other		7.8		7.1		0.7
	$	41.2	$	42.2	$	(1.0	)
Average customers (thousands) (1)		230.1		227.4		2.7

(1)

Under TECA, customers of TNMP Electric in Texas have the ability to choose First Choice or any other REP to provide energy. The average customers reported above include 90,398 and 124,349 customers of TNMP Electric for the three months ended March 31, 2009 and 2008, who have chosen First Choice as their REP. These customers are also included in the First Choice segment.

The following table shows TNMP Electric GWh sales by customer class:

	Three Months Ended March 31,
	2009		2008		Change
	(Gigawatt hours(1))
Residential		509.8		538.5		(28.7	)
Commercial		460.3		473.7		(13.4	)
Industrial		424.1		543.1		(119.0	)
Other		25.8		26.5		(0.7	)
		1,420.0		1,581.8		(161.8	)

(1)	The GWh sales reported above include 248.3 and 395.0 GWhs for the three months ended March 31, 2009 and 2008 used by customers of TNMP Electric, who have chosen First Choice as their REP. These GWhs are also included below in the First Choice segment.

Decreases in retail sales and margin were driven by lower consumption per customer and milder weather. Other changes to revenues, cost of energy and gross margin relate to transmission prices charges to and from other transmission and distribution providers.

Operating expenses increased in 2009 related to higher pension and medical expenses and escalation of labor and administrative costs.

Repayment of long-term debt outstanding in second quarter 2008 with short-term borrowings at lower interest costs resulted in savings in interest charges. As described in Note 7, TNMP issued $315.5 million aggregate principal amount of long-term debt that bears interest at rates above the short-term debt rates during the three months ended March 31, 2009, which will result in increased interest expense in future periods.

PNM Gas

The table below summarizes the operating results for PNM Gas, which is classified as discontinued operations in the Condensed Consolidated Statements of Earnings (Loss):

	Three Months Ended March 31,
	2009			2008			Change
	(In millions)
Total revenues	$	65.7		$	220.5		$	(154.8	)
Cost of energy		44.7			160.8			(116.1	)
Gross margin		21.0			59.6			(38.6	)
Other operating expenses		5.8			21.4			(15.6	)
Depreciation and amortization		-			-			-
Operating income		15.2			38.2			(23.0	)
Other income (deductions)		0.3			0.9			(0.6	)
Net interest charges		(1.0	)		(3.0	)		2.0
Gain on disposal		111.0			-			111.0
Earnings before income taxes		125.5			36.2			89.3
Income (taxes)		(43.8	)		(13.7	)		(30.1	)
Segment earnings (loss)	$	81.7		$	22.5		$	59.2

PNM completed the sale of the PNM Gas business on January 30, 2009. The Company is reporting this segment as discontinued operations as required under GAAP. PNM Gas purchased natural gas in the open market and sold it at no profit to its sales-service customers. As a result, increases or decreases in gas revenues driven by gas costs did not impact the gross margin or operating income of PNM Gas. Increases or decreases to gross margin caused by changes in sales-service volumes represented margin earned on the delivery of gas to customers based on regulated rates.

As a result of the sale, the above table reflects operations from the PNM Gas business from January 1 through January 30, 2009, compared to a full quarter of operations in 2008. Milder weather combined with lower usage-per customer reduced overall sales volumes in 2009 when compared to the same period in the prior year. A pre-tax gain of $111.0 million was recognized on the sale of the PNM Gas business.

First Choice

The table below summarizes the operating results for First Choice:

	Three Months Ended March 31,
	2009			2008			Change
	(In millions)
Total revenues	$	122.2		$	84.2		$	38.0
Cost of energy		80.4			105.3			(24.9	)
Gross margin		41.8			(21.1	)		62.9
Other operating expenses		29.3			15.5			13.8
Depreciation and amortization		0.5			0.5			-
Operating income (loss)		11.9			(37.0	)		48.9
Other income (deductions)		-			0.4			(0.4	)
Net interest charges		(1.0	)		(0.3	)		(0.7	)
Earnings (loss) before income taxes		10.9			(36.9	)		47.8
Income (taxes) benefit		(3.9	)		12.8			(16.7	)
Segment earnings (loss)	$	7.0		$	(24.1	)	$	31.1

The following table summarizes the significant changes to total revenues, cost of energy, and gross margin:

	2009/2008 Change
	Total			Cost of			Gross
	Revenues			Energy			Margin
Weather	$	(0.6	)	$	(0.5	)	$	(0.1	)
Customer growth/usage		(19.7	)		(11.9	)		(7.8	)
Retail margins		11.3			(18.3	)		29.6
Trading margins		47.0			-			47.0
Unrealized economic hedges		-			5.8			(5.8	)
Total increase (decrease)	$	38.0		$	(24.9	)	$	62.9

The following table shows First Choice operating revenues by customer class, including intersegment revenues, and actual number of customers:

	Three Months Ended March 31,
	2009			2008			Change
	(In millions, except customers)
Residential	$	76.0		$	76.7		$	(0.7	)
Mass-market		8.3			15.9			(7.6	)
Mid-market		32.1			35.6			(3.5	)
Trading gains (losses)		(0.1	)		(47.1	)		47.0
Other		5.9			3.1			2.8
	$	122.2		$	84.2		$	38.0
Actual customers (thousands) (1,2)		246.7			257.1			(10.4	)

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

(2)	Due to the competitive nature of First Choice’s business, actual customer count at March 31 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.

The following table shows First Choice GWh electric sales by customer class:

	Three Months Ended March 31,
	2009		2008		Change
	(Gigawatt hours) (1)
Residential		501.8		563.7		(61.9	)
Mass-market		42.0		94.9		(52.9	)
Mid-market		248.7		278.8		(30.1	)
Other		2.3		4.4		(2.1	)
		794.8		941.8		(147.0	)

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

An increase in the average sales price over 2008 levels and significantly lower purchased power costs resulted in an increase in retail margins. A decrease in customers and lower MWh sales reduced revenues for the first quarter of 2009. Other revenues have also increased as a result of higher miscellaneous fees in 2009. Gains or losses on unrealized economic hedges represent unrealized fair value estimates related to forward energy contracts and are not necessarily indicative of the amounts that will be realized upon settlement. In the first quarter of 2008, First Choice had gains on economic hedges of $5.8 million more than in 2009.

The losses in the first quarter of 2008 were primarily the result of a series of speculative forward trades that arbitraged basis differentials among certain ERCOT delivery zones that decreased trading margins by $47.1 million. Because of continued market volatility and concern that the forward basis market would continue to deteriorate, First Choice ended any further speculative trading in 2008. No significant additional costs have been incurred in 2009 and none are expected in the future related to speculative trading.

The allowance for uncollectible accounts and related bad debt expense is based on collections and write-off experience. Due to economic conditions, higher average final bills, and an increase in customer churn, the default rates experienced late in 2008 and continuing in 2009 rose significantly. As a result, bad debt expense increased, which reduced segment earnings by $10.7 million in the first quarter of 2009 compared to 2008. Management of First Choice is currently addressing the bad debt situation by undertaking several initiatives in 2009 to reduce bad debt expense. These initiatives include efforts to reduce the default rate experienced for customers switching to another REP combined with renewed focus on identifying new customer prospects, who are more likely to demonstrate desired payment behavior. In addition, possible regulatory changes are under discussion with the PUCT that would impede a customer's ability to switch REPs until past due balances are paid.

Increased operational costs, largely attributable to customer acquisition expenses and related services, in the first quarter of 2009 resulted in a decrease in segment earnings compared to the first quarter of 2008.

Corporate and Other

The table below summarizes the operating results for Corporate and Other:

	Three Months Ended March 31,
	2009			2008			Change
	(In millions)
Total revenues	$	(9.5	)	$	(14.6	)	$	5.1
Cost of energy		(9.3	)		(14.4	)		5.1
Gross margin		(0.2	)		(0.2	)		-
Other operating expenses		(6.1	)		(2.5	)		3.6
Depreciation and amortization		4.5			4.2			(0.3	)
Operating income (loss)		1.4			(1.9	)		3.3
Equity in net earnings (loss) of Optim Energy		1.4			(25.1	)		26.5
Other income (deductions)		20.2			(2.6	)		22.8
Net interest charges		(6.6	)		(8.4	)		1.8
Earnings (loss) before income taxes		16.4			(38.1	)		54.5
Income (taxes) benefit		(6.1	)		14.4			(20.5	)
Segment earnings (loss)	$	10.3		$	(23.7	)	$	34.0

The Corporate and Other Segment includes consolidation eliminations of revenues and cost of energy between business segments, primarily related to TNMP’s sale of transmission to First Choice.

Other operating expenses decreased in the three months ended March 31, 2009 compared to 2008 primarily due to $2.9 million of costs associated with initial costs to achieve savings, such as severances and consulting charges related to the business improvement plan, that were incurred in 2008 but not in 2009. The decrease includes an offset to depreciation expense described below. Favorable variances also include $0.4 million for a building lease that is offset as a result of allocation of these costs to other business segments.

Depreciation expense increased $0.3 million in the three months ended March 31, 2009 compared to 2008 related to an increase in asset base, which is offset in other operating expenses as a result of allocation of these costs to other business segments.

Corporate and Other results include earnings associated with Optim Energy. Further explanation of equity in Optim Energy’s results of operations is shown below.

Other income and deductions increased in 2009 compared to 2008 primarily due to a $15.0 million fee received upon termination of the CRHC acquisition agreement and a gain of $7.5 million on the re-acquisition of $157.4 million of PNMR’s 9.25% senior unsecured notes.

Interest charges decreased in 2009 compared to 2008 primarily due to lower short-term borrowings and rates creating a favorable variance of $3.7 million. The favorable variance is offset by higher long term interest rates on senior unsecured notes that were re-marketed in 2008 resulting in increased expense of $1.6 million after reflecting the re-acquisition of $157.4 million of that debt in February 2009.

Optim Energy

The table below summarizes the operating results for Optim Energy:

	Three Months Ended March 31,							2009/2008
	2009			2008			Change
				(In millions)

Total revenues	$	78.4		$	87.8		$	(9.4	)
Cost of energy		45.7			110.9			(65.2	)
Gross margin		32.7			(23.1	)		55.8
Other operating expenses		19.3			14.4			4.9
Depreciation and amortization		7.7			7.6			0.1
Operating income (loss)		5.7			(45.1	)		50.8
Other income		0.1			0.3			(0.2	)
Net interest charges		(2.5	)		(6.6	)		4.1
Earnings (loss) before income taxes		3.3			(51.4	)		54.7
Income (tax) benefit on margin		(0.2	)		0.4			(0.6	)
Net earnings (loss)	$	3.1		$	(51.0	)	$	54.1

50 percent of net earnings (loss)	$	1.6		$	(25.5	)	$	27.1
Plus amortization of basis difference in Optim Energy		(0.2	)		0.4			(0.6	)
PNMR equity in net earnings (loss) of Optim Energy	$	1.4		$	(25.1	)	$	26.5

Optim Energy has a 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. Due to the extreme market volatility experienced in the first quarter of 2008 in the ERCOT market, Optim Energy made the decision to exit its speculative trading business and close out its speculative trading positions. Optim Energy incurred settled and forward speculative losses of $2.4 million in the first quarter of 2008. The forward mark-to-market valuations on economic hedges resulted in a $56.5 million favorable variance in the first quarter of 2009 compared to the same period in 2008.

Altura (Twin Oaks) and Altura Cogen generation stations are Optim Energy’s core business. The generation stations had strong performance during the first quarter of 2009; however, Altura had a scheduled outage that did not occur in the first three months of 2008. This impacted both gross margin and operating expenses in 2009 compared to 2008. In addition, operating expenses further increased in 2009 due to an increase in the number of employees and related costs.

Management evaluates the results of operation of Optim Energy on an earnings before interest, income taxes, depreciation, and amortization (“EBITDA”) basis. In this evaluation of Optim Energy, management also excludes purchase accounting amortization included in gross margin related to contracts and emission allowances that were recorded in accordance with SFAS 141. SFAS 141 requires that Optim Energy individually value each asset and liability received in the Altura and Altura Cogen transactions and initially record them on its balance sheet at the determined fair value. For both transactions, this results in a significant amount of amortization for contracts acquired that were out of market and emission allowances, that while acquired from government programs without cost to the plants, have significant market value. Amortization related to out of market contracts decreased total operating revenues by $3.1 million in 2009. Amortization for out of market contracts will continue through the expiration of each contract, which is 2010 for Altura and 2021 for Altura Cogen. In addition, 2009 cost of energy includes $1.3 million of amortization related to emission allowances acquired in the 2007 transactions. The amortizations for emission allowances will be recorded as the allowances are used in plant operations, sold, expire or become obsolete.

The contribution of Altura created a basis difference between PNMR’s recorded investment in Optim Energy and 50 percent of Optim Energy’s equity. The PNMR net earnings impact does not equal 50 percent of the Optim Energy amortization because of this basis difference. 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. The basis difference adjustment detailed above relates primarily to contract amortization with insignificant offsets related to the other minor basis difference components.

On January 6, 2009, LCC filed for bankruptcy protection under Chapter 11 of the US Bankruptcy Code. LCC is Optim Energy’s counterparty in several agreements for power and steam sales. In addition, LCC leases Optim Energy the land for the Altura Cogen facility and provides other services, including water, to that facility. The pre-petition net amount due from LCC as of March 31, 2009 is immaterial to Optim Energy’s results and has been fully reserved. LCC has continued to perform under the existing contracts since the filing.

LIQUIDITY AND CAPITAL RESOURCES

Statements of Cash Flows

The changes in PNMR’s cash flows for the three months ended March 31, 2009 compared to 2008 are summarized as follows:

	Three Months Ended March 31,
	2009				2008			Change
				(In millions)
Net cash flows from:
Operating activities	$	(15.3	)		$	24.8		$	(40.1	)
Investing activities		560.7				(67.9	)		628.6
Financing activities		(615.6	)			53.0			(668.6	)
Net change in cash and cash equivalents	$	(70.2	)		$	10.0		$	(80.1	)

The change in PNMR’s cash flows from operating activities relates primarily to the payment of December 31, 2008 accruals in 2009, primarily related to higher coal and purchase power costs. The sale of PNM Gas also contributed to the decrease as the Company benefited from only one month of operations in 2009 versus three months in 2008. The decrease was partially offset by $15.0 million PNMR received in 2009 due to the termination of the CRHC acquisition agreement and reduced interest payments at PNM and PNMR related to lower borrowings as discussed below.

The changes in cash flows from investing activities relates primarily to the proceeds from the sale of PNM Gas. Reduced utility plant additions in 2009, mostly at PNM, also contributed to the change.

The changes in cash flows from financing activities relates primarily to the use of the proceeds from the sale of PNM Gas to retire short-term borrowings at PNM and PNMR, as well as the retirement of long term borrowings at PNMR. At TNMP, the retirement of both short-term and long-term borrowings was financed by new long-term borrowings.

Financing Activities

See Note 7 for information concerning the Company’s financing activities during the three months ended March 31, 2009. Additional information on the Company’s financing activities in contained in Note 6 of Notes to Consolidated Financial Statements in the 2008 Annual Report on Form 10-K

Capital Requirements

Total capital requirements consist of construction expenditures and cash dividend requirements for both common and preferred stock. PNMR’s Series A convertible preferred stock is entitled to receive dividends equivalent to any dividends paid on PNMR common stock as if the preferred stock had been converted into common stock. The main focus of PNMR’s current construction program is upgrading generation resources, including pollution control equipment, upgrading and expanding the electric and gas transmission and distribution systems, and purchasing nuclear fuel. Projections, including amounts expended through March 31, 2009, for total capital requirements for 2009 are $352.6 million, including construction expenditures of $306.5 million. Total capital requirements for the years 2009-2013 are projected to be $1,618.7 million, including construction expenditures of $1,388.1 million. This projection includes $18.0 million for the recently completed SJGS environmental project to install low NOX combustion control and mercury reduction technologies, as well as equipment to increase SO2 controls. These amounts do not include forecasted construction expenditures of Optim Energy. These estimates are under continuing review and subject to on-going adjustment, as well as to board review and approval.

During the first three months of 2009, the Company utilized cash generated from operations and cash on hand, as well as its liquidity arrangements and proceeds from the sale of PNM Gas, to meet its capital requirements, including construction expenditures, and the financing activities described in Note 7.

As discussed in Note 11, Optim Energy is co-developing a generating unit for which its share of the construction costs is anticipated to be approximately $215 million, including financing costs, of which $195.3 million has been incurred through March 31, 2009. PNMR currently anticipates that the remaining amounts for financing the co-development will be obtained from Optim Energy’s operating cash flows or Optim Energy’s credit facility. At some future date and depending on appropriate market conditions, Optim Energy may arrange long-term financing of a mix of debt and equity. If Optim Energy undertakes additional projects, which require funds that would exceed the capacity of its current credit facility and Optim Energy is unable to obtain additional financing capabilities, PNMR and ECJV may be asked to provide additional funding, but such funding would be at the option of PNMR and ECJV. PNMR is unable to predict if additional funding will be required or, if required, the amount or timing of additional funds that would be provided to Optim Energy.

Liquidity

PNMR’s liquidity arrangements include the PNMR Facility and the PNM Facility both of which primarily expire in 2012 and the TNMP Revolving Credit Facility, which expires in April 2011. These facilities provide short-term borrowing capacity and also allow letters of credit to be issued, which reduce the available capacity under the facilities. Both PNMR and PNM also have lines of credit with local financial institutions. PNMR and PNM also have commercial paper programs under which they may issue commercial paper although these programs have been suspended. In addition, PNM has long-term debt aggregating $36.0 million that is scheduled for mandatory repurchase and remarketing in July 2009. The Company is exploring financial alternatives to meet these obligations.

Although accessing the capital markets at the current time could be difficult as well as costly, the Company currently believes that its internal cash generation, existing credit arrangements, and access to public and private capital markets will provide sufficient resources to meet the Company’s capital requirements and retire or refinance

its debt at maturity. To cover the difference in the amounts and timing of cash generation and cash requirements, the Company intends to use short-term borrowings under its current and future liquidity arrangements. However, if the current market difficulties continue for an extended period of time or worsen, the Company may not be able to access the capital markets or renew credit facilities when they expire. In such event, the Company would seek to improve cash flows by reducing capital expenditures and PNM would consider seeking authorization for the issuance of first mortgage bonds in order to improve access to the capital markets, as well as any other alternatives that may remedy the situation at that time.

In addition to cash received from the sale of PNM Gas, the financings described in Note 7, and its internal cash generation, the Company anticipates that it will be necessary to obtain additional long-term financing in the form of debt refinancing, new debt issuances, and/or new equity in order to fund its capital requirements during the 2010-2013 period.

The Company’s ability, if required, to access the capital markets at a reasonable cost and to provide for other capital needs is largely dependent upon its ability to earn a fair return on equity, its results of operations, its credit ratings, its ability to obtain required regulatory approvals and conditions in the financial markets.

A summary of these arrangements as of April 30, 2009 is as follows:

	PNMR		PNM		TNMP		PNMR
	Separate		Separate		Separate		Consolidated
			(In millions)
Financing Capacity:
Revolving credit facility	$	600.0	$	400.0	$	75.0	$	1,075.0
Local lines of credit		10.0		8.5		-		18.5
Total financing capacity	$	610.0	$	408.5	$	75.0	$	1,093.5

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

Amounts outstanding as of April 30, 2009:
Commercial paper program	$	-	$	-	$	-	$	-
Revolving credit facility		135.0		-		-		135.0
Local lines of credit		4.1		-		-		4.1
Total short-term debt outstanding		139.1		-		-		139.1

Letters of credit		80.3		22.7		1.5		104.5

Total short term-debt and letters of credit	$	219.4	$	22.7	$	1.5	$	243.6

Remaining availability as of April 30, 2009	$	390.6	$	385.8	$	73.5	$	849.9
Cash investments as of April 30, 2009	$	-	$	17.1	$	-	$	17.1

The above table excludes intercompany debt. The remaining availability under the revolving credit facilities varies based on a number of factors, including the timing of collections of accounts receivables and payments for construction and operating expenditures. LBB was a lender under the PNMR Facility and the PNM Facility. LBH, the parent of LBB, has filed for bankruptcy protection. Subsequent to the bankruptcy filing by LBH, LBB declined to fund a borrowing request under the PNMR Facility amounting to $5.3 million. The above availability includes $26.3 million that represents the unfunded portion of the PNMR Facility attributable to LBB.

For offerings of debt and equity securities registered with the SEC, PNMR has two effective shelf registration statements, one expiring in August 2009 for equity and one expiring in April 2011 for debt. These shelf registration statements have unlimited availability and can be amended to include additional securities, subject to certain restrictions and limitations. PNMR can also offer new shares of PNMR common stock through the PNM Resources

Direct Plan and an equity distribution agreement. PNMR has suspended the equity distribution agreement due to market conditions. In April 2008, PNM filed a new shelf registration statement for the issuance of up to $750.0 million of senior unsecured notes that was declared effective on April 29, 2008. As of April 30, 2009, PNM had $600.0 million of remaining unissued securities registered under this and a prior shelf registration statement.

As discussed above and in Note 7, the recent disruption in the current credit markets has had a significant adverse impact on a number of financial institutions and several of the financial institutions that the Company deals with have been impacted. However, at this point in time, the Company’s liquidity has not been materially impacted by the current credit environment and management does not expect that it will be materially impacted in the near-future.

Off-Balance Sheet Arrangements

PNMR’s off-balance sheet arrangements include PNM’s operating lease obligations for PVNGS Units 1 and 2, the EIP transmission line, and the entire output of Delta, a gas-fired generating plant. These arrangements help ensure PNM the availability of lower-cost generation needed to serve customers. See MD&A – Off-Balance Sheet Arrangements and Note 7 of Notes to Consolidated Financial Statements in the 2008 Annual Report on Form 10-K.

Commitments and Contractual Obligations

PNMR, PNM and TNMP have contractual obligations for long-term debt, operating leases, purchase obligations and certain other long-term liabilities. See MD&A – Commitments and Contractual Obligations in the 2008 Annual Report on Form 10-K.

Contingent Provisions of Certain Obligations

As discussed in the 2008 Annual Reports on Form 10-K, PNMR, PNM and TNMP have a number of debt obligations and other contractual commitments that contain contingent provisions. Some of these, if triggered, could affect the liquidity of the Company. The contingent provisions include contractual increases in the interest rate charged on certain of the Company’s short-term debt obligations in the event of a downgrade in credit ratings and the requirement to provide security under certain contractual agreements. The Company believes its financing arrangements are sufficient to meet the requirements of the contingent provisions.

Capital Structure

The capitalization tables below include the current maturities of long-term debt, but do not include operating lease obligations as debt.

	March 31,			December 31,
	2009			2008
PNMR
PNMR common stockholders’ equity		49.9	%		49.3	%
Convertible preferred stock		3.0	%		3.0	%
Preferred stock of subsidiary		0.3	%		0.3	%
Long-term debt		46.8	%		47.4	%
Total capitalization		100.0	%		100.0	%

PNM
PNM common stockholder’s equity	51.6	%	55.7	%
Preferred stock	0.5	%	0.5	%
Long-term debt	47.9	%	43.8	%
Total capitalization	100.0	%	100.0	%

TNMP
Common equity	57.9	%	71.6	%
Long-term debt	42.1	%	28.4	%
Total capitalization	100.0	%	100.0	%

OTHER ISSUES FACING THE COMPANY

Climate Change Issues

In May 2007, the U.S. Supreme Court held that the EPA has the authority to regulate GHG under the Clean Air Act. This decision, coupled with an increased focus in Congress on legislation to address climate change, has heightened the importance of this issue for the energy industry. Although there continues to be debate over the details and best design for state and federal programs, increased state and federal legislative and regulatory activities calling for regulation of GHG indicate that climate change protection legislation and regulation are likely in the future.

On July 30, 2008, EPA published the Greenhouse Gas Advanced Notice of Proposed Rulemaking. The notice identified, but did not choose among, options for GHG regulation and requested comments on the options presented. Absent Congressional action, in due course we would expect the EPA to adopt regulations relating to GHG.

In addition, several legislative initiatives are under consideration in Congress that would regulate GHG. These initiatives range from general limitations on GHG to the imposition of a so-called “cap and trade” system to the imposition of a tariff on GHG. It is unclear whether or when legislation will be passed, although the new administration and several leading members of Congress have expressed their intent to pass legislation as soon as practicable.

Approximately 82.6% of PNM’s owned and leased generating capacity consists of coal or gas-fired generation that produces GHG. All of Optim Energy’s owned generation produces GHG. Based on our current plans, we do not expect our output of GHG to increase significantly in the near-term. Many factors affect the amount of GHG, including plant performance. For example, if PVNGS experienced prolonged outages, it may require PNM to depend on other power supply resources such as gas-fired generation, which could increase GHG. Because of our dependence on fossil-fueled generation, any legislation that imposes a limit or cost on GHG will impact the cost at which we produce electricity. While we expect to be entitled to recover that cost through our rates, the timing and outcome of proceedings for cost recovery is uncertain. In addition, to the extent that we recover any additional costs through rates, our customers may reduce their demand, relocate facilities to other areas with lower energy costs or take other actions that ultimately will adversely impact us.

Given the geographic location of our facilities and customers, we generally have not been exposed to the extreme weather events, and other physical impacts commonly attributed to climate change, with the possible exception of drought conditions periodically, and we generally do not expect physical changes to be of material consequence to us in the near-term. Drought conditions in northwestern New Mexico could impact the availability of water for cooling the coal plants. Water shortage sharing agreements have been in place since 2003 although no shortage has been declared due to sufficient snow pack in the San Juan Basin. PNM also has a supplemental water contract in place with the Jicarilla Tribe to help address any water shortages from primary sources. The contract expires December 31, 2016.

In 2006, the Company became a founding member of the United States Climate Action Partnership (“USCAP”), a coalition currently consisting of 35 businesses and national environmental organizations calling on the federal government to enact national legislation to reduce GHG at the earliest practicable date. USCAP released A Call To Action, a set of principles and recommendations outlining a policy framework for federal climate protection legislation in January 2007, and released its Blueprint for Legislative Action to the U.S. Congress and the Obama Administration in December 2008. As a member of USCAP, it is the Company’s position that a mandatory, economy-wide, market-driven approach that includes a cap and trade program, combined with other complementary state and federal policies, is the most cost effective and environmentally efficient means of addressing GHG reductions. The Company intends to continue working with USCAP, government agencies, and Congress to

advocate for federal action to address this challenging environmental issue that is closely linked with the U.S. economy, energy supply, and energy security.

In 2008, PNMR’s interests in generating plants, through PNM and Optim Energy, emitted approximately 7.9 million metric tons of carbon dioxide, the vast majority of its GHG. By comparison, the total GHG in the United States in 2006, the latest year for which the EPA has compiled this data, were approximately 7 billion metric tons, of which approximately 6 billion metric tons were carbon dioxide. Electricity generation accounted for approximately 2.3 billion metric tons of the carbon dioxide emissions.

PNM has several programs underway to mitigate its GHG, and thereby to reduce its climate change risk. These include the release of two RFPs in mid-2008 for additional renewable generation capacity and the launch of customer-owned solar generation programs. PNM expects to produce approximately 35,000 GWh of electricity from renewable resources over the next 19 years avoiding nearly 20 million metric tons of GHG. Also in 2008, PNM filed requests for approval to implement additional electric energy efficiency and load management programs with the NMPRC and expects approval this year. Over the next 19 years, PNM projects the expanded energy efficiency and load management programs will provide the equivalent of approximately 15,000 GWh of electricity, which will avoid about 8.5 million metric tons of GHG. These estimates are subject to change given that it is difficult to compute estimated avoidance accurately because of the many variables that impact it, including changes in demand for electricity.

The Board is updated by management and regularly considers the issues around climate change, our GHG and potential financial consequences that might result from climate change and the possible regulation of GHG. In particular, our management periodically reports to the Board on all of the matters discussed in this section. On December 9, 2008, the Board established a new stand-alone committee, the Public Policy and Sustainability Committee, and approved a charter of its delegated responsibilities. This committee will review Company practices and procedures to assess the sustainability impacts of our operations and products on the environment. This committee will also have responsibility to review the Company’s environmental management systems, monitor the implementation of the Company’s corporate environmental policy, monitor the promotion of energy efficiency, and our use of renewable energy resources. The committee will advise the Board on a regular basis regarding the Company’s activities and initiatives in these areas.

Pursuant to New Mexico law, each utility must submit an integrated resource plan to the NMPRC every three years to evaluate renewable energy, energy efficiency, load management, distributed generation and conventional supply-side resources on a consistent and comparable basis. The integrated resource plan is required to take into consideration risk and uncertainty of fuel supply, price volatility and costs of anticipated environmental regulations when evaluating resources options to meet supply needs of PNM’s customers. The NMPRC issued an order in June 2007, requiring that New Mexico utilities factor a standardized cost of carbon emissions into their integrated resource plans using prices ranging between $8 and $40 per metric ton of CO2 emitted and escalating these costs by 2.5% per year. Under the NMPRC order, each utility must analyze these standardized prices as projected operating costs in 2010 and thereafter. Reflecting the developing nature of this issue, the NMPRC order states that these prices may be changed in the future to account for additional information or changed circumstances. PNM is required, however, to use these prices for purposes of its integrated resource plan, and the prices may not reflect the costs that it ultimately will incur. PNM’s integrated resource plan was filed with the NMPRC on September 16, 2008. The analysis showed that incorporation of the NMPRC required carbon emissions costs did not significantly change the dispatch of existing facilities nor the resource decisions regarding future facilities over the next 20 years. Much higher GHG costs than assumed in the NMPRC analysis are necessary to impact the dispatch of existing resources or future resource decisions. The primary consequence of GHG costs was an increase to generation portfolio costs.

In 2007, five western states (Arizona, California, New Mexico, Oregon and Washington) entered into an accord, called the Western Regional Climate Action Initiative (the “WCI”), to reduce GHG from automobiles and certain industries, including utilities. Since then, Montana, Utah, British Columbia, Manitoba, Ontario, and Quebec have joined as partners in the WCI. The WCI released design recommendations for elements of a regional cap and trade program on September 23, 2008, and has created several subcommittees to develop detailed implementation recommendations. The subcommittees are slated to complete their work in 2010. Under the WCI recommendations, GHG from the electricity sector and fossil fuel consumption of the industrial and commercial sectors will be capped at then current levels and subject to regulation starting in 2012. Over time, producers will be required to reduce their GHG. Implementation of the design elements for GHG reductions will fall to each state

and province. In New Mexico, PNM believes this will require new legislation and rulemaking. The Company expects to participate in the legislative and rulemaking processes in New Mexico and will not be able to fully assess the implications of New Mexico regulation of GHG until the legislative and rulemaking processes have progressed significantly.

In December 2008, New Energy Economy (“NEE”), a non-profit environmental advocacy organization, petitioned the New Mexico Environmental Improvement Board (“EIB”) to amend existing regulations and adopt new regulations requiring a cap on GHG, including a statewide GHG limit of 25% below 1990 levels by 2020. The program provides for an absolute cap without the ability to purchase allowances from other entities to cover GHG. The EIB ordered legal briefs to be filed on the issue of the EIB’s authority to regulate GHG. After review of the briefs and a hearing in April 2009, the EIB decided it does have authority to regulate GHG. During the hearing, the EIB asked NEE if NEE would consider amending NEE’s proposed regulation to be a cap and trade program, and NEE agreed to do so. The EIB decided that an August 2009 hearing was too soon and will decide on a hearing date at the EIB’s May 2009 meeting.

Also in February 2009, legislation was introduced in the New Mexico legislature proposing to require the implementation by EIB of a cap and trade system designed to reduce GHG. This legislation died in committee during the session. The New Mexico House of Representatives did pass a memorial, which requests the New Mexico Legislative Council to direct the appropriate committee to study the WCI final design recommendations as well as federal proposals relating to reducing GHG. The memorial is a study of impacts and not a regulation. The memorial further states that the committee is requested to report its findings and recommendations to the New Mexico legislature by December 2010.

On April 17, 2009, the EPA released its proposed endangerment finding stating that the atmospheric concentrations of six key greenhouse gases (carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride) endanger the public health and welfare of current and future generations. The EPA believes that science shows that the high levels of these six greenhouse gases are clearly the result of human emissions and are very likely the cause of the increase in average temperatures and other climatic changes. The EPA also found that the combined emissions of carbon dioxide, methane, nitrous oxides, and hydrofluorcarbons from new motor vehicles contribute to the atmospheric concentration of these greenhouse gases and to climate change. The proposed findings do not by themselves impose any requirements on industry or other entities, but the findings do set the groundwork for the EPA to regulate GHG from new and existing stationary sources such as power plants and for new motor vehicles under the Clean Air Act.

The regulation of GHG is expected to have a material impact on the utility industry both in terms of increased costs associated with fossil fuels and increased opportunities associated with fuels other than fossil fuels, but it is premature to attempt to quantify the possible costs and other implications of these impacts on the Company.

Other Matters

As discussed under Employees in Item 1. Business in the 2008 Annual Reports on Form 10-K, PNM had a collective bargaining agreement with the IBEW that expired April 30, 2009. The IBEW and PNM reached a tentative agreement on May 1, 2009 for the period of May 1, 2009 to April 30, 2012. The tentative agreement includes wage increase provisions of 2% for 2009, 2010 and 2011 effective on May 1 of each year. The IBEW has agreed to present the tentative agreement to its membership for a vote and recommend its ratification. The parties have agreed to extend the current contract for 14 days to provide employees adequate time to consider and vote on ratification of the tentative agreement. The IBEW has advised that the vote will take place by May 14, 2009.

See Notes 9 and 10 herein and Notes 16, 17 and 18 in the 2008 Annual Reports on Form 10-K for a discussion of commitments and contingencies, rate and regulatory matters and environmental issues facing the Company.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with GAAP requires Company management to select and apply accounting policies that best provide the framework to report the results of operations and financial position for PNMR, PNM, and TNMP. The selection and application of those policies requires management to make difficult, subjective and/or complex judgments concerning reported amounts of revenue and expenses during

the reporting period and the reported amounts of assets and liabilities at the date of the financial statements. As a result, there exists the likelihood that materially different amounts would be reported under different conditions or using different assumptions.

As of March 31, 2009, there have been no significant changes with regard to the critical accounting policies disclosed in PNMR’s, PNM’s, and TNMP’s Annual Reports on Forms 10-K for the year ended December 31, 2008. The policies disclosed included unbilled revenues, regulatory accounting, impairments, decommissioning costs, derivatives, pension and other postretirement benefits, accounting for contingencies, income taxes, and market risk.

MD&A FOR PNM

RESULTS OF OPERATIONS

PNM’s continuing operations are presented in the PNM Electric segment, which is identical to the segment presented above in Results of Operations for PNMR. PNM’s discontinued operations are presented in the PNM Gas segment, which is identical to the total earnings from discontinued operations, net of income taxes, shown on the Condensed Consolidated Statements of Earnings for both PNM and PNMR. See Note 14.

MD&A FOR TNMP

RESULTS OF OPERATIONS

TNMP operates in only one reportable segment, TNMP Electric, as presented above in Results of Operations for PNMR.

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

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

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

·	Conditions affecting the Company’s ability to access the financial markets or Optim Energy’s access to additional debt financing following the utilization of its existing credit facility, including actions by ratings agencies affecting the Company’s credit ratings,

·	The recession, its consequent extreme disruption in the credit markets, and its impacts on the electricity usage of the Company’s customers,

·	State and federal regulatory and legislative decisions and actions, including the PNM and TNMP electric rate cases filed in 2008 and appeals of prior regulatory proceedings,

·	The performance of generating units, including PVNGS, SJGS, Four Corners, and Optim Energy generating units, and transmission systems,

·	The risk that Optim Energy is unable to identify and implement profitable acquisitions, including development of the Cedar Bayou Generating Station Unit 4, or that PNMR and ECJV will not agree to make additional capital contributions to Optim Energy,

·	The potential unavailability of cash from PNMR’s subsidiaries or Optim Energy due to regulatory, statutory or contractual restrictions,

·	The impacts of the decline in the values of marketable equity securities on the trust funds maintained to provide nuclear decommissioning funding and pension and other postretirement benefits, including the levels of funding and expense,

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

·	Changes in ERCOT protocols,

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

·	Collections experience,

·	Insurance coverage available for claims made in litigation,

·	Fluctuations in interest rates,

Weather,

·	Water supply,

·	Changes in fuel costs,

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

·	Availability of fuel supplies,

·	The effectiveness of risk management and commodity risk transactions,

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

·	Variability of wholesale power prices and natural gas prices,

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

·	Uncertainty regarding the ongoing validity of government programs for emission allowances,

·	Changes in the competitive environment in the electric industry,

·	The risk that the Company and Optim Energy may have to commit to substantial capital investments and additional operating costs to comply with new environmental control requirements including possible future requirements to address concerns about global climate change,

·	The risks associated with completion of generation, including the Optim Energy Cedar Bayou Generating Station Unit 4, transmission, distribution, and other projects, including construction delays and unanticipated cost overruns,

·	The outcome of legal proceedings,

·	Changes in applicable accounting principles, and

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

Any material changes to risk factors occurring after the filing of PNMR’s, PNM’s, or TNMP’s 2008 Annual Report on Form 10-K are disclosed in Item 1A, Risk Factors, in Part II of this Form 10-Q.

For information about the risks associated with the use of derivative financial instruments see Item 3. “Quantitative and Qualitative Disclosures About Market Risk.”

SECURITIES ACT DISCLAIMER

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

The RMC’s responsibilities specifically include: establishment of policies regarding risk exposure levels and activities in each of the business segments; authority to approve the types of derivatives entered into; authority to establish a general policy regarding counterparty exposure and limits; authorization and delegation of transaction limits; review and approval of controls and procedures for derivative activities; review and approval of models and assumptions used to calculate mark-to-market and market risk exposure; authority to approve and open brokerage and counterparty accounts for derivatives; review of hedging and risk activities; the extent and type of reporting to be performed for monitoring of limits and positions; and quarterly reporting to the Audit and Finance Committees on these activities. The RMC also proposes risk limits, such as VaR and GEaR, to the Finance Committee for their approval.

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

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

Information concerning accounting for derivatives and the risks associated with PNMR’s commodity contracts is set forth in Note 4. Note 4 also contains a summary of the fair values of mark-to-market energy contracts included in the Condensed Consolidated Balance Sheets.

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

	March 31, 2009
	Trading			Economic Hedges			Total
PNMR	(In thousands)
Sources of fair value gain (loss):
Net fair value at beginning of period	$	2,556		$	(5,422	)	$	(2,866	)
Amount realized on contracts delivered during period		(1,565	)		4,876			3,311
Changes in fair value		(5	)		(10,261	)		(10,266	)
Net change recorded as mark-to-market		(1,570	)		(5,385	)		(6,955	)
Unearned/prepaid option premiums		-			(480	)		(480	)
Net fair value at end of period	$	986		$	(11,287	)	$	(10,301	)

	March 31, 2008
	Trading			Economic Hedges			Total
PNMR	(In thousands)
Sources of fair value gain (loss):
Net fair value at beginning of period	$	(1,577	)	$	(13,136	)	$	(14,713	)
Adoption of SFAS 157		-			17,253			17,253
Adjusted beginning fair value		(1,577	)		4,117			2,540
Amount realized on contracts delivered during period		(8,898	)		863			(8,035	)
Changes in fair value		(25,689	)		15,572			(10,117	)
Net change recorded as mark-to-market		(34,587	)		16,435			(18,152	)
Unearned/prepaid option premiums		3,188			221			3,409
Net fair value at end of period	$	(32,976	)	$	20,773		$	(12,203	)

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

Fair Value of Mark-to-Market Instruments at March 31, 2009

	Less than
	1 year			1-3 Years			4+ Years		Total
PNMR	(In thousands)
Trading transactions	$	40		$	946		$	-	$	986
Economic hedges		(9,520	)		(1,834	)		67		(11,287	)
Total	$	(9,480	)	$	(888	)	$	67	$	(10,301	)

The net change in fair value of commodity derivative instruments designated as hedging instruments is summarized as follows:

	Three Months Ended March 31,
	2009			2008
	Hedge Instruments
PNMR	(In thousands)
Change in fair value of energy contracts	$	9,167		$	(5,994	)
Change in fair value of swaps and futures		(8,034	)		3,172
Change in the fair value of options		(3,193	)		3,115
Net change in fair value	$	(2,060	)	$	293

Risk Management Activities

PNM measures the market risk of its long-term contracts and wholesale activities using a VaR calculation to maintain total exposure. The VaR calculation reports the possible market loss for the respective transactions. This calculation is based on the transaction’s fair market value on the reporting date. Accordingly, the VaR calculation is not a measure of the potential accounting mark-to-market loss. PNM utilizes the Monte Carlo simulation model of VaR. The Monte Carlo model utilizes a random generated simulation based on historical volatility to generate portfolio values. The quantitative risk information, however, is limited by the parameters established in creating the model. The instruments being evaluated may trigger a potential loss in excess of calculated amounts if changes in commodity prices exceed the confidence level of the model used. The VaR methodology employs the following critical parameters: historical volatility estimates, market values of all contractual commitments, appropriate market-oriented holding periods, and seasonally adjusted correlation estimates. The VaR calculation considers PNM’s forward position for calendar years 2009 and 2010. PNM uses a holding period of three days as the estimate of the length of time that will be needed to liquidate the positions. The volatility and the correlation estimates measure the impact of adverse price movements both at an individual position level as well as at the total portfolio level. The two-tailed confidence level established is 95%. For example, if VaR is calculated at $10.0 million, it is estimated that in 950 out of 1,000 market simulations the pre-tax gain or loss in liquidating the portfolio would not exceed $10.0 million in the three days that it would take to liquidate the portfolio.

PNM measures VaR for all transactions that are not directly asset-related and have economic risk. For the three months ended March 31, 2009, the average, high, and low VaR amounts for these transactions were less than $0.1 million. The VaR amount for these transactions at March 31, 2009 was less than $0.1 million. For the three months ended March 31, 2008, the average VaR amount for these transactions was $0.1 million with high and low VaR amounts for the period of $0.6 million and zero. The total VaR amount for these transactions at March 31, 2008 was $0.6 million.

First Choice measures the market risk of its retail sales commitments and supply sourcing activities using a GEaR calculation to monitor potential risk exposures related to taking contracts to settlement and a VaR calculation to measure short-term market price impacts.

Because of its obligation to serve customers, First Choice must take certain contracts to settlement. Accordingly, a measure that evaluates the settlement of First Choice’s positions against earnings provides management with a useful tool to manage its portfolio. First Choice uses a hold-to-maturity at risk for 12 months calculation for its GEaR measurement. The calculation utilizes the same Monte Carlo simulation approach described above at a 95% confidence level and includes the retail load and supply portfolios. Management believes

the VaR results are a reasonable approximation of the potential variability of earnings against forecasted earnings. The quantitative risk information, however, is limited by the parameters established in creating the model. The instruments being evaluated may trigger a potential loss in excess of calculated amounts if changes in commodity prices exceed the confidence level of the model used. The GEaR calculation considers First Choice’s forward position for the next twelve months and holds each position to settlement. The volatility and the correlation estimates measure the impact of adverse price movements both at an individual position level as well as at the total portfolio level. For example, if GEaR is calculated at $10.0 million, it is estimated that in 950 out of 1,000 market scenarios calculated by the model the losses against the Company’s forecasted earnings over the next twelve months would not exceed $10.0 million.

For the three months ended March 31, 2009, the average GEaR amount was $7.3 million, with high and low GEaR amounts for the period of $11.4 million and $3.8 million. The total GEaR amount at March 31, 2009 was $8.4 million. For the three months ended March 31, 2008, the average GEaR amount for these transactions was $25.8 million, with high and low GEaR amounts for the period of $44.3 million and $19.3 million. The total GEaR amount for these transactions at March 31, 2008 was $20.3 million.

First Choice utilizes a short-term VaR measure to manage its market risk. The VaR limit is based on the same total portfolio approach as the GEaR measure; however, the VaR measure is intended to capture the effects of changes in market prices over a 10-day holding period. This holding period is considered appropriate given the nature of First Choice’s supply portfolio and the constraints faced by First Choice in the ERCOT market. The calculation utilizes the same Monte Carlo simulation approach described above at a 95% confidence level. The VaR amount for these transactions was $0.7 million at March 31, 2009. For the three months ended March 31, 2009, the high, low and average mark-to-market VaR amounts were $2.0 million, $0.5 million and $1.0 million. The VaR amount for these transactions was $6.4 million at March 31, 2008. For the three months ended March 31, 2008, the high, low and average mark-to-market VaR amounts were $12.1 million, $4.5 million and $7.1 million.

The Company's risk measures are regularly monitored by the Company's RMC. The RMC has put in place procedures to ensure that increases in risk measures that exceed the prescribed limits are reviewed and, if deemed necessary, acted upon to reduce exposures. In the first quarter of 2008, First Choice experienced speculative pre-tax trading losses of $47.1 million. These transactions triggered exceedences of the GEaR limit and the 10-day VaR limit and ultimately resulted in the decision to exit the basis transactions and speculative trading. There were no such exceedences in the first quarter of 2009.

The VaR and GEaR limits represent an estimate of the potential gains or losses that could be recognized on the Company’s portfolios, subject to market risk, given current volatility in the market, and are not necessarily indicative of actual results that may occur, since actual future gains and losses will differ from those estimated. Actual gains and losses may differ due to actual fluctuations in market prices, operating exposures, and the timing thereof, as well as changes to the underlying portfolios during the year.

Credit Risk

The Company conducts counterparty risk analysis across business segments and uses a credit management process to assess the financial conditions of counterparties. Credit exposure is regularly monitored by the RMC. The RMC has put procedures in place to ensure that increases in credit risk measures that exceed the prescribed limits are reviewed and, if deemed necessary, acted upon to reduce exposures.

The following table provides information related to credit exposure as of March 31, 2009. The table further delineates that exposure by the credit worthiness (credit rating) of the counterparties and provides guidance as to the concentration of credit risk to individual counterparties.

Schedule of Credit Risk Exposure

March 31, 2009


			Number		Exposure
	(b)		of		of
	Credit		Counter		Counter-
	Risk		-parties		parties
Rating (a)	Exposure		>10%		>10%
	(Dollars in thousands)
PNMR
External ratings:
Investment grade	$	123,863		3	$	101,064
Non-investment grade		3,650		-		-
Internal ratings:
Investment grade		2,829		-		-
Non-investment grade		599		-		-
Total	$	130,941			$	101,064

(a) The Rating included in “Investment Grade” is for counterparties with a minimum S&P rating of BBB- or Moody's rating of Baa3. If the counterparty has provided a guarantee by a higher rated entity (e.g., its parent), determination is based on the rating of its guarantor. The category “Internal Ratings - Investment Grade” includes those counterparties that are internally rated as investment grade in accordance with the guidelines established in the Company’s credit policy.

(b) The Credit Risk Exposure is the gross credit exposure, including long-term contracts, forward sales and short-term sales. The exposure captures the amounts from receivables/payables for realized transactions, delivered and unbilled revenues, and mark-to-market gains/losses (pursuant to contract terms). Exposures are offset according to legally enforceable netting arrangements but are not reduced by available credit collateral. Credit collateral includes cash deposits, letters of credit, and parental guarantees received from counterparties. Amounts are presented before the application of such credit collateral instruments. At March 31, 2009 the Company held credit collateral of $3.2 million to offset its gross non-investment grade credit exposure.

The following table provides an indication of the maturity of credit risk by credit ratings of the counterparties.

Maturity of Credit Risk Exposure

March 31, 2009

					Greater
	Less than				than		Total
Rating	2 Years		2-5 Years		5 Years		Exposure
			(In thousands)
PNMR
External ratings:
Investment grade	$	122,989	$	767	$	107	$	123,863
Non-investment grade		3,650		-		-		3,650
Internal ratings:
Investment grade		2,829		-		-		2,829
Non-investment grade		599		-		-		599
Total	$	130,067	$	767	$	107	$	130,941

The Company provides for losses due to market and credit risk. Credit risk for PNMR's and PNM’s largest counterparty as of March 31, 2009 and December 31, 2008 was $ 48.9 million and $52.3 million.

Interest Rate Risk

PNMR has long-term debt which subjects it to the risk of loss associated with movements in market interest rates. The majority of PNMR’s long-term debt is fixed-rate debt, and therefore, does not expose PNMR’s earnings to a major risk of loss due to adverse changes in market interest rates. However, the fair value of all long-term debt instruments would increase by approximately 3.38%, if interest rates were to decline by 50 basis points from their levels at March 31, 2009. In general, an increase in fair value would impact earnings and cash flows to the extent not recoverable in rates if PNM were to reacquire all or a portion of its debt instruments in the open market prior to their maturity. As described in Note 7, TNMP has long-term debt of $50.0 million that bears interest at a variable rate. However, TNMP has also entered into a hedging arrangement that effectively results in this debt bears interest at a fixed rate, thereby eliminating interest rate risk. At April 30, 2009, the PNMR has $139.1 million of consolidated short-term debt outstanding under its revolving credit facilities and local lines of credit, which allow for a maximum aggregate borrowing capacity of $1,093.5 million. These facilities bear interest at variable rates, which averaged 1.94% of April 30, 2009 borrowings, and the Company is exposed to interest rate risk to the extent of future increases in variable interest rates.

The securities held by PNM in the NDT and in trusts for pension and other post-employment benefits had an estimated fair value of $456.0 million at March 31, 2009, of which 32.9% were fixed-rate debt securities that subject PNM to risk of loss of fair value with movements in market interest rates. If interest rates were to increase by 50 basis points from their levels at December 31, 2008, the decrease in the fair value of the fixed-rate securities would be 3.1%, or $4.7 million. PNM does not currently recover or return through rates any losses or gains on these securities. The securities held by TNMP in trusts for pension and other post-employment benefits had an estimated fair value of $53.4 million at March 31, 2009, of which 26.2% were fixed-rate debt securities that subject TNMP to risk of loss of fair value with movements in market interest rates. If interest rates were to increase by 50 basis points from their levels at March 31, 2009, the decrease in the fair value of the fixed-rate securities would be 3.5%, or $0.5 million. PNM, therefore, is at risk for shortfalls in its funding of its obligations due to investment losses, included those from the equity market and alternatives investment risks discussed below.

Equity Market Risk

The NDT and trusts established for PNM’s pension and post-employment benefits hold certain equity securities at March 31, 2009. These equity securities expose PNM to losses in fair value should the market values of the underlying securities decline. Equity securities comprised 48.4% of the securities held by the various PNM trusts as of March 31, 2009. PNM does not recover or earn a return through rates on any losses or gains on these equity securities. The trusts established for TNMP’s pension and post-employment benefits hold certain equity securities. These equity securities expose TNMP to losses in fair value should the market values of the underlying securities decline. Equity securities comprised 46.4% of the securities held by the TNMP trusts as of March 31, 2009. TNMP does not recover or earn a return through rates on any losses or gains on these equity securities. There has been a significant decline in the general price levels of marketable equity securities in late 2008 and in early 2009. The impacts of these declines were considered in the funding and expense valuations performed for 2009, which resulted in reduced amounts of income related to the pension plans being recorded in 2009 and will likely require increased levels of funding beginning in 2010. See Note 8.

Alternatives Investment Risk

The Company has a target of investing 20% of its pension assets in the alternatives asset class and was 28.5% as of March 31, 2009. This includes real estate, private equity, and hedge funds. The private equity and hedge fund investments are limited partner structures that are multi-manager multi-strategy funds. This investment approach gives broad diversification and minimizes risk compared to a direct investment in any one component of the funds. The general partner oversees the selection and monitoring of the underlying managers. The Company’s Corporate Investment Committee, assisted by its investment consultant, monitors the performance of the funds and general partner’s investment process. There is risk associated with these funds due to the nature of the strategies and techniques and the use of investments that do not have readily determinable fair value. The valuation of the alternative asset class has also been impacted by the significant decline in the general price levels of marketable equity securities.

ITEM 4. CONTROLS AND PROCEDURES

PNMR

Disclosure of controls and procedures

PNMR maintains disclosure controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it files with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Based on an evaluation of its disclosure controls and procedures as of the end of the period covered by this report conducted by management, with the participation of the Chief Executive and Chief Financial Officer, the Chief Executive and Chief Financial Officer conclude that these controls and procedures are effective to ensure that PNMR meets the requirements of SEC Regulation 13A, Rule 13a-15(e) and Rule 15d-15(e).

Changes in internal controls

The following material change in internal controls occurred during the first quarter of 2009:

·	PNM sold its natural gas operations to NMGC effective January 30, 2009, resulting in elimination of internal controls that were relevant only to gas operations.

Otherwise, there have been no changes in PNMR’s internal controls over financial reporting for the quarter ended March 31, 2009, that have materially affected, or are reasonably likely to materially affect, PNMR’s internal control over financial reporting.

PNM

Disclosure of controls and procedures

PNM maintains disclosure controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it files with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Based on an evaluation of its disclosure controls and procedures as of the end of the period covered by this report conducted by management, with the participation of the Chief Executive and Chief Financial Officer, the Chief Executive and Chief Financial Officer conclude that these controls and procedures are effective to ensure that PNM meets the requirements of SEC Regulation 13A, Rule 13a-15(e) and Rule 15d-15(e).

Changes in internal controls

The following material change in internal controls occurred during the first quarter of 2009:

·	PNM sold its natural gas operations to NMGC effective January 30, 2009, resulting in elimination of internal controls that were relevant only to gas operations.

Otherwise, there have been no changes in PNM’s internal controls over financial reporting for the quarter ended March 31, 2009, that have materially affected, or are reasonably likely to materially affect, PNM’s internal control over financial reporting.

TNMP

Disclosure of controls and procedures

TNMP maintains disclosure controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it files with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Based on an evaluation of its disclosure controls and procedures as of the end of the period covered by this report conducted by management, with the participation of the Chief Executive and Chief Financial Officer, the Chief Executive and Chief Financial Officer

conclude that these controls and procedures are effective to ensure that TNMP meets the requirements of SEC Regulation 13A, Rule 13a-15(e) and Rule 15d-15(e).

Changes in internal controls

There have been no changes in TNMP’s internal controls over financial reporting for the quarter ended March 31, 2009, that have materially affected, or are reasonably likely to materially affect, TNMP’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Notes 9 and 10 in the Notes to Condensed Consolidated Financial Statements for information related to the following matters, for PNMR, PNM and TNMP, incorporated in this item by reference.

·	Navajo Nation Environmental Issues

·	Four Corners Federal Implementation Plan Litigation

·	Santa Fe Generating Station

·	Gila River Indian Reservation Superfund Site

·	PVNGS Water Supply Litigation

·	San Juan River Adjudication

·	Western United States Wholesale Power Market

·	PNM - 2007 Electric Rate Case

·	PNM – Emergency FPPAC

·	TNMP Competitive Transition Charge True-Up Proceeding

ITEM 1A. RISK FACTORS

As of the date of this report, there have been no material changes with regard to the Risk Factors disclosed in PNMR’s, PNM’s and TNMP’s Annual Reports on Form 10-K for the year ended December 31, 2008.

ITEM 6. EXHIBITS

3.1	PNMR	Articles of Incorporation of PNM Resources, as amended to date (incorporated by reference to Exhibit 3.1 to PNMR’s Current Report on Form 8-K filed November 21, 2008)

3.2	PNM	Restated Articles of Incorporation of PNM, as amended through May 31, 2002 (incorporated by reference to Exhibit 3.1.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002)

3.3	TNMP	Articles of Incorporation of TNMP, as amended through July 7, 2005 (incorporated by reference to Exhibit 3.1.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005)

3.4	PNMR	Bylaws of PNM Resources, Inc. with all amendments to and including February 17, 2009 (incorporated by reference to Exhibit 3.1 to PNMR’s Current Report on Form 8-K filed February 20, 2009)

3.5	PNM	Bylaws of PNM with all amendments to and including May 31, 2002 (incorporated by reference to Exhibit 3.1.2 to the Company’s Report on Form 10-Q for the fiscal quarter ended June 30, 2002)

3.6	TNMP	Bylaws of TNMP as adopted on August 4, 2005 (incorporated by reference to Exhibit 3.2.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005)

4.1	TNMP	The First Mortgage Indenture dated as of March 23, 2009, between Texas-New Mexico Power Company and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to TNMP’s Current Report on Form 8-K filed March 27, 2009)

4.2	TNMP	The First Supplemental Indenture dated as of March 23, 2009, between Texas-New Mexico Power Company and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.2 to TNMP’s Current Report on Form 8-K filed March 27, 2009)

4.3	TNMP	The Second Supplemental Indenture dated as of March 25, 2009, between Texas-New Mexico Power Company and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.3 to TNMP’s Current Report on Form 8-K filed March 27, 2009)

10.1	PNMR	Third Amendment to Credit Agreement, dated as of March 11, 2009, among PNM Resources, Inc., First Choice Power, L.P., the lenders party thereto, and Bank of America, N.A., as Administrative Agent for the Lenders (incorporated by reference to Exhibit 10.1 to PNMR’s Current Report on Form 8-K filed March 13, 2009)

10.2	TNMP	Amendment No. 2 to Credit Agreement, dated as of March 10, 2009, by and among Texas-New Mexico Power Company, as Borrower, the institutions from time to time parties thereto as Lenders, and JPMorgan Chase Bank, N.A., in its capacity as Administrative Agent for itself and the other Lenders

10.3	TNMP	Term Loan Credit Agreement among Texas-New Mexico Power Company, the lenders identified therein and Union Bank, N.A., as administrative agent, dated as of March 25, 2009 (incorporated by reference to Exhibit 10.1 to TNMP’s Current Report on Form 8-K filed March 27, 2009)

12.1	PNMR	Ratio of Earnings to Fixed Charges

12.2	PNM	Ratio of Earnings to Fixed Charges

12.3	TNMP	Ratio of Earnings to Fixed Charges


31.1	PNMR	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	PNMR	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3	PNM	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.4	PNM	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.5	TNMP	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.6	TNMP	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	PNMR	Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	PNMR	Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.3	PNM	Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.4	PNM	Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.5	TNMP	Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.6	TNMP	Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.

	PNM RESOURCES, INC. PUBLIC SERVICE COMPANY OF NEW MEXICO TEXAS-NEW MEXICO POWER COMPANY
	(Registrants)


Date: May 6, 2009	/s/ Thomas G. Sategna
	Thomas G. Sategna
	Vice President and Corporate Controller
	(Officer duly authorized to sign this report)