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 ~~September~~March 3031, ~~2012~~2013

Commission File	Name of Registrants, State of Incorporation,	I.R.S. Employer
Number	Address and Telephone Number	Identification No.
001-32462	PNM Resources, Inc.	85-0468296
	(A New Mexico Corporation)
	Alvarado Square
	414 Silver Ave. SW
	Albuquerque, New Mexico 87158
	Albuquerque, New Mexico 87102-3289
	(505) 241-2700
001-06986	Public Service Company of New Mexico	85-0019030
	(A New Mexico Corporation)
	Alvarado Square
	414 Silver Ave. SW
	Albuquerque, New Mexico 87158
	Albuquerque, New Mexico 87102-3289
	(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 each registrant (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.



PNM Resources, Inc. (“PNMR”)	YES	ü	NO
Public Service Company of New Mexico (“PNM”)	YES	ü	NO
Texas-New Mexico Power Company (“TNMP”)	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 each registrant has submitted electronically and posted on its corporate Website, 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).



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

Table of Contents

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

Large accelerated

filer

Accelerated

filer

Non-accelerated

filer

Smaller Reporting Company

PNMR

PNM

TNMP

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 ~~October~~May 261, ~~2012~~2013, 79,653,624 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 ~~October~~May 261, ~~2012~~2013 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 ~~October~~May 261, ~~2012~~2013 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.

Table of Contents

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

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	67
Condensed Consolidated Statements of Comprehensive Income	78
Condensed Consolidated Statements of Cash Flows	89
Condensed Consolidated Balance Sheets	1011
Condensed Consolidated Statement of Changes in Equity	1213
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Loss)	13
Condensed Consolidated Statements of Earnings	14
Condensed Consolidated Statements of Comprehensive Income (Loss)	14
Condensed Consolidated Statements of Comprehensive Income	15
Condensed Consolidated Statements of Cash Flows	1516
Condensed Consolidated Balance Sheets	1718
Condensed Consolidated Statement of Changes in Equity	1920
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings	2021
Condensed Consolidated Statements of Comprehensive Income	2122
Condensed Consolidated Statements of Cash Flows	2223
Condensed Consolidated Balance Sheets	2324
Condensed Consolidated Statement of Changes in Common Stockholder's Equity	2526
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	2627
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	63
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	8584
ITEM 4. CONTROLS AND PROCEDURES	8987
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	8988
ITEM 1A. RISK FACTORS	9088
ITEM 6. EXHIBITS	9089
SIGNATURE	9290

Table of Contents

GLOSSARY

Definitions:
Afton		Afton Generating Station
AFUDC		Allowance for Funds Used During Construction
ALJ		Administrative Law Judge
AMS		Advanced Meter System
AOCI		Accumulated Other Comprehensive Income
APS		Arizona Public Service Company, which is the operator and a co-owner of PVNGS and Four Corners
BACT		Best Available Control Technology
BART		Best Available Retrofit Technology
BHP		BHP Billiton, Ltd, the ~~Parent~~parent of SJCC
Board		Board of Directors of PNMR
BTU		British Thermal Unit
CAA		Clean Air Act
CCB		Coal Combustion Byproducts
CO2		Carbon Dioxide
CTC		Competition Transition Charge
D.C. Circuit		United States Court of Appeals for the District of Columbia Circuit
D.C. Circuit		U.S. Court of Appeals for the District of Columbia Circuit
Decatherm		Million British Thermal Units
Delta		Delta-Person Generating Station
DOE		United States Department of Energy
DOI		United States Department of Interior
ECJV		ECJV Holdings, LLC, a wholly owned subsidiary of Cascade Investment, L.L.C.
EIB		New Mexico Environmental Improvement Board
EIP		Eastern Interconnection Project
EPA		United States Environmental Protection Agency
ERCOT		Electric Reliability Council of Texas
ESA		Endangered Species Act
Exchange Act		Securities Exchange Act of 1934
FASB		Financial Accounting Standards Board
FERC		Federal Energy Regulatory Commission
FIP		Federal Implementation Plan
First Choice		FCP Enterprises, Inc. and Subsidiaries
Four Corners		Four Corners Power Plant
FPPAC		Fuel and Purchased Power Adjustment Clause
GAAP		Generally Accepted Accounting Principles in the United States of America
GEaR		Gross Earnings at Risk
Gallup		City of Gallup, New Mexico
GHG		Greenhouse Gas Emissions
GWh		Gigawatt hours
IBEW		International Brotherhood of Electrical Workers, Local 611
IRP		Integrated Resource Plan
KW		Kilowatt
KWh		Kilowatt Hour
Lordsburg		Lordsburg Generating Station
Luna		Luna Energy Facility
MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations
MMBTU		Million BTUs
Moody’s		Moody’s Investor Services, Inc.
MW		Megawatt
MWh		Megawatt Hour
NAAQS		National Ambient Air Quality Standards
Navajo Acts		Navajo Nation Air Pollution Prevention and Control Act, Navajo Nation Safe Drinking Water Act, and Navajo Nation Pesticide Act
NDT		Nuclear Decommissioning Trusts for PVNGS
NEC		Navopache Electric Cooperative, Inc.
NERC		North American Electric Reliability Corporation
NMAG		New Mexico Attorney General

Table of Contents

Navajo Acts		Navajo Nation Air Pollution Prevention and Control Act, Navajo Nation Safe Drinking Water Act, and Navajo Nation Pesticide Act
NDT		Nuclear Decommissioning Trusts for PVNGS
NEC		Navopache Electric Cooperative, Inc.
NERC		North American Electric Reliability Council
Ninth Circuit		United States Court of Appeals for the Ninth Circuit
NMAG		New Mexico Attorney General
NMED		New Mexico Environment Department
NMIEC		New Mexico Industrial Energy Consumers Inc.
NMPRC		New Mexico Public Regulation Commission
NOI		Notice of Inquiry
NOPR		Notice of Proposed Rulemaking
NOx		Nitrogen Oxides
NOPR		Notice of Proposed Rulemaking
NRC		United States Nuclear Regulatory Commission
NSPS		New Source Performance Standards
NSR		New Source Review
O&M		Operations and Maintenance
OCI		Other Comprehensive Income
OPEB		Other Post Employment Benefits
Optim Energy		Optim Energy, LLC, a limited liability company, formerly known as EnergyCo, LLC
OSM		United States Office of Surface Mining Reclamation and Enforcement
PCRBs		Pollution Control Revenue Bonds
PNM		Public Service Company of New Mexico and Subsidiaries
PNM		Public Service Company of New Mexico and Subsidiaries, a wholly owned subsidiary of PNMR
PNM Revolving Credit Facility		PNM's $400.0 Million Unsecured Revolving Credit Facility
PNM Term Loan Agreement		PNM’s $75 Million Unsecured Term Loan Facility
PNMR		PNM Resources, Inc. and Subsidiaries
PNMR Revolving Credit Facility		PNMR's $300.0 Million Unsecured Revolving Credit Facility
PNMR Term Loan Agreement		PNMR’s $100 Million Unsecured Term Loan Facility
PPA		Power Purchase Agreement
PSD		Prevention of Significant Deterioration
PUCT		Public Utility Commission of Texas
PV		Photovoltaic
PVNGS		Palo Verde Nuclear Generating Station
RCRA		Resource Conservation and Recovery Act
RCT		Reasonable Cost Threshold
REA		New Mexico's Renewable Energy Act of 2004
REC		Renewable Energy Certificates
REP		Retail Electricity Provider
RFP		Request for Proposal
RMC		Risk Management Committee
RPS		Renewable Energy Portfolio Standard
SCE		Southern California Edison Company
SCR		Selective Catalytic Reduction
SEC		United States Securities and Exchange Commission
SIP		State Implementation Plan
SJCC		San Juan Coal Company
SJGS		San Juan Generating Station
SNCR		Selective Non-Catalytic Reduction
SO2		Sulfur Dioxide
SPS		Southwestern Public Service Company
S&P		Standard and Poor’s Ratings Services
TECA		Texas Electric Choice Act
Tenth Circuit		U.S. Court of Appeals for the Tenth Circuit
TNMP		Texas-New Mexico Power Company and Subsidiaries, a wholly owned subsidiary of TNP
TNMP Revolving Credit Facility		TNMP’s $75.0 Million Revolving Credit Facility
TNP		TNP Enterprises, Inc. and Subsidiaries, a wholly owned subsidiary of PNMR
Valencia		Valencia Energy Facility
VaR		Value at Risk

Table of Contents



Tenth Circuit		United States Court of Appeals for the Tenth Circuit
TNMP		Texas-New Mexico Power Company and Subsidiaries
TNMP 2011 Term Loan Agreement		TNMP's $50 Million Secured Term Loan
TNMP Revolving Credit Facility		TNMP’s $75 Million Revolving Credit Facility
Tri-State		Tri-State Generation and Transmission Association, Inc.
Valencia		Valencia Energy Facility
VaR		Value at Risk
WEG		WildEarth Guardians

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2012			2011			2012			2011
	2013			2012
	(In thousands, except per share amounts)
Electric Operating Revenues	$	~~390~~317,~~411~~665		$	~~549~~305,~~498~~374		$	~~1,019,646~~		$	~~1,352,747~~
Operating Expenses:
Cost of energy	~~110~~104,~~777~~706			~~250~~91,~~854~~847			~~297,342~~			~~582,814~~
Administrative and general	4544,~~283~~691			6944,~~755~~800			~~135,371~~			~~197,016~~
Energy production costs	4043,~~365~~573			3945,~~730~~128			~~131,546~~			~~135,510~~
Regulatory disallowances	—			—			—			21,402
Depreciation and amortization	40,807			38,414
Depreciation and amortization	42,820			42,370			122,289			119,115
Transmission and distribution costs	16,295			16,248
Transmission and distribution costs	17,082			17,925			50,896			52,962
Taxes other than income taxes	16,889			15,208
Taxes other than income taxes	15,934			20,580			45,218			50,564
Total operating expenses	266,961			251,645
Total operating expenses	272,261			441,214			782,662			1,159,383
Operating income	50,704			53,729
Operating income	118,150			108,284			236,984			193,364
Other Income and Deductions:
Other Income and Deductions:
Interest income	2,634			3,292
Interest income	3,130			3,748			9,808			12,010
Gains on investments held by NDT	1,533			4,454
Gains (losses) on investments held by NDT	5,716			(4,109		)	9,376			7,688
Other income	1,707			2,645
Other income	2,484			1,755			6,991			3,559
Other deductions	(3,350		)	(4,551		)
Other deductions	(3,451		)	(4,685		)	(10,719		)	(11,638		)
Net other income	2,524			5,840
Net other income (deductions)	7,879			(3,291		)	15,456			11,619
Interest Charges	31,297			29,566
Interest Charges	30,515			31,124			90,280			92,251
Earnings before Income Taxes	21,931			30,003
Earnings before Income Taxes	95,514			73,869			162,160			112,732
Income Taxes	7,969			9,526
Income Taxes	33,538			25,964			54,609			37,206
Net Earnings	13,962			20,477
Net Earnings	61,976			47,905			107,551			75,526
(Earnings) Attributable to Valencia Non-controlling Interest	(3,204		)	(3,265		)
(Earnings) Attributable to Valencia Non-controlling Interest	(3,980		)	(4,111		)	(10,699		)	(10,764		)
Preferred Stock Dividend Requirements of Subsidiary	(132		)	(132		)
Preferred Stock Dividend Requirements of Subsidiary	(132		)	(132		)	(396		)	(396		)
Net Earnings Attributable to PNMR	$	10,626		$	17,080
Net Earnings Attributable to PNMR	$	57,864		$	43,662		$	96,456		$	64,366
Net Earnings Attributable to PNMR per Common Share:
Net Earnings Attributable to PNMR per Common Share:
Basic	$	0.13		$	0.21
Basic	$	0.73		$	0.48		$	1.21		$	0.70
Diluted	$	0.13		$	0.21
Diluted	$	0.72		$	0.48		$	1.20		$	0.70
Dividends Declared per Common Share	$	0.165		$	0.145
Dividends Declared per Common Share	$	0.145		$	0.125		$	0.435		$	0.375

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

6 7

Table of Contents

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2012			2011			2012			2011
	2013			2012
	(In thousands)
Net Earnings	$	6113,~~976~~962		$	4720,~~905~~477		$	~~107,551~~		$	~~75,526~~
Other Comprehensive Income (Loss):
Other Comprehensive Income:
Unrealized Gain on Investment Securities:
Unrealized holding gains (losses) arising during the period, net of income tax (expense) of $(4,972), $1,123, $(15,409), and $(8,157)	7,587			(1,713		)	23,511			12,448
Unrealized holding gains arising during the period, net of income tax (expense) of $(3,111) and $(7,415)	4,747			11,314
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $4,248, $1,593, $12,786, and $11,555	(6,481		)	(2,431		)	(19,509		)	(17,632		)
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $529 and $3,546	(807		)	(5,411		)
Changes in unrecognized amounts of pension and postretirement benefits, net of income tax (expense) benefit of $(476), $(425), $(1,428), and $176	727			648			2,181			(318		)
Pension Liability Adjustment:
Fair Value Adjustment for Cash Flow Hedges:
Reclassification adjustment for amortization of experience (gain) loss recognized as net periodic benefit cost, net of income tax expense (benefit) of $(631) and $(476)	960			727
Change in fair market value, net of income tax (expense) benefit of $51, $123, $150, and $441	(92		)	(219		)	(270		)	(781		)
Fair Value Adjustment for Cash Flow Hedges:
Reclassification adjustment for (gains) losses included in net earnings, net of income tax expense (benefit) of $(16), $(827), $(47), and $(1,129)	29			1,493			85			2,036
Change in fair market value, net of income tax (expense) benefit of $(4) and $59	8			(106		)
Total Other Comprehensive Income (Loss)	1,770			(2,222		)	5,998			(4,247		)
Reclassification adjustment for losses included in net earnings, net of income tax expense (benefit) of $(17) and $(15)	31			27
Comprehensive Income	63,746			45,683			113,549			71,279
Total Other Comprehensive Income	4,939			6,551
Comprehensive (Income) Attributable to Valencia Non-controlling Interest	(3,980		)	(4,111		)	(10,699		)	(10,764		)
Comprehensive Income	18,901			27,028
Preferred Stock Dividend Requirements of Subsidiary	(132		)	(132		)	(396		)	(396		)
Comprehensive (Income) Attributable to Valencia Non-controlling Interest	(3,204		)	(3,265		)
Comprehensive Income Attributable to PNMR	$	59,634		$	41,440		$	102,454		$	60,119
Preferred Stock Dividend Requirements of Subsidiary	(132		)	(132		)
Comprehensive Income Attributable to PNMR	$	15,565		$	23,631

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

7 8

Table of Contents

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2012			2011
	2013			2012
	(In thousands)
Cash Flows From Operating Activities:
Net earnings	$	~~107~~13,~~551~~962		$	7520,~~526~~477
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization	~~153~~51,~~992~~818			~~151~~48,~~984~~777
Bad debt expense	2,458			20,120
Deferred income tax expense	7,795			9,601
Deferred income tax expense	55,141			43,167
Net unrealized (gains) losses on derivatives	4,902			(3,502		)
Net unrealized (gains) losses on derivatives	3,076			(5,869		)
Realized (gains) on investments held by NDT	(1,533		)	(4,454		)
Realized (gains) on investments held by NDT	(9,376		)	(7,688		)
Stock based compensation expense	1,903			1,236
Stock based compensation expense	2,748			4,302
Other, net	(348		)	(471		)
Regulatory disallowances	—			21,402
Other, net	(4,495		)	991
Changes in certain assets and liabilities:
Accounts receivable and unbilled revenues	~~(31~~4,~~550~~062		)	~~(88~~13,~~462~~671		)
Materials, supplies, and fuel stock	~~(6,769~~944		)	(~~985~~3,058		)
Other current assets	(42,~~225~~335		)	(21,~~901~~854		)
Other assets	(98,~~499~~774		)	(~~3,310~~270		)
Accounts payable	3(17,~~973~~895		)	~~13,781~~737
Interest and taxes	2225,~~336~~430			3320,~~049~~749
Other current liabilities	(2138,~~681~~761		)	(1229,~~919~~474		)
Proceeds from governmental grants	~~21,567~~—			—20,859
Other liabilities	(8064,~~248~~763		)	(4383,~~691~~129		)
Net cash flows from operating activities	~~204~~(1,~~999~~375		)	~~198~~13,~~497~~603
Cash Flows From Investing Activities:
Additions to utility and non-utility plant	(~~214~~73,~~743~~584		)	(~~236~~84,~~275~~018		)
Proceeds from sales of investments held by NDT	~~136~~14,~~305~~284			~~121~~26,~~202~~760
Purchases of investments held by NDT	(~~138~~15,~~658~~122		)	(~~122~~27,~~174~~395		)
Proceeds from sale of First Choice	4,034			—
Return of principal on PVNGS lessor notes	10,965			12,632
Return of principal on PVNGS lessor notes	23,455			32,274
Other, net	1,241			2,431
Proceeds from sales of utility plant	1,367			—
Net cash flows from investing activities	(62,216		)	(69,590		)
Other, net	260			145
Net cash flows from investing activities	(187,980		)	(204,828		)

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

8 9

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PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2012			2011
	2013			2012
	(In thousands)
Cash Flows From Financing Activities:
Short-term borrowings (repayments), net	3084,~~700~~600			67,~~000~~100
Long-term borrowings	20,000			50,000
Proceeds from stock option exercise	2,293			5,005
Repayment of long-term debt	(20,000		)	(50,000		)
Awards of common stock	(9,651		)	(11,088		)
Proceeds from stock option exercise	10,301			2,570
Dividends paid	(11,683		)	(10,089		)
Purchases to satisfy awards of common stock	(21,930		)	(5,288		)
Valencia’s transactions with its owner	(5,260		)	(4,009		)
Dividends paid	(33,454		)	(34,690		)
Other, net	(584		)	953
Valencia’s transactions with its owner	(12,034		)	(11,972		)
Net cash flows from financing activities	59,715			47,872
Proceeds from transmission interconnection agreements	983			1,246
Change in Cash and Cash Equivalents	(3,876		)	(8,115		)
Repayment of transmission interconnection agreements	(1,169		)	(4,637		)
Cash and Cash Equivalents at Beginning of Period	8,985			15,091
Other, net	(151		)	2,458
Cash and Cash Equivalents at End of Period	$	5,109		$	6,976
Net cash flows from financing activities	(26,754		)	16,687
Change in Cash and Cash Equivalents	(9,735		)	10,356
Cash and Cash Equivalents at Beginning of Period	15,091			15,404
Cash and Cash Equivalents at End of Period	$	5,356		$	25,760
Supplemental Cash Flow Disclosures:
Interest paid, net of amounts capitalized	$	644,~~040~~817		$	644,~~130~~312
Income taxes paid (refunded), net	$	~~5,302~~(603	)	$	(31,~~744~~500	)
Supplemental schedule of noncash financing activities:
Liability incurred for purchase of Convertible Preferred Stock, Series A				$	73,475

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

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PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2012		December 31, 2011
	March 31, 2013		December 31, 2012
	(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	5,~~356~~109	$	158,~~091~~985
Accounts receivable, net of allowance for uncollectible accounts of $1,931 and $1,778	119,887		87,794
Accounts receivable, net of allowance for uncollectible accounts of $1,339 and $1,751	89,634		87,093
Unbilled revenues	5450,~~399~~410		57,~~401~~266
Other receivables	43,~~418~~517		7153,~~069~~332
Materials, supplies, and fuel stock	6158,~~000~~699		5459,~~231~~643
Regulatory assets	4741,~~899~~478		4439,~~993~~120
Commodity derivative instruments	12,~~184~~114		3,~~713~~785
Income taxes receivable	100,~~802~~699		95101,~~130~~477
Other current assets	3840,~~467~~414		3331,~~397~~490
Total current assets	~~472~~432,~~412~~074		~~462~~442,~~819~~191
Other Property and Investments:
Investment in PVNGS lessor notes	5443,~~666~~752		7954,~~049~~325
Investments held by NDT	~~186~~197,~~839~~691		~~168~~188,~~851~~971
Other investments	98,~~977~~363		129,~~207~~139
Non-utility property, net of accumulated depreciation of $137 and $120	4,615		4,631
Non-utility property, net of accumulated depreciation of $135 and $131	4,483		4,487
Total other property and investments	~~256~~254,~~097~~289		~~264~~256,~~738~~922
Utility Plant:
Plant in service and plant held for future use	5,~~223~~332,~~543~~025		5,~~120~~313,~~167~~796
Less accumulated depreciation and amortization	1,~~766~~789,~~689~~039		1,~~705~~774,~~520~~223
	3,456,854		3,414,647
	3,542,986		3,539,573
Construction work in progress	~~148~~140,~~313~~147		~~132~~125,~~420~~287
Nuclear fuel, net of accumulated amortization of $50,106 and $36,411	86,496		80,067
Nuclear fuel, net of accumulated amortization of $49,605 and $42,644	81,376		81,627
Net utility plant	3,~~691~~764,~~663~~509		3,~~627~~746,~~134~~487
Deferred Charges and Other Assets:
Regulatory assets	~~468~~543,~~991~~074		~~482~~555,~~155~~577
Goodwill	278,297		278,297
Other deferred charges	92,747		89,470
Commodity derivative instruments	—		352
Total deferred charges and other assets	840,035		849,922
Other deferred charges	98,517		92,757
	$	5,260,207	$	5,204,613
Total deferred charges and other assets	919,888		926,983
	$	5,370,760	$	5,372,583

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

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PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2012			December 31, 2011
	March 31, 2013			December 31, 2012
	(In thousands, except share information)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term debt	$	~~113~~243,~~400~~300		$	82158,700
Current installments of long-term debt	2,~~387~~530			2,~~387~~530
Accounts payable	8177,~~463~~435			~~103~~99,~~139~~177
Customer deposits	1716,~~655~~040			1518,~~971~~176
Accrued interest and taxes	8277,~~169~~000			5352,~~114~~003
Commodity derivative instruments	1,888			1,632
Regulatory liabilities	—			15,173
Dividends declared	11,680			10,089
Commodity derivative instruments	4,132			1,000
Current portion of accumulated deferred income taxes	9,080			9,080
Dividends declared	13,271			11,679
Other current liabilities	73,269			95,156
Current portion of accumulated deferred income taxes	258			258
Total current liabilities	392,991			373,268
Other current liabilities	60,111			75,407
Long-term Debt	1,672,124			1,671,626
Total current liabilities	494,077			434,103
Long-term Debt	1,669,926			1,669,760
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes	~~705~~713,~~945~~483			~~645~~701,~~099~~545
Accumulated deferred investment tax credits	1413,~~101~~694			1514,~~771~~242
Regulatory liabilities	~~438~~426,~~377~~208			~~418~~423,~~098~~460
Asset retirement obligations	8487,~~191~~651			7985,~~233~~893
Accrued pension liability and postretirement benefit cost	~~129~~157,~~858~~711			224,~~766~~565
Commodity derivative instruments	21,~~770~~785			21,~~437~~933
Other deferred credits	94111,~~749~~206			~~106~~116,~~378~~523
Total deferred credits and other liabilities	1,~~469~~511,~~991~~738			1,~~491~~568,~~782~~161
Total liabilities	3,~~535~~675,~~106~~741			3,~~536~~672,~~676~~024
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 common stockholders’ equity:
Common stock outstanding (no par value; 120,000,000 shares authorized; issued and outstanding 79,653,624 shares)	1,~~183~~176,~~886~~912			1,~~193~~182,~~191~~819
Accumulated other comprehensive income (loss), net of income taxes	(6076,~~858~~691		)	(6681,~~856~~630		)
Retained earnings	~~509~~504,~~456~~482			~~447~~506,~~650~~998
Total PNMR common stockholders’ equity	1,~~632~~604,~~484~~703			1,~~573~~608,~~985~~187
Non-controlling interest in Valencia	8178,~~088~~787			8280,~~423~~843
Total equity	1,~~713~~683,~~572~~490			1,~~656~~689,~~408~~030
	$	5,~~260~~370,~~207~~760		$	5,~~204~~372,~~613~~583

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

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PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited)

	Attributable to PNMR												Non-controllingInterestin Valencia
	CommonStock			AOCI			RetainedEarnings			Total PNMR Common Stockholder's Equity						TotalEquity
	(In thousands)
Balance at December 31, 2011	$	1,193,191		$	(66,856	)	$	447,650		$	1,573,985		$	82,423		$	1,656,408
Balance at December 31, 2012	$	1,182,819		$	(81,630	)	$	506,998		$	1,608,187		$	80,843		$	1,689,030
Proceeds from stock option exercise	102,~~301~~293			—			—			102,~~301~~293			—			102,~~301~~293
Purchases to satisfy awards of common stock	(21,930		)	—			—			(21,930		)	—			(21,930		)
Awards of common stock	(9,651		)	—			—			(9,651		)	—			(9,651		)
Excess tax (shortfall) from stock-based payment arrangements	(~~424~~452		)	—			—			(~~424~~452		)	—			(~~424~~452		)
Stock based compensation expense	21,~~748~~903			—			—			21,~~748~~903			—			21,~~748~~903
Valencia’s transactions with its owner	—			—			—			—			(125,~~034~~260		)	(125,~~034~~260		)
Net earnings before subsidiary preferred stock dividends	—			—			9610,~~852~~758			9610,~~852~~758			103,~~699~~204			~~107~~13,~~551~~962
Subsidiary preferred stock dividends	—			—			(~~396~~132		)	(~~396~~132		)	—			(~~396~~132		)
Total other comprehensive income	—			54,~~998~~939			—			54,~~998~~939			—			54,~~998~~939
Dividends declared on common stock	—			—			(3413,~~650~~142		)	(3413,~~650~~142		)	—			(3413,~~650~~142		)
Balance at September 30, 2012	$	1,183,886		$	(60,858	)	$	509,456		$	1,632,484		$	81,088		$	1,713,572
Balance at March 31, 2013	$	1,176,912		$	(76,691	)	$	504,482		$	1,604,703		$	78,787		$	1,683,490

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

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2012			2011			2012			2011
	2013			2012
	(In thousands)
Electric Operating Revenues	$	~~321~~257,~~731~~894		$	~~323~~250,~~760~~416		$	~~832,242~~		$	~~797,232~~
Operating Expenses:
Cost of energy	9991,~~217~~660			~~108~~80,~~708~~557			~~263,009~~			~~279,419~~
Administrative and general	4138,~~150~~758			3739,~~916~~050			~~120,857~~			~~110,833~~
Energy production costs	4043,~~365~~566			3945,~~730~~128			~~131,546~~			~~135,510~~
Regulatory disallowances	—			—			—			17,479
Depreciation and amortization	25,834			23,634
Depreciation and amortization	24,437			25,058			72,017			71,691
Transmission and distribution costs	10,603			10,843
Transmission and distribution costs	11,172			11,848			33,679			35,357
Taxes other than income taxes	10,234			9,099
Taxes other than income taxes	8,417			12,586			25,386			30,323
Total operating expenses	220,655			208,311
Total operating expenses	224,758			235,846			646,494			680,612
Operating income	37,239			42,105
Operating income	96,973			87,914			185,748			116,620
Other Income and Deductions:
Other Income and Deductions:
Interest income	2,673			3,335
Interest income	3,173			3,770			9,938			12,052
Gains on investments held by NDT	1,533			4,454
Gains (losses) on investments held by NDT	5,716			(4,109		)	9,376			7,688
Other income	1,311			1,834
Other income	1,176			1,179			4,378			1,921
Other deductions	(1,437		)	(1,306		)
Other deductions	(1,682		)	(2,643		)	(4,553		)	(5,480		)
Net other income	4,080			8,317
Net other income (deductions)	8,383			(1,803		)	19,139			16,181
Interest Charges	19,957			18,493
Interest Charges	19,230			18,487			56,652			54,593
Earnings before Income Taxes	21,362			31,929
Earnings before Income Taxes	86,126			67,624			148,235			78,208
Income Taxes	6,589			10,852
Income Taxes	31,235			25,052			51,929			26,574
Net Earnings	14,773			21,077
Net Earnings	54,891			42,572			96,306			51,634
(Earnings) Attributable to Valencia Non-controlling Interest	(3,204		)	(3,265		)
(Earnings) Attributable to Valencia Non-controlling Interest	(3,980		)	(4,111		)	(10,699		)	(10,764		)
Net Earnings Attributable to PNM	11,569			17,812
Net Earnings Attributable to PNM	50,911			38,461			85,607			40,870
Preferred Stock Dividends Requirements	(132		)	(132		)
Preferred Stock Dividends Requirements	(132		)	(132		)	(396		)	(396		)
Net Earnings Available for PNM Common Stock	$	11,437		$	17,680
Net Earnings Available for PNM Common Stock	$	50,779		$	38,329		$	85,211		$	40,474

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

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2012			2011			2012			2011
	2013			2012
	(In thousands)
Net Earnings	$	5414,~~891~~773		$	4221,~~572~~077		$	~~96,306~~		$	~~51,634~~
Other Comprehensive Income (Loss):
Other Comprehensive Income:
Unrealized Gain on Investment Securities:
Unrealized holding gains arising during the period, net of income tax (expense) of $(4,972), $1,123, $(15,409), and $(8,157)	7,587			(1,713		)	23,511			12,448
Unrealized holding gains arising during the period, net of income tax (expense) of $(3,111) and $(7,415)	4,747			11,314
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $4,248, $1,593, $12,786 and $11,555	(6,481		)	(2,431		)	(19,509		)	(17,632		)
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $529 and $3,546	(807		)	(5,411		)
Change in unrecognized amounts of pension and postretirement benefits, net of income tax (expense) benefit of $(476), $(423), $(1,428), and $9	727			646			2,181			(13		)
Pension Liability Adjustment:
Fair Value Adjustment for Cash Flow Hedges:
Reclassification adjustment for amortization of experience (gain) loss recognized as net periodic benefit cost, net of income tax expense (benefit) of $(631) and $(476)	960			727
Reclassification adjustment for (gains) losses included in net earnings, net of income tax expense (benefit) of $0, $0, $0, and $(11)	—			—			—			17
Total Other Comprehensive Income	4,900			6,630
Total Other Comprehensive Income (Loss)	1,833			(3,498		)	6,183			(5,180		)
Comprehensive Income	19,673			27,707
Comprehensive Income	56,724			39,074			102,489			46,454
Comprehensive (Income) Attributable to Valencia Non-controlling Interest	(3,204		)	(3,265		)
Comprehensive (Income) Attributable to Valencia Non-controlling Interest	(3,980		)	(4,111		)	(10,699		)	(10,764		)
Comprehensive Income Attributable to PNM	$	16,469		$	24,442
Comprehensive Income Attributable to PNM	$	52,744		$	34,963		$	91,790		$	35,690

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

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2012			2011
	2013			2012
	(In thousands)
Cash Flows From Operating Activities:
Net earnings	$	9614,~~306~~773		$	5121,~~634~~077
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization	9734,~~086~~655			9731,~~918~~498
Deferred income tax expense	526,~~558~~685			3310,~~835~~852
Net unrealized (gains) losses on derivatives	34,~~076~~902			(43,~~120~~502		)
Realized (gains) on investments held by NDT	(91,~~376~~533		)	(74,~~688~~454		)
Regulatory disallowances	—			17,479
Other, net	(343		)	(195		)
Other, net	(1,005		)	3,228
Changes in certain assets and liabilities:
Accounts receivable and unbilled revenues	~~(26~~5,~~183~~467		)	~~(25~~9,~~871~~920		)
Materials, supplies, and fuel stock	~~(6,404~~879		)	(~~974~~3,117		)
Other current assets	(~~6,942~~84		)	~~1,626~~402
Other assets	(98,~~425~~772		)	8(1,~~187~~533		)
Accounts payable	2(18,~~353~~857		)	(21,~~013~~014		)
Interest and taxes	8020,~~418~~932			1881,~~186~~263
Other current liabilities	(944,~~850~~068		)	(418,~~173~~379		)
Proceeds from governmental grants	~~21,567~~—			—20,859
Other liabilities	(7564,~~629~~893		)	(4578,~~417~~133		)
Net cash flows from operating activities	~~208~~(32,~~550~~713		)	~~141~~67,~~837~~572
Cash Flows From Investing Activities:
Utility plant additions	(~~144~~44,~~571~~389		)	(~~185~~66,~~402~~668		)
Proceeds from sales of NDT investments	~~136~~14,~~305~~284			~~121~~26,~~202~~760
Purchases of NDT investments	(~~138~~15,~~658~~122		)	(~~122~~27,~~174~~395		)
Return of principal on PVNGS lessor notes	2310,~~455~~965			3212,~~274~~632
Other, net	~~(720~~1,214		)	~~496~~180
Net cash flows from investing activities	(~~124~~33,~~189~~048		)	(~~153~~54,~~604~~491		)

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

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2012			2011
	2013			2012
	(In thousands)
Cash Flows From Financing Activities:
Short-term borrowings (repayments), net	~~(66~~67,~~000~~800		)	67(21,~~000~~900		)
Long-term borrowings	20,000			—
Valencia’s transactions with its owner	(5,260		)	(4,009		)
Repayment of long-term debt	(20,000		)	—
Dividends paid	(132		)	(132		)
Valencia’s transactions with its owner	(12,034		)	(11,972		)
Other, net	(584		)	953
Proceeds from transmission interconnection arrangements	983			1,246
Net cash flows from financing activities	61,824			(25,088		)
Repayment of transmission interconnection arrangements	(1,169		)	(4,637		)
Change in Cash and Cash Equivalents	(3,937		)	(12,007		)
Dividends paid	(18,076		)	(47,730		)
Cash and Cash Equivalents at Beginning of Period	3,958			12,307
Other, net	(151		)	2,558
Cash and Cash Equivalents at End of Period	$	21		$	300
Net cash flows from financing activities	(96,447		)	6,465
Change in Cash and Cash Equivalents	(12,086		)	(5,302		)
Cash and Cash Equivalents at Beginning of Period	12,307			10,336
Cash and Cash Equivalents at End of Period	$	221		$	5,034
Supplemental Cash Flow Disclosures:
Interest paid, net of amounts capitalized	$	434,~~167~~304		$	404,~~582~~141
Income taxes paid (refunded), net	$	~~(63,114~~—	)	$	(163,~~539~~114	)

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

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2012		December 31, 2011
	March 31, 2013		December 31, 2012
	(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	~~221~~21	$	123,~~307~~958
Accounts receivable, net of allowance for uncollectible accounts of $1,931 and $1,778	94,315		68,661
Accounts receivable, net of allowance for uncollectible accounts of $1,339 and $1,751	69,684		69,876
Unbilled revenues	4643,~~998~~557		4849,~~928~~085
Other receivables	42,~~454~~905		6550,~~465~~975
Affiliate receivables	89,~~930~~790		89,~~912~~050
Materials, supplies, and fuel stock	5755,~~925~~911		5156,~~521~~790
Regulatory assets	4637,~~940~~273		4436,~~480~~490
Commodity derivative instruments	12,~~184~~114		3,~~713~~785
Income taxes receivable	6680,~~374~~320		~~128~~80,~~858~~223
Other current assets	3337,~~144~~052		2627,~~776~~457
Total current assets	~~398~~378,~~485~~627		~~459~~387,~~621~~689
Other Property and Investments:
Investment in PVNGS lessor notes	5443,~~666~~752		7954,~~049~~325
Investments held by NDT	~~186~~197,~~839~~691		~~168~~188,~~851~~971
Other investments	34,~~985~~196		24,~~900~~034
Non-utility property	976		976
Total other property and investments	246,~~466~~615		~~251~~248,~~776~~306
Utility Plant:
Plant in service and plant held for future use	4,~~075~~139,~~995~~281		4,~~009~~133,~~873~~532
Less accumulated depreciation and amortization	1,~~342~~361,~~958~~199		1,~~305~~355,~~754~~240
	2,733,037		2,704,119
	2,778,082		2,778,292
Construction work in progress	~~120~~108,~~303~~556		~~116~~102,~~030~~329
Nuclear fuel, net of accumulated amortization of $50,106 and $36,411	86,496		80,067
Nuclear fuel, net of accumulated amortization of $49,605 and $42,644	81,376		81,627
Net utility plant	2,~~939~~968,~~836~~014		2,~~900~~962,~~216~~248
Deferred Charges and Other Assets:
Regulatory assets	~~352~~423,~~871~~208		~~352~~431,~~387~~956
Goodwill	51,632		51,632
Other deferred charges	84,041		79,655
Commodity derivative instruments	—		352
Total deferred charges and other assets	488,544		483,674
Other deferred charges	87,161		81,724
	$	4,073,331	$	4,095,287
Total deferred charges and other assets	562,001		565,664
	$	4,155,257	$	4,163,907

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

17 18

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2012			December 31, 2011
	March 31, 2013			December 31, 2012
	(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities:
Short-term debt	$	—88,900		$	6621,~~000~~100
Accounts payable	6456,~~213~~186			8273,~~619~~914
Affiliate payables	1115,~~922~~432			1425,~~592~~340
Customer deposits	1716,~~655~~040			1518,~~971~~176
Accrued interest and taxes	51,~~092~~424			3230,~~111~~320
Commodity derivative instruments	1,888			1,632
Regulatory liabilities	—			15,172
Dividends declared	16,885			132
Commodity derivative instruments	4,132			1,000
Current portion of accumulated deferred income taxes	16,562			16,562
Dividends declared	132			132
Other current liabilities	53,219			60,944
Current portion of accumulated deferred income taxes	3,447			3,447
Total current liabilities	233,436			290,563
Other current liabilities	40,667			54,150
Long-term Debt	1,215,569			1,215,540
Total current liabilities	276,360			242,751
Long-term Debt	1,215,589			1,215,579
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes	~~562~~584,~~534~~511			~~504~~573,~~419~~881
Accumulated deferred investment tax credits	1413,~~101~~694			1514,~~771~~242
Regulatory liabilities	~~390~~380,~~563~~887			~~373~~379,~~703~~841
Asset retirement obligations	8386,~~337~~782			7885,~~425~~042
Accrued pension liability and postretirement benefit cost	~~125~~143,~~840~~307			~~213~~208,~~688~~618
Commodity derivative instruments	21,~~770~~785			21,~~437~~933
Other deferred credits	8391,~~514~~626			9495,~~700~~585
Total deferred credits and liabilities	1,~~262~~302,~~659~~592			1,~~283~~359,~~143~~142
Total liabilities	2,~~711~~794,~~664~~541			2,~~789~~817,~~246~~472
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)	1,061,776			1,061,776
Accumulated other comprehensive income (loss), net of income taxes	(6076,~~615~~514		)	(6681,~~798~~414		)
Retained earnings	~~267~~285,~~889~~138			~~217~~273,~~111~~701
Total PNM common stockholder’s equity	1,~~269~~270,~~050~~400			1,~~212~~254,~~089~~063
Non-controlling interest in Valencia	8178,~~088~~787			8280,~~423~~843
Total equity	1,~~350~~349,~~138~~187			1,~~294~~334,~~512~~906
	$	4,~~073~~155,~~331~~257		$	4,~~095~~163,~~287~~907

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

18 19

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited)

	Attributable to PNM
									Total PNMCommonStockholder’sEquity			Non-controlling Interest in Valencia
	CommonStock		AOCI			RetainedEarnings									TotalEquity
	(In thousands)
Balance at December 31, 2011	$	1,061,776	$	(66,798	)	$	217,111		$	1,212,089		$	82,423		$	1,294,512
Balance at December 31, 2012	$	1,061,776	$	(81,414	)	$	273,701		$	1,254,063		$	80,843		$	1,334,906
Valencia’s transactions with its owner	—		—			—			—			(125,~~034~~260		)	(125,~~034~~260		)
Net earnings	—		—			8511,~~607~~569			8511,~~607~~569			103,~~699~~204			9614,~~306~~773
Total other comprehensive income	—		64,~~183~~900			—			64,~~183~~900			—			64,~~183~~900
Dividends declared on preferred stock	—		—			(~~396~~132		)	(~~396~~132		)	—			(~~396~~132		)
Dividends declared on common stock	—		—			(34,433		)	(34,433		)	—			(34,433		)
Balance at March 31, 2013	$	1,061,776	$	(76,514	)	$	285,138		$	1,270,400		$	78,787		$	1,349,187
Balance at September 30, 2012	$	1,061,776	$	(60,615	)	$	267,889		$	1,269,050		$	81,088		$	1,350,138

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

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2012			2011			2012			2011
	2013			2012
	(In thousands)
Electric Operating Revenues:
Electric Operating Revenues	$	59,771		$	54,958
Non-affiliates	$	68,680		$	54,787		$	187,404		$	150,175
Operating Expenses:
Affiliate	—			12,196			—			30,608
Cost of energy	13,046			11,290
Total electric operating revenues	68,680			66,983			187,404			180,783
Administrative and general	11,119			10,468
Operating Expenses:
Depreciation and amortization	11,681			11,287
Cost of energy	11,560			10,307			34,333			30,719
Transmission and distribution costs	5,692			5,405
Administrative and general	10,130			9,998			30,700			29,798
Taxes other than income taxes	5,179			4,717
Regulatory disallowances	—			—			—			3,923
Total operating expenses	46,717			43,167
Depreciation and amortization	13,819			12,674			37,173			33,662
Operating income	13,054			11,791
Transmission and distribution costs	5,910			6,072			17,217			17,597
Other Income and Deductions:
Taxes other than income taxes	6,291			6,381			16,322			16,113
Other income	337			490
Total operating expenses	47,710			45,432			135,745			131,812
Other deductions	(129		)	(385		)
Operating income	20,970			21,551			51,659			48,971
Net other income	208			105
Other Income and Deductions:
Interest Charges	7,246			7,097
Interest income	—			1			1			1
Earnings before Income Taxes	6,016			4,799
Other income	771			418			1,708			1,068
Income Taxes	2,290			1,788
Other deductions	(405		)	(105		)	(464		)	(181		)
Net Earnings	$	3,726		$	3,011
Net other income (deductions)	366			314			1,245			888
Interest Charges	7,047			7,276			21,214			21,880
Earnings Before Income Taxes	14,289			14,589			31,690			27,979
Income Taxes	5,205			5,721			11,577			10,845
Net Earnings	$	9,084		$	8,868		$	20,113		$	17,134

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

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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 September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2012			2011			2012			2011
	2013			2012
	(In thousands)
Net Earnings	$	93,~~084~~726		$	83,~~868~~011		$	~~20,113~~		$	~~17,134~~
Other Comprehensive Income (Loss):
Change in unrecognized amounts of pension and postretirement benefits, net of income tax (expense) benefit of $0, $(1), $0, and $169	—			2			—			(305		)
Fair Value Adjustment for Cash Flow Hedges:
Fair Value Adjustment for Cash Flow Hedges:
Change in fair market value, net of income tax (expense) benefit of $(4) and $59	8			(106		)
Change in fair market value, net of income tax (expense) benefit of $51, $110, $150, and $382	(92		)	(198		)	(270		)	(689		)
Reclassification adjustment for losses included in net earnings, net of income tax expense (benefit) of $(17) and $(15)	31			27
Reclassification adjustment for losses included in net earnings, net of income tax expense (benefit) of $(16), $(850), $(47), and $(1,052)	29			1,535			85			1,900
Total Other Comprehensive Income (Loss)	39			(79		)
Total Other Comprehensive Income (Loss)	(63		)	1,339			(185		)	906
Comprehensive Income	$	3,765		$	2,932
Comprehensive Income	$	9,021		$	10,207		$	19,928		$	18,040

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

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2012			2011
	2013			2012
	(In thousands)
Cash Flows From Operating Activities:
Net earnings	$	203,~~113~~726		$	173,~~134~~011
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization	4112,~~222~~686			3612,~~352~~604
Deferred income tax expense	112,~~337~~448			91,~~981~~720
Regulatory disallowances	—			3,923
Other, net	—			(276		)
Other, net	(275		)	(69		)
Changes in certain assets and liabilities:
Accounts receivable and unbilled revenues	(51,~~367~~405		)	(83,751		)
Materials and supplies	~~(365~~65		)	~~124~~60
Other current assets	~~(709~~218		)	(~~1,547~~721		)
Other assets	(~~498~~58		)	(~~2,985~~50		)
Accounts payable	~~(358~~4,130		)	(1,~~858~~966		)
Interest and taxes	4,860			4,277
Accrued interest and taxes	686			2,451
Other current liabilities	(1,~~980~~278		)	2,~~383~~393
Other liabilities	(31,~~411~~076		)	(14,~~101~~496		)
Net cash flows from operating activities	6822,~~529~~294			6118,~~579~~481
Cash Flows From Investing Activities:
Additions to utility and non-utility plant	(61,168		)	(44,214		)
Utility plant additions	(24,594		)	(13,082		)
Proceeds from sales of utility plant	1,367			—
Net cash flows from investing activities	(24,594		)	(13,082		)
Net cash flows from investing activities	(59,801		)	(44,214		)
Cash Flow From Financing Activities:
Short-term borrowings (repayments), net – affiliate	2,300			(1,200		)
Short-term borrowings (repayments), net	25,000			—
Long-term borrowings	—			50,000
Short-term borrowings (repayments) – affiliate, net	(22,700		)	(700		)
Repayment of long-term debt	—			(50,000		)
Net cash flows from financing activities	2,300			(700		)
Dividends paid	(11,028		)	(7,066		)
Change in Cash and Cash Equivalents	—			4,699
Other, net	—			(100		)
Net cash flows from financing activities	(8,728		)	(8,366		)
Change in Cash and Cash Equivalents	—			8,999
Cash and Cash Equivalents at Beginning of Period	1			1
Cash and Cash Equivalents at End of Period	$	1		$	94,~~000~~700
Supplemental Cash Flow Disclosures:
Interest paid, net of amounts capitalized	$	~~13,074~~171		$	~~14,474~~104
Income taxes paid (refunded), net	$	~~1,848~~(604	)	$	3(1,~~250~~952	)

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

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2012		December 31, 2011
	March 31, 2013		December 31, 2012
	(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	1	$	1
Accounts receivable	2519,~~572~~950		1917,~~133~~217
Unbilled revenues	76,~~401~~853		8,~~473~~181
Other receivables	~~1,126~~762		~~847~~2,359
Materials and supplies	32,~~075~~788		2,~~710~~853
Regulatory assets	~~959~~4,205		~~513~~2,630
Current portion of accumulated deferred income taxes	21,~~273~~131		21,~~272~~131
Other current assets	~~1,426~~841		~~694~~1,107
Total current assets	4136,~~833~~531		3435,~~643~~479
Other Property and Investments:
Other investments	~~267~~281		~~271~~281
Non-utility property	2,240		2,240
Total other property and investments	2,~~507~~521		2,~~511~~521
Utility Plant:
Plant in service and plant held for future use	~~985~~1,~~318~~022,770		~~947~~1,~~327~~009,108
Less accumulated depreciation and amortization	~~338~~346,~~600~~365		~~323~~339,~~123~~315
	646,718		624,204
	676,405		669,793
Construction work in progress	2028,~~141~~207		1219,~~968~~801
Net utility plant	~~666~~704,~~859~~612		~~637~~689,~~172~~594
Deferred Charges and Other Assets:
Regulatory assets	~~116~~119,~~120~~866		~~129~~123,~~768~~621
Goodwill	226,665		226,665
Other deferred charges	68,~~078~~747		68,~~686~~349
Total deferred charges and other assets	~~348~~355,~~863~~278		~~363~~358,~~119~~635
	$	1,~~060~~098,~~062~~942	$	1,~~037~~086,~~445~~229

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

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2012			December 31, 2011
	March 31, 2013			December 31, 2012
	(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities:
Short-term debt – affiliate	$	3,000		$	700
Short-term debt	$	25,000		$	—
Accounts payable	8,055			12,263
Short-term debt – affiliate	5,600			28,300
Affiliate payables	2,258			1,314
Accounts payable	12,045			8,848
Accrued interest and taxes	25,525			20,666
Affiliate payables	2,597			4,381
Other current liabilities	10,412			9,480
Accrued interest and taxes	31,177			30,491
Total current liabilities	49,250			44,423
Other current liabilities	10,251			8,854
Long-term Debt	311,432			310,963
Total current liabilities	86,670			80,874
Long-term Debt	311,745			311,589
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes	~~170~~166,~~552~~302			~~159~~163,~~197~~710
Regulatory liabilities	4745,~~814~~321			4443,~~395~~619
Asset retirement obligations	~~737~~747			~~699~~732
Accrued pension liability and postretirement benefit cost	414,~~018~~404			1115,~~078~~947
Other deferred credits	46,~~106~~174			35,~~437~~944
Total deferred credits and other liabilities	~~227~~232,~~227~~948			~~218~~229,~~806~~952
Total liabilities	~~587~~631,~~909~~363			~~574~~622,~~192~~415
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	~~405~~390,366			~~416~~390,~~394~~366
Accumulated other comprehensive income (loss), net of income taxes	(~~243~~177		)	(58216		)
Retained earnings	6677,~~966~~326			4673,~~853~~600
Total common stockholder’s equity	~~472~~467,~~153~~579			463,~~253~~814
	$	1,~~060~~098,~~062~~942		$	1,~~037~~086,~~445~~229

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

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDER’S EQUITY

(Unaudited)

	Common Stock		Paid-in Capital			AOCI			Retained Earnings		Total Common Stockholder's Equity
	(In thousands)
Balance at December 31, 2011	$	64	$	416,394		$	(58	)	$	46,853	$	463,253
Balance at December 31, 2012	$	64	$	390,366		$	(216	)	$	73,600	$	463,814
Net earnings	—		—			—			203,~~113~~726		203,~~113~~726
Total other comprehensive income (loss)	—		—			(185		)	—		(185		)
Total other comprehensive income	—		—			39			—		39
Dividends declared on common stock	—		(11,028		)	—			—		(11,028		)
Balance at March 31, 2013	$	64	$	390,366		$	(177	)	$	77,326	$	467,579
Balance at September 30, 2012	$	64	$	405,366		$	(243	)	$	66,966	$	472,153

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

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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 ~~September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~2012, and the consolidated results of operations, ~~and~~ comprehensive income ~~for the three and nine months ended September 30~~, ~~2012~~ and ~~2011, and~~ consolidated cash flows for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could ultimately differ from those estimated. The Notes to Condensed Consolidated Financial Statements include disclosures for PNMR, PNM, and TNMP. This report uses the term “Company” when discussing matters of common applicability to PNMR, PNM, and TNMP. Discussions regarding only PNMR, PNM, or TNMP are so indicated. Certain amounts in the ~~2011~~2012 Condensed Consolidated Financial Statements and Notes thereto have been reclassified to conform to the ~~2012~~2013 financial statement presentation.

These Condensed Consolidated Financial Statements are unaudited. 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 ~~2011~~2012 Annual Reports on Form 10-K. Weather causes the Company’s results of operations to be seasonal in nature and the results of operations presented in the accompanying Condensed Consolidated Financial Statements are not necessarily representative of operations for an entire year.

GAAP defines subsequent events as events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. Based on their nature, magnitude, and timing, certain subsequent events may be required to be reflected at the balance sheet date and/or required to be disclosed in the financial statements. The Company has evaluated subsequent events as required by GAAP.

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. PNM also consolidates the PVNGS Capital Trust and Valencia. PNM owns undivided interests in several jointly-owned power plants and records its pro-rata share of the assets, liabilities, and expenses for those plants.

PNMR shared services' administrative and general expenses, which represent costs that are primarily driven by corporate level activities, are charged to the business segments~~. These~~ ~~services are billed~~ at cost~~, except those billed to Optim Energy, which included a profit element~~. Other significant intercompany transactions between PNMR, PNM, and TNMP include ~~transmission and distribution services; lease,~~ interest, and income tax sharing payments;, ~~and~~as well as dividends paid on common stock. All intercompany transactions and balances have been eliminated. See Note 1211.

Dividends on Common Stock

Dividends on PNMR's common stock are declared by its Board. The timing of the declaration of dividends is dependent on the timing of meetings and other actions of the Board. This has historically resulted in dividends considered to be attributable to the second quarter of each year being declared through actions of the Board during the third quarter of the year. The Board declared dividends on common stock considered to be for the second quarter of $0.145 per share in July 2012 and $0.125 in July 2011, which are reflected as being in the second quarter within “Dividends Declared per Common Share” on the PNMR Condensed Consolidated Statements of Earnings. The Board declared dividends on common stock for the third quarter of $0.145 per share in September 2012 and $0.125 per share in September 2011, which are reflected as third quarter within "Dividends Declared per Common Share."

Table of Contents

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 declared a cash dividend on its common stock to PNMR of $16.8 million in September 2012, which was paid in October 2012, and declared and paid a dividend of $17.7 million in June 2012. PNM declared cash dividends on its common stock to PNMR of $39.1 million in December 2010, which was paid in January 2011, $4.6 million in March 2011, which was paid in April 2011, and $3.6 million in June 2011, which was paid in July 2011. TNMP declared and paid cash dividends to PNMR of $11.0 million in the nine months ended September 30, 2012 and $7.1 million in the nine months ended September 30, 2011. TNMP dividends were recorded as reductions of its paid-in-capital.


(2)	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. PNM ~~Electric~~ also ~~includes~~provides ~~the~~ generation ~~and~~service ~~sale~~to offirm-requirements wholesale customers and sells electricity into the general wholesale market, as well as providing transmission services to third parties. The sale of electricity ~~includes the asset optimization of PNM's jurisdictional assets as well as the capacity excluded from retail rates. FERC has jurisdiction over wholesale and transmission rates.~~

TNMP Electric

TNMP Electric is an electric utility providing regulated transmission and distribution services in Texas under the TECA. TNMP's operations are subject to traditional rate regulation by the PUCT.

First Choice

First Choice, which was sold by PNMR on November 1, 2011 (Note 14), operated as a certified retail electric provider in Texas. First Choice provided electricity to residential, small commercial, and governmental customers. Although First Choice was regulated in certain respects by the PUCT, it was not subject to traditional rate regulation.

Corporate and Other

The Corporate and Other segment includes PNMR holding company activities, primarily related to corporate level debt and PNMR Services Company.

The following tables present summarized financial information for PNMR by segment. PNM and TNMP each operate in only one segment. Therefore, tabular segment information is not presented for PNM and TNMP.

Table of Contents

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)

into the wholesale market includes the optimization of PNM's jurisdictional capacity, as well as the capacity excluded from retail rates. FERC has jurisdiction over wholesale and transmission rates.

TNMP

TNMP is an electric utility providing regulated transmission and distribution services in Texas under the TECA. TNMP's operations are subject to traditional rate regulation by the PUCT.

Corporate and Other

The Corporate and Other segment includes PNMR holding company activities, primarily related to corporate level debt and PNMR Services Company.

PNMR SEGMENT INFORMATION

	PNMElectric			TNMPElectric			Corporateand Other			Consolidated
Three Months Ended September 30, 2012	(In thousands)
Three Months Ended March 31, 2013	(In thousands)
Electric operating revenues	$	~~321~~257,~~731~~894		$	6859,~~680~~771		$	—		$	~~390~~317,~~411~~665
Cost of energy	9991,~~217~~660			1113,~~560~~046			—			~~110~~104,~~777~~706
Margin	~~222~~166,~~514~~234			5746,~~120~~725			—			~~279~~212,~~634~~959
Other operating expenses	~~101~~103,~~104~~161			2221,~~331~~990			(43,~~771~~703		)	~~118~~121,~~664~~448
Depreciation and amortization	2425,~~437~~834			1311,~~819~~681			43,~~564~~292			4240,~~820~~807
Operating income	9637,~~973~~239			2013,~~970~~054			~~207~~411			~~118~~50,~~150~~704
Interest income	32,~~173~~673			—			(4339		)	32,~~130~~634
Other income (deductions)	51,~~210~~407			~~366~~208			(~~827~~1,725		)	~~4,749~~(110		)
Net interest charges	(19,~~230~~957		)	(7,~~047~~246		)	(4,~~238~~094		)	(3031,~~515~~297		)
Segment earnings (loss) before income taxes	8621,~~126~~362			146,~~289~~016			(45,~~901~~447		)	9521,~~514~~931
Income taxes (benefit)	316,~~235~~589			52,~~205~~290			(~~2,902~~910		)	337,~~538~~969
Segment earnings (loss)	5414,~~891~~773			93,~~084~~726			(14,~~999~~537		)	6113,~~976~~962
Valencia non-controlling interest	(3,~~980~~204		)	—			—			(3,~~980~~204		)
Subsidiary preferred stock dividends	(132		)	—			—			(132		)
Segment earnings (loss) attributable to PNMR	$	5011,~~779~~437		$	93,~~084~~726		$	(14,~~999~~537	)	$	5710,~~864~~626
Nine Months Ended September 30, 2012
At March 31, 2013:
Electric operating revenues	$	832,242		$	187,404		$	—		$	1,019,646
Total Assets	$	4,155,257		$	1,098,942		$	116,561		$	5,370,760
Cost of energy	263,009			34,333			—			297,342
Margin	569,233			153,071			—			722,304
Other operating expenses	311,468			64,239			(12,676		)	363,031
Depreciation and amortization	72,017			37,173			13,099			122,289
Operating income (loss)	185,748			51,659			(423		)	236,984
Interest income	9,938			1			(131		)	9,808
Other income (deductions)	9,201			1,244			(4,797		)	5,648
Net interest charges	(56,652		)	(21,214		)	(12,414		)	(90,280		)
Segment earnings (loss) before income taxes	148,235			31,690			(17,765		)	162,160
Income taxes (benefit)	51,929			11,577			(8,897		)	54,609
Segment earnings (loss)	96,306			20,113			(8,868		)	107,551
Valencia non-controlling interest	(10,699		)	—			—			(10,699		)
Subsidiary preferred stock dividends	(396		)	—			—			(396		)
Segment earnings (loss) attributable to PNMR	$	85,211		$	20,113		$	(8,868	)	$	96,456
At September 30, 2012:
Total Assets	$	4,073,331		$	1,060,062		$	126,814		$	5,260,207
Goodwill	$	51,632		$	226,665		$	—		$	278,297
Additions to utility and non-utility plant included in accounts payable	$	68,~~056~~211		$	~~886~~1,055		$	~~1,063~~12		$	89,~~005~~278

Table of Contents

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)

	PNMElectric			TNMPElectric			~~FirstChoice~~Corporateand Other			~~Corporateand Other~~Consolidated			~~Consolidated~~
Three Months Ended September 30, 2011	(In thousands)
Three Months Ended March 31, 2012	(In thousands)
Electric revenues from non-affiliates	$	323,760		$	54,787		$	170,999		$	(48	)	$	549,498
Electric operating revenues	$	250,416		$	54,958		$	—		$	305,374
Intersegment revenues	—			12,196			—			(12,196		)	—
Cost of energy	80,557			11,290			—			91,847
Total electric operating revenues	323,760			66,983			170,999			(12,244		)	549,498
Margin	169,859			43,668			—			213,527
Cost of energy	108,708			10,307			144,035			(12,196		)	250,854
Other operating expenses	104,120			20,590			(3,326		)	121,384
Margin	215,052			56,676			26,964			(48		)	298,644
Depreciation and amortization	23,634			11,287			3,493			38,414
Other operating expenses	102,080			22,451			25,076			(1,617		)	147,990
Operating income (loss)	42,105			11,791			(167		)	53,729
Depreciation and amortization	25,058			12,674			346			4,292			42,370
Interest income	3,335			—			(43		)	3,292
Operating income (loss)	87,914			21,551			1,542			(2,723		)	108,284
Other income (deductions)	4,982			105			(2,539		)	2,548
Interest income	3,770			1			29			(52		)	3,748
Net interest charges	(18,493		)	(7,097		)	(3,976		)	(29,566		)
Other income (deductions)	(5,573		)	313			(115		)	(1,664		)	(7,039		)
Segment earnings (loss) before income taxes	31,929			4,799			(6,725		)	30,003
Net interest charges	(18,487		)	(7,276		)	(249		)	(5,112		)	(31,124		)
Income taxes (benefit)	10,852			1,788			(3,114		)	9,526
Segment earnings (loss) before income taxes	67,624			14,589			1,207			(9,551		)	73,869
Segment earnings (loss)	21,077			3,011			(3,611		)	20,477
Income taxes (benefit)	25,052			5,721			594			(5,403		)	25,964
Valencia non-controlling interest	(3,265		)	—			—			(3,265		)
Segment earnings (loss)	42,572			8,868			613			(4,148		)	47,905
Subsidiary preferred stock dividends	(132		)	—			—			(132		)
Valencia non-controlling interest	(4,111		)	—			—			—			(4,111		)
Segment earnings (loss) attributable to PNMR	$	17,680		$	3,011		$	(3,611	)	$	17,080
Subsidiary preferred stock dividends	(132		)	—			—			—			(132		)
At March 31, 2012:
Segment earnings (loss) attributable to PNMR	$	38,329		$	8,868		$	613		$	(4,148	)	$	43,662
Total Assets	$	4,031,859		$	1,037,616		$	128,421		$	5,197,896
Nine Months Ended September 30, 2011
Goodwill	$	51,632		$	226,665		$	—		$	278,297
Electric revenues from non-affiliates	$	797,232		$	150,175		$	405,485		$	(145	)	$	1,352,747
Additions to utility and non-utility plant included in accounts payable	$	18,296		$	801		$	673		$	19,770
Intersegment revenues	—			30,608			—			(30,608		)	—
Total electric operating revenues	797,232			180,783			405,485			(30,753		)	1,352,747
Cost of energy	279,419			30,719			303,285			(30,609		)	582,814
Margin	517,813			150,064			102,200			(144		)	769,933
Other operating expenses	329,502			67,431			67,693			(7,172		)	457,454
Depreciation and amortization	71,691			33,662			987			12,775			119,115
Operating income (loss)	116,620			48,971			33,520			(5,747		)	193,364
Interest income	12,052			1			63			(106		)	12,010
Other income (deductions)	4,129			887			(494		)	(4,913		)	(391		)
Net interest charges	(54,593		)	(21,880		)	(535		)	(15,243		)	(92,251		)
Segment earnings (loss) before income taxes	78,208			27,979			32,554			(26,009		)	112,732
Income taxes (benefit)	26,574			10,845			11,833			(12,046		)	37,206
Segment earnings (loss)	51,634			17,134			20,721			(13,963		)	75,526
Valencia non-controlling interest	(10,764		)	—			—			—			(10,764		)
Subsidiary preferred stock dividends	(396		)	—			—			—			(396		)
Segment earnings (loss) attributable to PNMR	$	40,474		$	17,134		$	20,721		$	(13,963	)	$	64,366
At September 30, 2011:
Total Assets	$	3,936,468		$	1,041,613		$	274,741		$	119,818		$	5,372,640
Goodwill	$	51,632		$	226,665		$	43,013		$	—		$	321,310
Additions to utility and non-utility plant included in accounts payable	$	6,811		$	4,672		$	106		$	253		$	11,842


(3)	Variable Interest Entities

GAAP determines how an enterprise evaluates and accounts for its involvement with variable interest entities, including determining the primary beneficiary of a variable interest entity, by focusing primarily on whether the enterprise has the power to direct the activities that most significantly impact the economic performance of a variable interest entity. GAAP also requires continual reassessment of the primary beneficiary of a variable interest entity. Additional information concerning PNM's variable interest entities is contained in Note 9 of the Notes to Consolidated Financial Statements in the 2012 Annual Reports on Form 10-K.

Valencia

PNM has a PPA to purchase all of the electric capacity and energy from Valencia, a 145 MW natural gas-fired power plant near Belen, New Mexico, through May 2028. A third-party built, owns, and operates the facility while PNM is the sole purchaser of the electricity generated. PNM is obligated to pay fixed operations and maintenance and capacity charges in addition to variable operations and maintenance charges under this PPA. For the three months ended March 31, 2013 and 2012, PNM paid $4.7 million and $4.6 million for fixed charges and $0.1 million and $0.1 million for variable charges. PNM does not have any other financial obligations related to Valencia. The assets of Valencia can only be used to satisfy obligations of Valencia and creditors of Valencia do not have any recourse against PNM’s assets. PNM has 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 GAAP. As the primary beneficiary, PNM consolidates the entity in its financial statements. The assets and liabilities of Valencia set forth below are immaterial to PNM and, therefore, not shown separately on the Condensed Consolidated Balance Sheets. The owner's equity and net income of Valencia are considered attributable to non-controlling interest.

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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)

(3) Variable Interest Entities

PNM has a PPA to purchase all of the electric capacity and energy from Valencia, a 145 MW natural gas-fired power plant near Belen, New Mexico, through May 2028. A third-party built, owns, and operates the facility while PNM is the sole purchaser of the electricity generated. PNM is obligated to pay fixed O&M and capacity charges in addition to variable O&M charges under this PPA. For the three and nine months ended September 30, 2012, PNM paid $4.8 million and $14.0 million for fixed charges and $0.6 million and $0.9 million for variable charges. For the three and nine months ended September 30, 2011, PNM paid $4.6 million and $13.7 million for fixed charges and $0.9 million and $1.3 million for variable charges. PNM does not have any other financial obligations related to Valencia. The assets of Valencia can only be used to satisfy obligations of Valencia and creditors of Valencia do not have any recourse against PNM’s assets. PNM has 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 GAAP. As the primary beneficiary, PNM consolidates the entity in its financial statements. The assets and liabilities of Valencia set forth below are immaterial to PNM and, therefore, not shown separately on the Condensed Consolidated Balance Sheets. The owner's equity and net income of Valencia are considered attributable to non-controlling interest.

Summarized financial information for Valencia is as follows:

Results of Operations

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2012			2011			2012			2011
	2013			2012
	(In thousands)
Operating revenues	$	54,~~358~~775		$	54,~~505~~670		$	~~14,916~~		$	~~15,024~~
Operating expenses	(1,~~378~~571		)	(1,~~394~~405		)	~~(4,217~~		)	~~(4,260~~		)
Earnings attributable to non-controlling interest	$	3,~~980~~204		$	43,~~111~~265		$	~~10,699~~		$	~~10,764~~

Financial Position

	September 30,		December 31,
	March 31,		December 31,
	2012		2011
	2013		2012
	(In thousands)
Current assets	$	32,~~507~~691	$	23,~~405~~655
Net property, plant, and equipment	7877,~~661~~245		8077,~~785~~953
Total assets	8279,~~168~~936		8381,~~190~~608
Current liabilities	1,~~080~~149		~~767~~765
Owners’ equity – non-controlling interest	$	8178,~~088~~787	$	8280,~~423~~843

~~PNM leases interests in Units 1 and 2 of~~ PVNGS under arrangements, which were entered into in 1985 and 1986, that are accounted for as operating leases. PNM is not the legal or tax owner of the leased assets. PNM has an option to purchase the leased assets at appraised value at the end of the leases, but does not have a fixed price purchase option and does not provide residual value guarantees. PNM has options to renew the leases at fixed rates set forth in the leases, which represent 50% of the amounts during the original terms of the leases, for two years beyond the termination of the original lease terms. The option Leases

PNM leases interests in Units 1 and 2 of PVNGS under arrangements, which were entered into in 1985 and 1986, that are accounted for as operating leases. PNM is not the legal or tax owner of the leased assets. PNM has an option to purchase the leased assets at appraised value at the end of the leases, but does not have a fixed price purchase option and does not provide residual value guarantees. As set forth in the leases, PNM has options to renew the leases at fixed rates, which represent 50% of the amounts during the original terms of the leases, for two years beyond the termination of the original lease terms. The option periods on all of the Unit 1 leases and one of the Unit 2 leases, amounting to 14% of the Unit 2 capacity under lease, may be further extended for up to an additional six years (the “Maximum Option Period”) if the appraised remaining useful lives and fair value of the leased assets are greater than parameters set forth in the leases. As discussed in Note 9 of the Notes to Consolidated Financial Statements in the 2012 Annual Reports on Form 10-K, PNM notified each of the lessors of the Unit 1 leases that it will extend each Unit 1 lease for the Maximum Option Period upon the expiration of the basic lease term on January 15, 2015. In addition, PNM notified each of the lessors in the Unit 2 leases that PNM will “retain” the assets leased under that lease upon the expiration of the basic lease term on January 15, 2016. PNM will be required to specify by notice to each of the lessors by January 15, 2014, whether on January 15, 2016 it will extend the Unit 2 leases or purchase the leased assets.

PNM is only obligated to make payments to the trusts for the scheduled semi-annual lease payments, which, net of amounts that will be returned to PNM through its ownership in related lessor notes, aggregate $65.9 million as of March 31, 2013 over the remaining original terms of the leases. Under certain circumstances (for example, final shutdown of the plant, the NRC issuing specified violation orders with respect to PVNGS, or the occurrence of specified nuclear events), PNM would be required to make specified payments to the beneficial owners and take title to the leased interests. If such an event had occurred as of March 31, 2013, PNM could have been required to pay the beneficial owners up to $160.4 million, which would result in PNM taking ownership of the leased assets and termination of the leases. PNM has no other financial obligations or commitments to the trusts or the beneficial owners. Creditors of the trusts have no recourse to PNM’s assets other than with respect to the contractual lease payments. PNM has no additional rights to the assets of the trusts other than the use of the leased assets.

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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)

periods on certain leases may be further extended for up to an additional six years if the appraised remaining useful lives and fair value of the leased assets are greater than parameters set forth in the leases. PNM ishas ~~only~~evaluated ~~obligated to make payments to~~ the ~~trusts~~PVNGS ~~for the scheduled semi-annual~~ lease ~~payments~~arrangements, ~~which,~~including ~~net of amounts that will be returned to PNM through its ownership in related lessor notes, aggregate $80.0 million as of September 30, 2012 over~~ the ~~remaining~~notices ~~terms~~discussed ~~of the leases. Under certain circumstances (for example~~above, final shutdown of the plant, the NRC issuing specified violation orders with respect to PVNGS, or the occurrence of specified nuclear events), PNM would be required to make specified payments to the beneficial owners and take title to the leased interests. If such an event had occurred as of September 30, 2012, PNM could have been required to pay the beneficial owners up to approximately $167.6 million, which would result in PNM taking ownership of the leased assets and termination of the leases. PNM has no other financial obligations or commitments to the trusts or the beneficial owners. Creditors of the trusts have no recourse to PNM’s assets other than with respect to the contractual lease payments. PNM has no additional rights to the assets of the trusts other than the use of the leased assets. PNM has evaluated the PVNGS lease arrangements and concluded that it does not have the power to direct the activities that most significantly impact the economic performance of the trusts and, therefore, is not the primary beneficiary of the trusts under GAAP. PNM has recorded no assets or liabilities related to the trusts other than the accrual of lease payments between the scheduled payment dates, which were $11.8 million at ~~September~~March 3031, ~~2012~~2013 and $26.0 million at December 31, ~~2011~~2012 and are included in other current liabilities on the Condensed Consolidated Balance Sheets. For additional information regarding these leases, see Risk Factors, MD&A – Off Balance Sheet Arrangements and Note 7 of the Notes to Consolidated Financial Statements in the ~~2011~~2012 Annual Reports on Form 10-K.

~~PNM has a PPA covering the entire output of~~ Delta, which is a variable interest under GAAP. This arrangement was entered into prior to December 31, 2003 and PNM has been unsuccessful in obtaining the information necessary to determine if it is the primary beneficiary of the entity that owns Delta, or to consolidate that entity if it were determined that PNM is the primary beneficiary. Accordingly, PNM is unable to make those determinations and, as provided in GAAP, continues to account for this PPA as an operating lease. PNM makes fixed and variable payments to Delta under the PPA. For the three and nine months ended September 30, 2012, PNM incurred fixed payments of $1.6 million and $4.7 million and variable payments of $0.3 million and $0.6 million under the PPA. For the three and nine months ended September 30, 2011, PNM incurred fixed payments of $1.5 million and $4.5 million and variable payments of $0.7 million and $1.0 million under the PPA. PNM’s only quantifiable obligation under the PPA is to make the fixed payments, which as of September 30, 2012, aggregated $46.7 million through the end of the PPA in 2020. PNM will also pay variable costs, which cannot be quantified since the amounts are based on how much the generating plant is in operation. PNM has no other obligations or commitments with respect to Delta.

PNM has a PPA covering the entire output of Delta, which is a variable interest under GAAP. PNM makes fixed and variable payments to Delta under the PPA. PNM also controls the dispatch of the generating plant, which impacts the variable payments made under the PPA and impacts the economic performance of the entity that owns Delta. PNM makes fixed and variable payments to Delta under the PPA. For the three months ended March 31, 2013 and 2012, PNM incurred fixed capacity charges of $1.6 million and $1.5 million and variable energy charges of $0.2 million and $0.1 million under the PPA. PNM’s only quantifiable obligation under the PPA is to make the fixed payments, which as of March 31, 2013, aggregated $43.7 million through the end of the PPA in 2020. PNM will also pay variable costs, which cannot be quantified since the amounts are based on how much the generating plant is in operation.

This arrangement was entered into prior to December 31, 2003 and PNM was unsuccessful in obtaining the information necessary to determine if it is the primary beneficiary of the entity that owns Delta, or to consolidate that entity if it were determined that PNM is the primary beneficiary. Accordingly, PNM was unable to make those determinations and, as provided in GAAP, accounted for this PPA as an operating lease.

In December 2012, PNM entered into an agreement with the owners of Delta under which PNM would purchase the entity that owns Delta. At closing PNM would make a cash payment of $23.0 million, which would be adjusted for actual working capital compared to a targeted working capital and certain prepayments of debt. Delta had project financing debt of $18.5 million at March 31, 2013, including $3.0 million due by March 31, 2014, which PNM would retire at closing of the purchase. The purchase is subject to approval of the NMPRC and FERC, as well as other customary closing conditions. Furthermore, closing is subject to the seller remedying specified operational, NERC compliance, and environmental issues. FERC approved the purchase on February 26, 2013.

Delta informed PNM that at March 31, 2013, it had total assets of $26.1 million, including net property, plant, and equipment of $22.4 million, and total liabilities of $20.4 million. Delta also indicated its revenue for the three months ended March 31, 2013 was $1.8 million and its net earnings were $0.2 million. Consolidation of Delta would be immaterial to the Condensed Consolidated Balance Sheets of PNMR and PNM. Since all of Delta's revenues and expenses are attributable to its PPA arrangement with PNM, the primary impact of consolidating Delta to the Condensed Consolidated Statements of Earnings of PNMR and PNM would be to reclassify Delta's net earnings from operating expenses and reflect such amount as earnings attributable to a non-controlling interest, without any impact to net earnings attributable to PNMR and PNM.


(4)	Fair Value of Derivative and Other Financial Instruments

Energy Related Derivative Contracts

Overview

The primary objective for the use of ~~commodity~~ derivative instruments, including energy contracts, options, and futures, is to manage price risk associated with forecasted purchases of energy orand fuel used to generate electricity, oras towell ~~manage~~as managing anticipated generation capacity in excess of forecasted demand from existing customers. The Company's energy related derivative contracts ~~are designed to~~ manage commodity risk. PNM is required to meet the demand and energy needs of its retail and firm-requirements wholesale customers. PNM is exposed to market risk for its share of PVNGS Unit 3 and the needs of its firm-requirements wholesale customers not covered under a FPPAC. PNM’s operations are managed primarily through a net asset-backed strategy, whereby PNM’s aggregate net open forward contract position is covered by its forecasted excess generation capabilities or market purchases. PNM could be exposed to market risk if its generation capabilities were to be disrupted or if its load requirements were to be greater than anticipated. If all or a portion of load requirements were required to be covered as a result of such unexpected situations, commitments would have to be met through market purchases. Additional information concerning the Company's energy related derivative contracts, including how commodity risk is managed, is contained in Note 8 of the Notes to Consolidated Financial Statements in the 2011 Annual Reports on Form 10-K.

On November 1, 2011, PNMR completed the sale of First Choice. See Note 14. Accordingly, First Choice information after October 31, 2011 is not included. The difference between PNMR and PNM amounts represents First Choice.

Table of Contents

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)

greater than anticipated, to the extent not covered by the FPPAC. If all or a portion of load requirements were required to be covered as a result of such unexpected situations, commitments would have to be met through market purchases. Additional information concerning the Company's energy related derivative contracts, including how commodity risk is managed, is contained in Note 8 of the Notes to Consolidated Financial Statements in the 2012 Annual Reports on Form 10-K.

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. PNM 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 effect of market fluctuations in wholesale portfolios. PNM monitors the market risk of its commodity contracts using VaR calculations to maintain total exposure within management-prescribed limits in accordance with approved risk and credit policies.

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 GAAP and do not qualify, or are not designated, 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 and elected. Normal sales and purchases are not marked to market and are reflected in results of operations when the underlying transactions settle. ~~The Company had no designated cash flow or fair value hedges related to commodity derivatives in the year ended December 31, 2011 and the nine months ended September 30, 2012.~~

During the three months ended March 31, 2013 and the year ended December 31, 2012, the Company was not hedging its exposure to the variability in future cash flows from commodity derivatives through designated cash flows hedges. The contracts recorded at fair value that do not qualify or are not designated for cash flow hedge accounting are classified as economic hedges. 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 and are classified between operating revenues and cost of energy according to the intent of the hedge. The Company has no trading transactions.

~~The~~Fair ~~Company~~value ~~does~~is ~~not~~defined ~~offset~~under ~~fair~~GAAP ~~value,~~as ~~cash~~the ~~collateral,~~price ~~and~~that ~~accrued~~would ~~payable~~be received for an asset or ~~receivable~~paid ~~amounts~~to ~~recognized~~transfer a liability (an exit price) in the principal or most advantageous market for ~~derivative~~the ~~instruments~~asset ~~under~~or ~~master~~liability ~~netting~~in ~~arrangements~~an orderly transaction between market participants on the measurement date. AtFair ~~September 30,~~value ~~2012~~is ~~and~~based ~~December 31,~~on ~~2011,~~current ~~amounts~~market ~~posted~~quotes as ~~cash~~available ~~collateral~~and ~~under~~is ~~margin~~supplemented ~~arrangements~~by ~~were~~modeling ~~$1.6~~techniques ~~million~~ and ~~$1.8~~assumptions ~~million~~made ~~for~~by ~~both~~the ~~PNMR~~Company ~~and~~to ~~PNM. Cash~~the ~~collateral~~extent ~~amounts~~quoted market prices or volatilities are ~~included~~not inavailable. External ~~other~~pricing ~~current~~input ~~assets~~availability varies based on ~~the~~commodity ~~Condensed~~location, ~~Consolidated~~market ~~Balance~~liquidity, ~~Sheets~~and term of the agreement. AtValuations ~~September 30,~~of ~~2012~~derivative assets and ~~December 31,~~liabilities ~~2011,~~take ~~PNMR~~into ~~and~~account ~~PNM~~nonperformance ~~had~~risk including the ~~legal~~effect ~~right~~of tocounterparties' ~~reclaim~~and ~~cash~~the ~~collateral~~Company’s ofcredit $1risk.6 The ~~million~~Company regularly assesses the validity and ~~zero~~availability of pricing data for its derivative transactions. ~~PNMR~~Although ~~and~~the ~~PNM~~Company ~~had~~uses noits ~~obligation~~best tojudgment ~~return~~in ~~cash~~estimating ~~collateral~~the atfair ~~September 30~~value of these instruments, ~~2012~~there ~~and~~are ~~December~~inherent ~~31,~~limitations ~~2011.~~in any estimation technique.

Commodity Derivatives

Commodity derivative instruments are summarized as follows:

	Economic Hedges
	September 30, 2012			December 31, 2011
PNMR and PNM	(In thousands)
Current assets	$	1,184		$	3,713
Current liabilities	(1,888		)	(1,632		)
Long-term liabilities	(2,770		)	(2,437		)
	(4,658		)	(4,069		)
Net	$	(3,474	)	$	(356	)

PNM has a NMPRC approved hedging plan to manage fuel and purchased power costs related to customers covered by its FPPAC. The table above includes $0.1 million of current assets and current liabilities at September 30, 2012, and $0.5 million of current assets and current liabilities at December 31, 2011 related to this plan. The offsets to these amounts are recorded as regulatory assets and liabilities on the Condensed Consolidated Balance Sheets.

Table of Contents

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~~Commodity ~~following table presents the effect of commodity derivative instruments on earnings, excluding income tax effects.~~ Derivatives

	Economic Hedges
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
PNMR	(In thousands)
Electric operating revenues	$	(740	)	$	2,915		$	897		$	4,250
Cost of energy	263			(2,873		)	(278		)	(2,788		)
Total gain (loss)	$	(477	)	$	42		$	619		$	1,462
PNM
Electric operating revenues	$	(740	)	$	2,915		$	897		$	4,250
Cost of energy	263			(562		)	(278		)	(404		)
Total gain (loss)	$	(477	)	$	2,353		$	619		$	3,846

Commodity derivative instruments are summarized as follows:

Commodity contract volume positions are presented in Decatherms for gas related contracts and in MWh for power related contracts. The table below presents PNMR’s and PNM’s net buy (sell) volume positions:



	Economic Hedges
	March 31, 2013			December 31, 2012
PNMR and PNM	(In thousands)
Current assets	$	2,114		$	3,785
Deferred charges	—			352
	2,114			4,137

Current liabilities	(4,132		)	(1,000		)
Long-term liabilities	(1,785		)	(1,933		)
	(5,917		)	(2,933		)
Net	$	(3,803	)	$	1,204

	Economic Hedges
	Decatherms	MWh
September 30, 2012
PNMR and PNM	1,435,000	(1,786,923	)
December 31, 2011
PNMR and PNM	1,499,000	(366,448	)

Certain of PNM's commodity derivative instruments included in the above table are subject to master netting agreements whereby assets and liabilities could be offset in the settlement process. The Company does not offset fair value, cash collateral, and accrued payable or receivable amounts recognized for derivative instruments under master netting arrangements and the above table reflects the gross amounts of assets and liabilities. The amounts that could be offset under master netting agreements were immaterial at March 31, 2013 and December 31, 2012.

InAt ~~connection~~March 31, ~~with~~2013 ~~managing~~and ~~its~~December 31, ~~commodity risks~~2012, ~~the~~PNMR ~~Company~~and ~~enters~~PNM ~~into~~had ~~master~~no ~~agreements~~amounts ~~with~~recognized ~~certain~~for ~~counterparties. If~~ the ~~Company~~legal isright into areclaim ~~net~~cash ~~liability~~collateral. In ~~position~~addition, ~~under~~at anMarch ~~agreement~~31, ~~some~~2013 ~~agreements~~and ~~provide~~December ~~that~~31, ~~the~~2012, ~~counterparties~~amounts ~~can~~posted ~~request~~as cash collateral ~~from~~under ~~the~~margin ~~Company~~arrangements ifwere ~~the~~$1.9 ~~Company’s~~million ~~credit~~and ~~rating~~$1.9 ismillion ~~downgraded;~~for ~~other~~both ~~agreements~~PNMR ~~provide~~and ~~that~~PNM. PNMR ~~the~~and ~~counterparty~~PNM ~~may~~had ~~request~~no ~~collateral~~obligation to ~~provide~~return itcash ~~with~~collateral ~~“adequate~~at ~~assurance”~~March 31, ~~that~~2013 ~~the~~and ~~Company~~December ~~will~~31, ~~perform;~~2012. Cash ~~and~~collateral ~~others~~amounts ~~have~~are noincluded ~~provision~~in ~~for~~other ~~collateral~~current assets on the Condensed Consolidated Balance Sheets.

~~The~~PNM ~~table~~has ~~below~~a ~~presents~~NMPRC ~~information~~approved ~~about~~hedging ~~the~~plan ~~Company’s contingent requirements~~ to ~~provide~~manage ~~collateral~~fuel ~~under commodity contracts having an objectively determinable collateral provision that are in net liability positions~~ and ~~are~~purchased ~~not~~power ~~fully~~costs ~~collateralized~~related ~~with~~to ~~cash. Contractual~~customers ~~liability~~covered ~~represents~~by ~~commodity~~its 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 counterpartyFPPAC. The table ~~only~~above ~~reflects~~includes ~~cash~~less ~~collateral~~than ~~that~~$0.1 ~~has~~million ~~been~~of ~~posted~~current ~~under~~assets ~~the existing contracts~~ and ~~does~~current ~~not~~liabilities ~~reflect~~at ~~letters~~March 31, of2013 ~~credit~~and ~~under~~December 31, ~~the~~2012 ~~Company’s~~related ~~revolving~~to ~~credit~~this ~~facilities that have been issued as collateral~~plan. ~~Net~~The ~~exposure~~offsets isto ~~the~~these ~~net~~amounts ~~contractual~~are ~~liability~~recorded ~~for all contracts, including those designated~~ as ~~normal~~regulatory ~~purchases~~assets and ~~sales,~~liabilities ~~offset~~on bythe ~~existing~~Condensed ~~cash~~Consolidated ~~collateral~~Balance ~~and by any offsets available under master netting agreements, including both asset and liability positions~~Sheets.

Contingent Feature –Credit Rating Downgrade	Contractual Liability		Existing Cash Collateral		Net Exposure
	(In thousands)
September 30, 2012
PNMR and PNM	$	3,977	$	—	$	3,943
December 31, 2011
PNMR and PNM	$	4,036	$	—	$	4,036

The following table presents the effect of commodity derivative instruments on earnings, excluding income tax effects. Commodity derivatives had no impact on OCI for the periods presented.



	Economic Hedges
	Three Months Ended
	March 31,
	2013			2012
PNMR and PNM	(In thousands)
Electric operating revenues	$	(4,603	)	$	5,218
Cost of energy	756			(604		)
Total gain (loss)	$	(3,847	)	$	4,614

Table of Contents

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 contract volume positions are presented in MMBTU for gas related contracts and in MWh for power related contracts. The table below presents PNMR’s and PNM’s net buy (sell) volume positions:



	Economic Hedges
	MMBTU	MWh
March 31, 2013
PNMR and PNM	1,425,000	(2,042,657	)
December 31, 2012
PNMR and PNM	1,127,500	(2,477,520	)

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 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.



Contingent Feature – Credit Rating Downgrade	Contractual Liability		Existing Cash Collateral		Net Exposure
	(In thousands)
March 31, 2013
PNMR and PNM	$	3,935	$	—	$	3,854
December 31, 2012
PNMR and PNM	$	2,933	$	—	$	2,777

Sale of Power from PVNGS Unit 3

Since January 1, 2011, PNM has been selling power from its interest in PVNGS Unit 3 daily at market prices. PNM has established fixed rates for ~~the~~all ~~substantial majority~~ of these sales through the end of 2013 through hedging arrangements that are accounted for as economic hedges. PNM is also partially hedged for 2014.

Non-Derivative Financial Instruments

The carrying amounts reflected on the Condensed Consolidated Balance Sheets approximate fair value for cash, receivables, and payables due to the short period of maturity. Available-for-sale securities are carried at fair value, which include unrealized gains on securities which have not been recognized in net earnings. Available-for-sale securities for PNMR and PNM consist of PNM assets held in the NDT for its share of decommissioning costs of PVNGS and, ~~beginning in August 2012,~~ a trust for PNM's share of post-term reclamation costs related to the coal mines serving SJGS (Note 9), which investments are included in "other investments" on the Condensed Consolidated Balance Sheet. PNMR and PNM do not have any unrealized losses on available-for-sale securities. The fair value and gross unrealized gains of investments in available-for-sale securities are presented in the following table.

	September 30, 2012				December 31, 2011
	Unrealized Gains		Fair Value		Unrealized Gains		Fair Value
			(In thousands)
Equity securities:
Domestic value	$	5,083	$	29,856	$	3,549	$	25,143
Domestic growth	20,062		53,246		16,714		52,187
International and other	434		12,064		662		12,754
Fixed income securities:
Municipals	4,307		44,173		2,861		41,463
U.S. Government	1,451		33,479		1,353		25,367
Corporate and other	1,167		13,788		742		9,171
Cash investments	—		2,820		—		2,766
	$	32,504	$	189,426	$	25,881	$	168,851

Table of Contents

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)

costs related to the coal mines serving SJGS , which investments are included in "other investments" on the Condensed Consolidated Balance Sheet. PNMR and PNM do not have any unrecognized losses on available-for-sale securities. The fair value and gross unrealized gains of investments in available-for-sale securities are presented in the following table.



	March 31, 2013				December 31, 2012
	Unrealized Gains		Fair Value		Unrealized Gains		Fair Value
			(In thousands)
Cash and cash equivalents	$	—	$	3,877	$	—	$	4,628
Equity securities:
Domestic value	8,782		34,410		5,223		30,044
Domestic growth	18,184		55,435		15,212		51,650
International and other	803		15,420		247		14,868
Fixed income securities:
U.S. Government	1,077		33,721		1,305		32,592
Municipals	3,845		43,459		4,069		43,861
Corporate and other	989		15,085		1,100		14,868
	$	33,680	$	201,407	$	27,156	$	192,511

The proceeds and gross realized gains and losses on the disposition of available-for-sale securities for PNMR and PNM are shown in the following table. Realized gains and losses are determined by specific identification of costs of securities sold.

	Three Months Ended						~~Nine Months Ended~~
	September 30,						September 30,
	March 31,
	2012			2011			2012			2011
	2013			2012
	(In thousands)
Proceeds from sales	$	9014,~~518~~284		$	26,~~312~~760		$	~~136,305~~		$	~~121,202~~
Gross realized gains	$	61,~~263~~391		$	2,~~800~~332		$	~~11,029~~		$	~~16,290~~
Gross realized (losses)	$	(~~5,131~~407	)	$	(~~1,847~~738	)	$	~~(7,055~~	)	$	~~(4,129~~	)

Held-to-maturity securities are those investments in debt securities that the Company has the ability and intent to hold until maturity. Held-to-maturity securities consist of the investment in PVNGS lessor notes and certain items within other investments~~, including the EIP lessor note~~.

The Company has no available-for-sale or held-to-maturity securities for which carrying value exceeds fair value. There are no impairments considered to be “other than temporary” that are included in AOCI and not recognized in earnings.

34 35

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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)

At ~~September~~March 3031, ~~2012~~2013, the available-for-sale and held-to-maturity debt securities had the following final maturities:

	Fair Value
	Available-for-Sale		Held-to-Maturity
	PNMR and PNM		PNMR		PNM
	(In thousands)
Within 1 year	$	1,~~543~~792	$	~~951~~7,478	$	~~951~~3,780
After 1 year through 5 years	30,~~977~~751		8566,~~484~~708		7866,~~420~~375
After 5 years through 10 years	1417,~~418~~244		~~2,110~~—		—
After 10 years through 15 years	98,~~196~~637		—		—
After 15 years through 20 years	1211,~~102~~060		—		—
After 20 years	2322,~~204~~781		—		—
	$	9192,~~440~~265	$	8874,~~545~~186	$	7970,~~371~~155

Fair Value Disclosures

The Company determines the fair values of its derivative and other instruments based on the hierarchy established in GAAP, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. GAAP 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 can 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. Level 3 inputs used in determining fair values for the Company consist of internal valuation models.

For the NDT and reclamation trust investments, Level 2 fair values are provided by the trustee utilizing a pricing service. The pricing provider predominantly uses the market approach using bid side market value based upon a hierarchy of information for specific securities or securities with similar characteristics. For commodity derivatives, Level 2 fair values are determined based on market observable inputs, which are validated using multiple broker quotes, including forward price, volatility, and interest rate curves to establish expectations of future prices. Credit valuation adjustments are made for estimated credit losses based on the overall exposure to each counterparty. For long-term debt, Level 2 fair values are provided by an external pricing service. The pricing service primarily utilizes quoted prices for similar debt in active markets when determining fair value. For investments categorized as Level 3, primarily the PVNGS lessor notes and other investments, fair values were determined by discounted cash flow models that take into consideration discount rates that are observable for similar type assets and liabilities. Management of the Company independently verifies the information provided by pricing services.

The Company records any transfers between fair value hierarchy levels as of the end of each calendar quarter. There were no transfers between levels during the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012.

35 36

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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)

Items recorded at fair value on the Condensed Consolidated Balance Sheets are presented below:

				GAAP Fair Value Hierarchy
	Fair Value			Level 1		Level 2			Level 3
	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
September 30, 2012				(In thousands)
March 31, 2013				(In thousands)
PNMR and PNM
Decommissioning and reclamation investments
Decommissioning and reclamation investments:
Cash and equivalents	$	2,820		$	2,820	$	—		$	—
Cash and cash equivalents	$	3,877		$	3,877	$	—
Equity securities:
Domestic value	2934,~~856~~410			2934,~~856~~410		—			—
Domestic growth	5355,~~246~~435			5355,~~246~~435		—			—
International and other	1215,~~064~~420			1215,~~064~~420		—			—
Fixed income securities:
U.S. government	33,~~479~~721			2930,~~746~~193		3,~~733~~528			—
Municipals	4443,~~173~~459			—		4443,~~173~~459			—
Corporate and other	1315,~~788~~085			—		1315,~~788~~085			—
Total	$	189,426		$	127,732	$	61,694		$	—
	$	201,407		$	139,335	$	62,072
Commodity derivative assets	$	12,~~184~~114		$	—	$	12,~~184~~114		$	—
Commodity derivative liabilities	(45,~~658~~917		)	—		(45,~~658~~917		)	—
Net	$	(3,~~474~~803	)	$	—	$	(3,~~474~~803	)	$	—
December 31, 2011
December 31, 2012
PNMR and PNM
NDT investments
Decommissioning and reclamation investments:
Cash and equivalents	$	2,766		$	2,766	$	—		$	—
Cash and cash equivalents	$	4,628		$	4,628	$	—
Equity securities:
Domestic value	2530,~~143~~044			2530,~~143~~044		—			—
Domestic growth	5251,~~187~~650			5251,~~187~~650		—			—
International and other	1214,~~754~~868			1214,~~754~~868		—			—
Fixed income securities:
U.S. government	2532,~~367~~592			2127,~~409~~737		34,~~958~~855			—
Municipals	4143,~~463~~861			—		4143,~~463~~861			—
Corporate and other	914,~~171~~868			—		914,~~171~~868			—
Total	$	168,851		$	114,259	$	54,592		$	—
	$	192,511		$	128,927	$	63,584
Commodity derivative assets	$	34,~~713~~137		$	—	$	34,~~713~~137		$	—
Commodity derivative liabilities	(42,~~069~~933		)	—		(42,~~069~~933		)	—
Net	$	~~(356~~1,204	)	$	—	$	~~(356~~1,204	)	$	—

AThere ~~reconciliation~~were ~~of the changes in Level 3 fair value measurements for PNMR is as follows. PNM had~~ no Level 3 fair value measurements ~~during~~at ~~the~~March ~~nine~~31, ~~months~~2013 ~~ended~~or ~~September 30~~December 31, 2012 ~~and 2011~~.

36 37

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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					Nine Months Ended
	September 30,					September 30,
	2012		2011			2012		2011
PNMR	(In thousands)
Balance at beginning of period	$	—	$	4,392		$	—	$	(822	)
Total gains (losses) included in earnings	—		(5,025		)	—		201
Purchases	—		429			—		3,163
Settlements	—		1,142			—		(1,604		)
Balance at end of period	$	—	$	938		$	—	$	938
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	$	—	$	589		$	—	$	1,455

The above gains and losses (realized and unrealized) for Level 3 fair value measurements included in earnings are reported in cost of energy.

The carrying amounts and fair values of investments in PVNGS lessor notes, other investments, and long-term debt, which are not recorded at fair value on the Condensed Consolidated Balance Sheets are presented below:

					GAAP Fair Value Hierarchy(1)
					GAAP Fair Value Hierarchy
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
September 30, 2012	(In thousands)
March 31, 2013	(In thousands)
PNMR
Long-term debt	$	1,~~674~~672,~~511~~456	$	21,~~107~~977,~~877~~199	$	—	$	21,~~102~~974,~~638~~550	$	52,~~239~~649
Investment in PVNGS lessor notes	$	7866,~~023~~375	$	7869,~~420~~155	$	—	$	—	$	7869,~~420~~155
Other investments	$	74,~~390~~647	$	126,~~059~~939	$	~~758~~761	$	—	$	116,~~301~~178
PNM
Long-term debt	$	1,215,~~569~~589	$	1,~~512~~391,~~711~~714	$	—	$	1,~~512~~391,~~711~~714	$	—
Investment in PVNGS lessor notes	$	7866,~~023~~375	$	7869,~~420~~155	$	—	$	—	$	7869,~~420~~155
Other investments	$	~~1,398~~480	$	~~1,443~~480	$	~~491~~480	$	—	$	~~952~~—
TNMP
Long-term debt	$	311,~~432~~745	$	~~426~~418,~~934~~912	$	—	$	~~426~~418,~~934~~912	$	—
Other investments	$	~~267~~281	$	~~267~~281	$	~~267~~281	$	—	$	—
December 31, 2011
December 31, 2012
PNMR
Long-term debt	$	1,~~674~~672,~~013~~290	$	1,~~873~~969,~~002~~362	$	—	$	1,966,725	$	2,637
Investment in PVNGS lessor notes	$	~~107~~77,~~094~~682	$	~~108~~84,~~742~~198	$	—	$	—	$	84,198
Other investments	$	125,~~207~~599	$	146,~~208~~965	$	774	$	—	$	6,191
PNM
Long-term debt	$	1,215,~~540~~579	$	1,~~294~~385,~~846~~433	$	—	$	1,385,433	$	—
Investment in PVNGS lessor notes	$	~~107~~77,~~094~~682	$	~~108~~84,~~742~~198	$	—	$	—	$	84,198
Other investments	$	~~2,900~~494	$	~~3,052~~494	$	494	$	—	$	—
TNMP
Long-term debt	$	~~310~~311,~~963~~589	$	~~413~~418,~~966~~166	$	—	$	418,166	$	—
Other investments	$	~~271~~281	$	~~271~~281	$	281	$	—	$	—

~~(1) GAAP~~ ~~does not require disclosure of the fair value hierarchy information prior to 2012.~~38

Table of Contents

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 GAAP, dual presentation of basic and diluted earnings per share is presented in the Condensed Consolidated Statements of Earnings of PNMR. Information regarding the computation of earnings per share is as follows:

	Three Months Ended				~~Nine Months Ended~~
	September 30,				September 30,
	March 31,
	2012		2011		2012		2011
	2013		2012
	(In thousands, except per share amounts)
Net Earnings Attributable to PNMR	$	5710,~~864~~626	$	4317,~~662~~080	$	~~96,456~~	$	~~64,366~~
Average Number of Common Shares:
Outstanding during period	79,654		8679,~~673~~654		~~79,654~~		~~86,673~~
Equivalents from convertible preferred stock (Note 7)	—		4,363		—		4,638
Vested awards of restricted stock	211		200
Vested awards of restricted stock	114		164		156		154
Average Shares - Basic	79,865		79,854
Average Shares - Basic	79,768		91,200		79,810		91,465
Dilutive Effect of Common Stock Equivalents (1):
Dilutive Effect of Common Stock Equivalents (1):
Stock options and restricted stock	715		621
Stock options and restricted stock	622		542		600		516
Average Shares - Diluted	80,580		80,475
Average Shares - Diluted	80,390		91,742		80,410		91,981
Net Earnings Per Share of Common Stock:
Net Earnings Per Share of Common Stock:
Basic	$	0.13	$	0.21
Basic	$	0.73	$	0.48	$	1.21	$	0.70
Diluted	$	0.13	$	0.21
Diluted	$	0.72	$	0.48	$	1.20	$	0.70

(1) Excludes the effect of out-of-the-money options for 1827,~~108,946~~977 shares of common stock at ~~September~~March 3031, ~~2012~~2013.


(6)	Stock-Based Compensation

~~Additional~~PNMR ~~information~~has ~~concerning~~various stock-based compensation ~~under~~programs, ~~PNMR's~~including ~~Performance~~stock ~~Equity~~options, ~~Plan~~restricted ~~("PEP")~~stock, isand ~~contained~~performance inshares ~~Note~~granted 13under of the ~~Notes~~Performance toEquity ~~Consolidated~~Plan ~~Financial Statements in the 2011 Annual Reports on Form 10-K~~(“PEP”). In 2011, the Company changed its approach to awarding stock-based compensation. As a result, no stock options have been granted in ~~2011~~2013 or 2012 and awards of restricted stock have increased. Certain restricted stock awards are subject to achieving performance or market targets and some also have time vesting requirements. Other awards of restricted stock are only subject to time vesting requirements. Additional information concerning stock-based compensation under PNMR's Performance Equity Plan ("PEP") is contained in Note 13 of the Notes to Consolidated Financial Statements in the 2012 Annual Reports on Form 10-K.

~~Stock~~Restricted ~~Options~~stock under the PEP refers to awards of stock subject to vesting, performance, or market conditions rather than to shares with contractual post-vesting restrictions. Generally, the awards vest ratably over three years from the grant date of the award. However, certain awards with performance or market conditions vest upon satisfaction of those conditions. In addition, plan provisions provide that upon retirement, participants become 100% vested in stock awards.

The ~~following~~stock-based ~~table~~compensation ~~summarizes~~expense ~~activity~~related into stock options and restricted stock awards without performance or market conditions is amortized to compensation expense over the requisite vesting period, which is generally three years. However, compensation expense for awards to participants that are retirement eligible on the ~~nine~~award ~~months~~date ~~ended~~is ~~September 30~~recognized immediately at the award date and is not amortized. Compensation expense for performance-based shares is recognized ratably over the performance period and is adjusted periodically to reflect the level of achievement expected to be attained. Compensation expense related to market-based shares is recognized ratably over the measurement period, regardless of the actual level of achievement, provided the employees remain with the Company during the period. At March 31, 2013 and December 31, 2012:, PNMR had unrecognized expense related to stock awards of $6.8 million and $3.8 million.

	Shares		Weighted-AverageExercisePrice		AggregateIntrinsicValue			Weighted-AverageRemainingContract Life
Outstanding at beginning of period	3,202,229		$	18.95
Granted	—		$	—
Exercised	(757,497	)	$	13.60
Forfeited	(5,101	)	$	12.22
Expired	(265,443	)	$	25.71
Outstanding at end of period	2,174,188		$	20.01	$	9,429,630	(1)	4.52 years
Exercisable at end of period	2,033,857		$	21.39	$	8,195,812		4.32 years

The Company uses the Black Scholes option pricing model to estimate the fair value of stock option awards based on multiple factors, including historical exercise patterns of employees in relatively homogeneous groups with respect to exercise

~~(1) At~~ ~~September 30, 2012, the exercise price of 1,108,946 outstanding stock options is greater than the closing price of PNMR common stock on that date; therefore, those options have no intrinsic value.~~39

Table of Contents

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)

and post-vesting employment termination behaviors, expected exercising patterns for these same homogeneous groups, and both the implied and historical volatility of PNMR's stock price. The ~~following~~grant ~~table~~date ~~provides~~fair ~~additional~~value ~~information~~for ~~concerning~~restricted stock ~~options:~~and stock awards with Company internal performance targets is determined based on the market price of PNMR common stock on the date of the agreements reduced by the present value of future dividends, which will not be received prior to vesting, applied to the total number of shares that are anticipated to vest, although the number of shares that ultimately vest cannot be determined until after the performance periods end. The grant date fair value of stock awards with market targets is determined using Monte Carlo simulation models, which provide grant date fair values that include an expectation of the number of shares to vest.

	Nine Months Ended September 30,
	2012		2011
Weighted-average grant date fair value of options granted	$	—	$	—
Total fair value of options that vested (in thousands)	$	1,058	$	1,189
Total intrinsic value of options exercised (in thousands)	$	4,515	$	1,077

The following table summarizes the weighted-average assumptions used to determine the awards grant date fair value:

Restricted Stock and Performance Shares



	Three Months Ended March 31,
Restricted Shares and Performance Based Shares	2013			2012
Expected quarterly dividends per share	$	0.165		$	0.145
Risk-free interest rate	0.38		%	0.69		%

Market-Based Shares
Dividend yield	2.86		%	3.45		%
Expected volatility	25.11		%	43.98		%
Risk-free interest rate	0.36		%	1.04		%

~~PNMR~~The ~~has~~following ~~agreements~~table ~~with~~summarizes ~~employees~~activity ~~for~~in ~~awards of restricted~~ stock ~~subject~~options toand ~~time vesting requirements. PNMR also has awards subject to achieving performance or market targets, some of which also have time vesting requirements. The grant date fair value for~~ restricted stock ~~and stock~~ awards, ~~with~~including performance ~~targets is determined~~ -based onand ~~the~~ market-based ~~price of PNMR common stock on the date of the agreements reduced by the present value of future dividends, which will not be received prior to vesting, applied to the total number of~~ shares ~~that are anticipated to vest~~, ~~although~~for the ~~number~~three ofmonths ~~performance~~ended shares ultimately awarded cannot be determined until after the performance periods end. The grant date fair value of stock awards with market targets is determined using Monte Carlo simulation modelsMarch 31, ~~which provide grant date fair values that include an expectation of the number of shares to be issued.~~ 2013:

Compensation expense for performance-based shares is recognized ratably over the performance period and is adjusted periodically to reflect the level of achievement expected to be attained. Compensation expense related to market-based shares is recognized ratably over the measurement period, regardless of the actual level of achievement, provided the employees remain with the Company during the period. Compensation expense for other restricted stock awards is recognized ratably over the vesting period.



	Stock Option Shares		Weighted- Average Exercise Price		Restricted Stock		Weighted- Average Grant Date Fair Value
Outstanding at beginning of period	1,992,700		$	20.72	353,722		$	14.03
Granted	—		$	—	226,313		$	19.82
Exercised	(180,527	)	$	12.70	(240,158	)	$	16.12
Forfeited	—		$	—	(866	)	$	13.67
Expired	(256,426	)	$	27.24	—		$	—
Outstanding at end of period	1,555,747		$	20.58	339,011		$	16.86

~~The~~Included ~~following~~as ~~table~~granted ~~summarizes~~and ~~restricted~~exercised ~~stock~~in ~~activity~~the tables above are 100,953 ~~including~~shares ~~performance-~~that were based ~~and~~upon achieving performance or market~~-based~~ ~~shares,~~targets for ~~the~~2012. The ~~nine~~Board ~~months~~approved ~~ended~~these ~~September 30~~shares in February 2013, ~~2012:~~including shares with market targets at near maximum levels.

	Shares		Weighted-AverageGrant-DateFair Value
Nonvested at beginning of period	418,730		$	12.36
Granted	320,597		$	15.63
Vested	(375,402	)	$	12.67
Forfeited	(7,503	)	$	12.48
Nonvested at end of period	356,422		$	14.71

PNMR also has share agreements that provide for performance or market targets through 2015. Excluded from the above tables are maximums of 188,129, 198,369, and 179,811 shares for periods ending in 2013, 2014, and 2015 that would be awarded if all performance or market criteria are achieved and all executives remain eligible.

~~The~~In ~~following~~March ~~table~~2012, ~~provides~~the ~~additional~~Company ~~information~~entered ~~concerning~~into ~~restricted~~a ~~stock~~retention award agreement with its Chairman, ~~including~~President, ~~performance-based~~and Chief Executive Officer under which she would receive 135,000 shares of PNMR's common stock if the Company meets specific market targets at the end of 2016 and she remains an employee of the Company. If the Company achieves specific market~~-based~~ targets at the end of 2014 and she remains an employee of the Company, she would receive 35,000 of the total shares: at that time. The retention award was made under the PEP and was approved by the Board on February 28, 2012. The above tables do not include any shares under the retention award agreement.

	Nine Months Ended
	September 30,
	2012			2011
Weighted-average grant date fair value of shares granted	$	15.63		$	13.10
Total fair value of shares that vested (in thousands)	$	4,755		$	1,084
Expected quarterly dividends per share	$	0.145		$	0.125
Risk-free interest rate	0.76		%	1.20		%

Included as granted and vested in the above tables are 42,768 shares that were based on achieving performance targets during the 2009 through 2011 period. The Board approved these shares at maximum levels in March 2012. Also included as

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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)

~~granted~~At ~~and~~March ~~vested~~31, in2013, the ~~tables~~aggregate ~~above~~intrinsic ~~are~~values ~~117,174~~of ~~shares~~stock ~~that~~options outstanding and exercisable were ~~based~~$7.8 ~~upon~~million ~~achieving~~and ~~performance~~$7.7 ormillion ~~market~~with ~~targets~~weighted-average ~~for~~remaining ~~2011. The~~contract ~~Board~~lives ~~approved~~of ~~these~~4.06 ~~shares~~and in4.05 years. At March 31, ~~2012~~2013, ~~including~~the exercise price of 827,977 outstanding stock options is greater than the ~~performance-based~~closing ~~shares~~price atof ~~near~~PNMR ~~maximum~~common ~~levels.~~stock on that date; therefore, those options have no intrinsic value.

~~PNMR~~The ~~also~~following ~~has~~table ~~share~~provides ~~agreements~~additional ~~that~~information ~~provide~~concerning ~~for~~stock ~~performance~~options ~~or market targets through 2014. Excluded from the above tables are maximums of 168,269, 190,369,~~ and ~~205,878~~restricted ~~shares~~stock ~~for periods ending in 2012~~activity, ~~2013,~~including ~~and 2014 that would be awarded if all~~ performance-based orand market-based ~~criteria~~shares: ~~are achieved and all executives remain eligible.~~

In March 2012, the Company entered into a retention award agreement with its Chairman, President, and Chief Executive Officer under which she would receive 135,000 shares of PNMR's common stock if the Company meets specific market targets at the end of 2016 and she remains an employee of the Company. If the Company achieves specific market targets at the end of 2014 and she remains an employee of the Company, she would receive 35,000 of the total shares at that time. The retention award was made under the PEP and was approved by the Board on February 28, 2012. The above tables do not include any shares under the retention award agreement.



	Three Months Ended March 31,
Stock Options	2013		2012
Weighted-average grant date fair value of options granted	$	—	$	—
Total fair value of options that vested (in thousands)	$	620	$	1,058
Total intrinsic value of options exercised (in thousands)	$	1,824	$	1,722

Restricted Stock
Weighted-average grant date fair value	$	19.82	$	14.33
Total fair value of restricted shares that vested (in thousands)	$	3,871	$	3,232

(7) ~~Capitalization~~Financing

Additional information concerning financing activities, including a TNMP cash-flow hedge that establishes a fixed interest rate on a variable rate loan, is contained in Note 6 of the Notes to Consolidated Financial Statements in the ~~2011~~2012 Annual Reports on Form 10-K.

Short-term Debt

PNMR has a revolving credit financing capacity of $300.0 million under the PNMR Revolving Credit Facility. PNM has a revolving credit financing capacity of $400.0 million under the PNM Revolving Credit Facility. Both of these facilities ~~included~~currently ~~two~~expire ~~one-year~~on ~~extension~~October ~~options~~31, ~~subject~~2017 toand ~~approval~~provide byfor ~~the~~an ~~lenders. In~~additional ~~October 2012, the first of the~~ one-year extension ~~options~~option, ~~for~~subject ~~the~~to ~~PNMR~~approval ~~Revolving~~by ~~Credit Facility and~~ the ~~PNM~~lenders. PNMR ~~Revolving~~borrowed ~~Credit~~$100.0 ~~Facility~~million ~~were~~under ~~exercised extending~~ the ~~expiration~~PNMR ofTerm ~~both~~Loan ~~facilities~~Agreement toin ~~October~~December ~~31, 2017~~2012. TNMP has a revolving credit facility with financing capacity of $75.0 million under the TNMP Revolving Credit Facility that expires in December 2015. At ~~September~~March 3031, ~~2012~~2013, the weighted average interest rate was 1.9796% for borrowings outstanding under the PNMR Revolving Credit Facility, 1.335% for the PNMR Term Loan Agreement, 1.71% for the PNM Revolving Credit Facility, and 1.83% for the TNMP Revolving Credit Facility. Short-term debt outstanding consisted of:

	September 30,		December 31,
	March 31,		December 31,
Short-term Debt	~~2012~~2013		~~2011~~2012
	(In thousands)
PNM – Revolving credit facility	$	—88,900	$	6621,~~000~~100
TNMP – Revolving credit facility	—25,000		—
PNMR
PNMR:
Revolving credit facility	~~113~~29,400		1637,~~700~~600
Bi-lateral line of credit	*		—
PNMR Term Loan Agreement	100,000		100,000
	$	~~113~~243,~~400~~300	$	82158,700

*At ~~This~~May 1, 2013, PNMR, PNM, and TNMP had $5228.04 million, ~~line~~$380.3 million, and $44.7 million of availability under their respective revolving credit ~~was~~facilities, ~~allowed~~including reductions of availability due to ~~expire~~outstanding inletters ~~August~~of ~~2012~~credit. Total availability at May 1, 2013, on a consolidated basis, was $653.4 million for PNMR. As of May 1, 2013, TNMP had $28.5 million in borrowings

At October 26, 2012, PNMR, PNM, and TNMP had $182.3 million, $396.5 million, and $74.7 million of availability under their respective revolving credit facilities, including reductions of availability due to outstanding letters of credit. Total availability at October 26, 2012, on a consolidated basis, was $653.5 million for PNMR. As of October 26, 2012, TNMP had $12.3 million in borrowings from PNMR under their intercompany loan agreement. At October 26, 2012, PNMR, PNM and TNMP had consolidated invested cash of $6.6 million, $6.6 million, and none.41

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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)

from PNMR under their intercompany loan agreement. At May 1, 2013, PNMR, PNM and TNMP had consolidated invested cash of $4.5 million, none, and none.

Financing Activities

On InMarch ~~April~~6, ~~2012~~2013, ~~PNM~~TNMP ~~filed~~commenced an ~~application~~offer ~~with~~to ~~the~~exchange ~~NMPRC~~any ~~requesting~~and ~~approval~~all of TNMP's $265.5 million aggregate principal amount outstanding 9.50% First Mortgage Bonds, due 2019, Series 2009A, for a new series of 6.95% First Mortgage Bonds, due 2043, Series 2013A, and up to ~~participate~~$140 in cash for each $1,000 of bonds exchanged. Settlement of the ~~refunding~~exchange offer occurred on April 3, 2013. Upon settlement, TNMP issued $93.2 million of 6.95% First Mortgage Bonds and paid an aggregate of $2013.0 million in cash in exchange for $93.2 million of ~~PCRBs~~9.50% First Mortgage Bonds, ~~which~~in ~~was~~addition ~~approved~~to payment of accrued and unpaid interest on the exchanged bonds. The exchange will result in ~~May~~the ~~2012~~recording of a $23.2 million premium on the 6.95% First Mortgage Bonds ~~PNM~~reflecting ~~also~~the ~~received~~contractual ~~NMPRC~~interest ~~authority~~rate tobeing ~~exercise~~in excess of the ~~two~~market ~~one-year~~rate ~~extension~~of ~~options~~interest ~~under~~on the ~~PNM~~date ~~Revolving~~of ~~Credit~~the ~~Facility~~exchange. A regulatory asset will be recorded to offset the premium, as well as the cash consideration paid in the exchange.

InOn ~~September~~April ~~2012~~22, 2013, PNM ~~participated~~entered ininto ~~the~~a ~~issuance of~~ $2075.0 million ofTerm ~~new~~Loan ~~PCRBs~~Agreement by(the “PNM Term Loan Agreement”) among PNM, the ~~City~~lenders ofidentified ~~Farmington~~therein, ~~New~~and ~~Mexico~~Union Bank, ~~which~~N.A., ~~bear~~as ~~interest~~Administrative Agent. Funding of the PNM Term Loan Agreement occurred on April 22, 2013, at 2which time the funds were used to repay $75.~~54%~~0 ~~and~~million ~~mature~~in ~~September~~borrowings 1,made ~~2042~~under ~~with~~the PNM Revolving Credit Facility. The PNM Term Loan Agreement bears interest at a ~~mandatory~~variable ~~tender~~rate and must be repaid on ~~June~~or 1before October 21, ~~2017~~2014. The ~~new~~PNM ~~PCRBs~~Term ~~refunded~~Loan Agreement includes customary covenants, including requirements to not exceed a ~~$20.0~~maximum ~~million~~consolidated ~~series~~debt-to-consolidated ofcapitalization ~~PCRBs,~~ratio ~~which~~and ~~bore~~customary ~~interest~~events atof 5default.~~15%~~ ~~and~~The ~~matured~~PNM inTerm ~~2037,~~Loan ~~that~~Agreement ~~were~~has ~~redeemed~~a atcross ~~par~~default provision and ~~retired~~a change of control provision.

Convertible Preferred Stock

PNMR had 477,800 shares of Series A convertible preferred stock outstanding through September 23, 2011 when it entered into an agreement to purchase all of the outstanding shares. The purchase closed on October 5, 2011. The Series A convertible preferred stock was convertible into PNMR common stock in a ratio of 10 shares of common stock for each share of preferred stock and received dividends equivalent to dividends paid on PNMR common stock as if the preferred stock had been converted into common stock. The Series A convertible preferred stock was entitled to vote on all matters voted upon by common stockholders, except for the election of the Board, and would have received distributions substantially equivalent to common stock in the event of liquidation of PNMR. The terms of the Series A convertible preferred stock resulted 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 was convertible was included in the weighted average number of common shares outstanding for periods the Series A convertible preferred stock was outstanding. Similarly, dividends on the Series A convertible preferred stock were 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.

Additional information concerning pension and OPEB plans is contained in Note 12 of the Notes to Consolidated Financial Statements in the ~~2011~~2012 Annual Reports on Form 10-K. Annual net periodic benefit cost (income) for the plans is actuarially determined using the methods and assumptions set forth in that note and is recognized ratably throughout the year.

PNM Plans

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

	Three Months Ended September 30,
	Three Months Ended March 31,
	Pension Plan						OPEB Plan						Executive Retirement Program
	2012			2011			2012			2011			2012		2011
	2013			2012			2013			2012			2013		2012
	(In thousands)
Components of Net Periodic
Benefit Cost
Service cost	$	—		$	—		$	5465		$	6554		$	—	$	—
Interest cost	87,~~058~~035			8,~~202~~058			1,~~324~~028			1,~~345~~324			~~219~~180		~~233~~219
Long-term return on plan assets	(10,~~325~~482		)	(910,~~269~~325		)	(1,~~225~~261		)	(1,~~347~~225		)	—		—
Amortization of net loss	23,~~629~~710			2,~~302~~629			~~972~~1,061			~~801~~972			2158		2321
Amortization of prior service cost	7919			79			(336		)	(~~662~~336		)	—		—
Net periodic benefit cost	$	~~441~~282		$	~~1,314~~441		$	~~789~~557		$	~~202~~789		$	~~240~~238	$	~~256~~240

41 42

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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)

	Nine Months Ended September 30,
	Pension Plan						Other Postretirement Benefits						Executive Retirement Program
	2012			2011			2012			2011			2012		2011
							(In thousands)
Components of Net Periodic
Benefit Cost
Service cost	$	—		$	—		$	162		$	195		$	—	$	—
Interest cost	24,174			24,606			3,972			4,035			657		699
Long-term return on plan assets	(30,975		)	(27,807		)	(3,675		)	(4,041		)	—		—
Amortization of net loss	7,887			6,906			2,916			2,403			63		69
Amortization of prior service cost	237			237			(1,008		)	(1,986		)	—		—
Net periodic benefit cost	$	1,323		$	3,942		$	2,367		$	606		$	720	$	768

PNM made contributions to its pension plan trust of $60.0 million and $77.7 million in the three months ended March 31, 2013 and 2012. PNM does not anticipate making additional contributions to its pension trust in 2013. Based on current law, including recent amendments to funding requirements, and estimates of portfolio performance, PNM estimates minimum required contributions for its pension plan trust would total $49.1 million for 2014-2017. Minimum required contributions were developed using current funding assumptions, including discount rates of 4.8% to 5.2%. Actual amounts required to be funded in the future will depend on the actuarial assumptions at that time, including the appropriate discount rate. PNM may make additional contributions at its discretion. PNM made contributions to the OPEB trust of $0.5 million and $0.8 million in the three months ended March 31, 2013 and 2012. PNM expects contributions during 2013 to the OPEB trust to total $3.3 million. Disbursements under the executive retirement program, which are funded by PNM and considered to be contributions to the plan, were $0.4 million in the three months ended March 31, 2013 and 2012 and are expected to total $1.5 million during 2013.

PNM made contributions to its pension plan trust of zero and $77.7 million in the three and nine months ended September 30, 2012 and $20.5 million and $34.0 million in the three and nine months ended September 30, 2011. PNM does not anticipate making additional contributions to its pension trust in 2012. Based on current law, including recent amendments to funding requirements, and estimates of portfolio performance, PNM estimates minimum required contributions for its pension plan trust would total $74.4 million for 2013-2016. Minimum required contributions were developed using current funding assumptions, including discount rates of 5.3% to 6.1%. Actual amounts required to be funded in the future will depend on the actuarial assumptions at that time, including the appropriate discount rate. PNM may make additional contributions at its discretion. PNM made contributions to the OPEB trust of $0.8 million and $2.4 million in the three and nine months ended September 30, 2012 and $0.7 million and $1.9 million in the three and nine months ended September 30, 2011. PNM expects contributions during 2012 to the OPEB trust to total $3.2 million. Disbursements under the executive retirement program, which are funded by the Company and considered to be contributions to the plan, were $0.4 million and $1.1 million in the three and nine months ended September 30, 2012 and $0.4 million and $1.2 million in the three and nine months ended September 30, 2011 and are expected to total $1.5 million during 2012.

TNMP Plans

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

	Three Months Ended September 30,
	Three Months Ended March 31,
	Pension Plan						OPEB Plan						Executive Retirement Program
	2012			2011			2012			2011			2012		2011
	2013			2012			2013			2012			2013		2012
							(In thousands)
Components of Net Periodic
Benefit Cost (Income)
Service cost	$	—		$	—		$	6175		$	7761		$	—	$	—
Interest cost	~~909~~772			~~951~~909			~~156~~141			~~163~~156			119		1211
Long-term return on plan assets	(1,~~331~~212		)	(1,~~368~~331		)	(~~129~~126		)	(~~133~~129		)	—		—
Amortization of net (gain) loss	~~115~~262			86115			~~(52~~—		)	(4852		)	—		—
Amortization of prior service cost	—			—			14			1514			—		—
Net Periodic Benefit Cost (Income)	$	(~~307~~178	)	$	(~~331~~307	)	$	50104		$	7450		$	119	$	1211

42TNMP made contributions to its pension plan trust of $1.0 million and $5.3 million in the three months ended March 31, 2013 and 2012. TNMP does not anticipate making additional contributions to its pension trust in 2013. Based on current law, including recent amendments to funding requirements, and estimates of portfolio performance, TNMP estimates there would be no minimum required contributions to its pension plan trust for 2014-2017. Minimum required contributions were developed using current funding assumptions, including discount rates of 4.8% and 5.2%. Actual amounts to be funded in the future will depend on the actuarial assumptions at that time, including the appropriate discount rate. TNMP may make additional contributions at its discretion. TNMP made contributions to the OPEB trust of zero and $0.3 million in the three months ended March 31, 2013 and 2012. TNMP expects contributions during 2013 to the OPEB trust to total $0.3 million. Disbursements under the executive retirement program, which are funded by TNMP and considered to be contributions to the plan, were less than $0.1 million in the three months ended March 31, 2013 and 2012 and are expected to total $0.1 million during 2013.

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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)

	Nine Months Ended September 30,
	Pension Plan						Other Postretirement Benefits						Executive Retirement Program
	2012			2011			2012			2011			2012		2011
							(In thousands)
Components of Net Periodic
Benefit Cost (Income)
Service cost	$	—		$	—		$	183		$	231		$	—	$	—
Interest cost	2,727			2,853			468			489			33		36
Long-term return on plan assets	(3,993		)	(4,104		)	(387		)	(399		)	—		—
Amortization of net (gain) loss	345			258			(156		)	(144		)	—		—
Amortization of prior service cost	—			—			42			45			—		—
Net Periodic Benefit Cost (Income)	$	(921	)	$	(993	)	$	150		$	222		$	33	$	36

TNMP made contributions to its pension plan trust of zero and $5.3 million in the three and nine months ended September 30, 2012 and $0.8 million and $1.0 million in the three and nine months ended September 30, 2011. TNMP does not anticipate making additional contributions to its pension trust in 2012. Based on current law, including recent amendments to funding requirements, and estimates of portfolio performance, TNMP estimates there would be no minimum required contributions to its pension plan trust for 2013-2016. Minimum required contributions were developed using current funding assumptions, including discount rates of 5.3% and 6.1%. Actual amounts to be funded in the future will depend on the actuarial assumptions at that time, including the appropriate discount rate. TNMP may make additional contributions at its discretion. TNMP made contributions to the OPEB trust of zero and $0.3 million in the three and nine months ended September 30, 2012 and zero and $0.4 million in the three and nine months ended September 30, 2011. TNMP does not expect to make additional contributions during 2012 to the OPEB trust. 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 and nine months ended September 30, 2012 and 2011 and are expected to total $0.1 million during 2012.

(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 periodically participates in the investigation and remediation of various sites. In addition, the Company occasionally enters into financial commitments in connection with its business operations. The Company is also involved in various legal and regulatory (Note 10) proceedings in the normal course of its business. It is not possible at this time for the Company to determine fully the effect of all litigation and other legal and regulatory proceedings on its financial position, results of operations, or cash flows.

With respect to some of the items listed below, the Company has determined that a loss is not probable or that, to the extent probable, cannot be reasonably estimated. In some cases, the Company is not able to predict with any degree of certainty the range of possible loss that could be incurred. Notwithstanding these facts, the Company has assessed these matters based on current information and made judgments concerning their potential outcome, giving due consideration to the nature of the claim, the amount and nature of damages sought, and the probability of success. Such judgments are made with the understanding that the outcome of any litigation, investigation, and other legal proceeding is inherently uncertain. In accordance with GAAP, the Company records liabilities for matters where it is probable a loss has been incurred and the amount of loss is reasonably estimable. The actual outcomes of the items listed below could ultimately differ from the judgments made and the differences could be material. The Company cannot make any assurances that the amount of reserves or potential insurance coverage will be sufficient to cover the cash obligations that might be incurred as a result of litigation or regulatory proceedings. The Company does not expect that any known lawsuits, environmental costs, and commitments will have a material effect on its financial condition, results of operations, or cash flows.

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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)

~~Additional~~With respect to some of the items listed below, the Company has determined that a loss is not probable or that, to the extent probable, cannot be reasonably estimated. In some cases, the Company is not able to predict with any degree of certainty the range of possible loss that could be incurred. Notwithstanding these facts, the Company has assessed these matters based on current information and made judgments concerning ~~commitments~~their potential outcome, giving due consideration to the nature of the claim, the amount and ~~contingencies~~nature of damages sought, and the probability of success. Such judgments are made with the understanding that the outcome of any litigation, investigation, and other legal proceeding is ~~contained~~inherently inuncertain. In ~~Note~~accordance 16with GAAP, the Company records liabilities for matters where it is probable a loss has been incurred and the amount of loss is reasonably estimable. The actual outcomes of the ~~Notes~~items tolisted ~~Consolidated~~below ~~Financial~~could ~~Statements~~ultimately indiffer from the ~~2011~~judgments ~~Annual~~made ~~Reports~~and the differences could be material. The Company cannot make any assurances that the amount of reserves or potential insurance coverage will be sufficient to cover the cash obligations that might be incurred as a result of litigation or regulatory proceedings. The Company does not expect that any known lawsuits, environmental costs, and commitments will have a material effect on ~~Form~~its ~~10-K~~financial condition, results of operations, or cash flows.

Additional information concerning commitments and contingencies is contained in Note 16 of the Notes to Consolidated Financial Statements in the 2012 Annual Reports on Form 10-K.

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 that require the DOE 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 repository for the storage and disposal of spent nuclear fuel by 1998, the DOE announced that it would not be able to open the repository by 1998 and sought to excuse its performance under the contract. In November 1997, the D.C. 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. The PVNGS owners previously received a damages award for costs incurred through December 2006. APS filed a subsequent lawsuit, on behalf of itself and the other PVNGS owners, against DOE in the Court of Federal Claims on December 19, 2012. The lawsuit alleges that from January 1, 2007, through June 30, 2011, APS, as a co-owner of PVNGS, incurred additional damages due to DOE's continuing failure to remove spent nuclear fuel and high level waste from PVNGS. PNM is unable to predict the outcome of this matter. PNM estimates that it will incur approximately $42.8 million (in 2010 dollars) for its share of the costs related to the on-site interim storage of spent nuclear fuel at PVNGS during the term of the operating licenses. PNM accrues these costs as a component of fuel expense as the fuel is consumed. At ~~September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~2012, PNM had a liability for interim storage costs of $1312.86 million and $1413.59 million included in other deferred credits.

On June 8, 2012, the D.C. Circuit issued its decision on a challenge by several states and environmental groups of the NRC's rulemaking regarding temporary storage and permanent disposal of high-level nuclear waste and spent nuclear fuel. The petitioners had challenged the NRC's 2010 update to the agency's Waste Confidence Decision. Previous versions of the Waste Confidence Decision had expressed the NRC's confidence, in a generic fashion, that high level nuclear waste and spent nuclear fuel safe storage could be safely stored on the sites of the country's commercial nuclear power plants until a mined geologic repository becomes available. The D.C. Circuit found that the agency's 2010 Waste Confidence Decision update constituted a major federal action, which requires either an environmental impact statement or a finding of no significant impact from the agency's actions. The D.C. Circuit found that the NRC's evaluation of the environmental risks from spent nuclear was deficient, and therefore remanded the 2010 Waste Confidence Decision update for further action. In September 2012, the NRC issued a directive to its staff to proceed with development of a generic environmental impact statement to support an updated Waste Confidence Decision within 24 months. PNM is unable to predict the impact that the decision may have on the operation of PVNGS.

The Clean Air Act

Regional Haze

In 1999, EPA developed a regional haze program and regional haze rules under the CAA. The rule directs each of the 50 states to address regional haze. ~~States~~Pursuant ~~are required~~ to establish goals for improving visibility in national parks and wilderness areas (also known as Class I areas) and to develop long-term strategies for reducing emissions of air pollutants that cause visibility impairment in their own states and for preventing degradation in other states. States must establish a series of interim goals to ensure continued progress. The first planning period specifies setting reasonable progress goals for improving visibility in Class I areas by the ~~year 2018. In July 2005~~CAA, ~~the EPA promulgated its final regional haze rule. A major provision of the rule included guidelines for~~ states tohave ~~conduct BART determinations for certain covered facilities. The BART requirements of~~ the ~~regional~~primary ~~haze~~role ~~rule apply~~ to ~~facilities,~~regulate ~~including utility boilers, built between 1962 and 1977 that have the potential to emit more than 250 tons per year of~~ visibility ~~impairing~~requirements pollution. If it is demonstrated that the emissions from these sources cause or contribute to visibility impairment in any Class I area, then BART must be installed. The regional haze rules require that BART controls must be installed on an eligible facility by ~~2018.~~promulgating

SJGS

Several provisions of the CAA aim to improve visibility in certain national parks and wilderness areas to natural conditions by the year 2064. SJGS is a source that is subject to these statutory obligations to reduce visibility impacts.

Pursuant to the CAA, states have the primary role to regulate visibility requirements by promulgating SIPs. The State of New Mexico submitted its SIP on the two elements of the visibility rules - regional haze and interstate transport - for review by EPA in June 2011. The SIP found that BART to reduce NOx emissions from SJGS is selective non-catalytic reduction technology

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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)

SIPs. States are required to establish goals for improving visibility in national parks and wilderness areas (~~“SNCR”~~also known as Class I areas) and ~~requires~~to ~~SJGS~~develop tolong-term ~~install~~strategies ~~SNCR~~for onreducing ~~each~~emissions of ~~its~~air ~~four~~pollutants ~~units. Nevertheless,~~that oncause ~~August~~visibility ~~22,~~impairment ~~2011,~~in ~~EPA~~their ~~published~~own ~~its~~states ~~FIP,~~and ~~stating~~for ~~that~~preventing itdegradation ~~was~~in ~~required~~other tostates. States domust soestablish bya ~~virtue~~series of ainterim ~~consent~~goals ~~decree~~to itensure ~~had~~continued ~~entered~~progress. The ~~into~~first ~~with~~planning anperiod ~~environmental~~specifies ~~group~~setting inreasonable ~~litigation~~progress ~~concerning~~goals ~~the~~for ~~interstate~~improving ~~transport~~visibility ~~requirements~~in ofClass I areas by the ~~CAA~~year 2018. ~~The~~In ~~FIP~~July ~~included~~2005, athe EPA promulgated its final regional haze ~~BART~~rule ~~determination~~guidelines for ~~SJGS~~states ~~that~~to ~~requires~~conduct ~~installation~~BART ofdeterminations ~~selective~~for ~~catalytic~~certain ~~reduction~~covered ~~technology~~facilities, ~~(“SCR”)~~including onutility ~~all~~boilers, ~~four~~built ~~units~~between ~~within~~1962 ~~five~~and ~~years~~1977 ofthat have the ~~rule's~~potential ~~effective~~to ~~date~~emit more than 250 tons per year of ~~September~~visibility ~~21,~~impairing ~~2011~~pollution. ~~The~~If ~~FIP~~it ~~also~~is ~~requires~~demonstrated ~~stringent~~that ~~NOx~~the ~~emission~~emissions ~~limits. EPA~~from ~~stated~~these ~~that~~sources itcause ~~would~~or ~~review~~contribute ~~and~~to ~~act~~visibility onimpairment ~~the~~in ~~SIP~~any atClass ~~some~~I ~~future~~area, ~~date~~then BART must be installed by 2018.

~~PNM~~SJGS filed a Petition for Review in the Tenth Circuit on September 16, 2011, challenging EPA's regional haze FIP decision as arbitrary, capricious, or otherwise not in accordance with law. Additionally, in October 2011, PNM asked EPA to reconsider the FIP and in May 2012 supplemented its request for reconsideration with cost information from actual bids received in response to an RFP to install SCRs. On October 21, 2011, the Governor of New Mexico and NMED petitioned the Tenth Circuit to review EPA's decision on the same grounds as PNM's challenge and requested EPA to reconsider its decision. The New Mexico Governor and NMED also joined PNM's supplemental request for reconsideration in May 2012. These three parties filed motions with the Tenth Circuit to stay the effective date of the rule, which were denied on March 1, 2012. The same three parties have also formally asked EPA to stay the effective date of the rule. WildEarth Guardians also filed an action to challenge EPA's rule in the Tenth Circuit, seeking to shorten its compliance period from five years to three years. WildEarth Guardians, Diné Citizens Against Ruining our Environment, National Parks Conservation Association, New Energy Economy, San Juan Citizens Alliance, and Sierra Club intervened in support of EPA in both PNM's challenge and in the case brought by the New Mexico Governor and NMED. PNM has intervened in support of the challenge brought by the New Mexico Governor and NMED. PNM has also intervened in the WildEarth Guardians' action advocating that the five-year compliance period in the FIP be maintained should the FIP stand. The Tenth Circuit entered an order in March 2012 scheduling briefing on the merits in the challenges to the FIP. Oral arguments were held on October 23, 2012. During oral arguments, the court ordered the parties to file supplemental information in November 2012 and January 2013. No decision has been announced and there is no deadline for a court decision.

InSJGS ~~litigation~~is ~~with~~a ~~several~~source ~~environmental~~that ~~groups,~~is ~~the~~subject ~~U.S.~~to ~~District Court for~~ the ~~District~~statutory obligations of ~~Columbia~~the ~~entered~~CAA ~~a consent decree, which, as amended, required EPA~~ to ~~review~~reduce ~~and~~visibility ~~take~~impacts. The ~~action~~State ~~through~~of ~~a proposed rulemaking on~~ New Mexico's ~~regional~~submitted ~~haze~~its SIP on orthe ~~before~~regional ~~May~~haze ~~31, 2012~~ and ainterstate ~~final~~transport ~~rulemaking~~elements onof orthe ~~before~~visibility ~~November~~rules ~~15,~~for ~~2012. On~~review ~~May~~by ~~31, 2012,~~ EPA ~~issued~~in ~~its~~June ~~proposed~~2011. The ~~action~~SIP onfound ~~the~~that ~~regional~~BART ~~haze~~to ~~SIP,~~reduce ~~which~~NOx ~~was~~emissions ~~published~~from inSJGS ~~the~~is ~~Federal~~selective ~~Register~~non-catalytic onreduction ~~June~~technology ~~15, 2012~~(“SNCR”). ~~EPA~~Nevertheless, ~~proposed~~in ~~approval~~August of2011, ~~all~~EPA ~~components~~published ofits ~~the SIP~~FIP, ~~except~~stating ~~for~~that ~~the~~it ~~BART~~was ~~determination~~required ~~for~~to ~~SJGS. With~~do ~~respect~~so toby ~~that~~virtue ~~element~~ of ~~the~~a ~~SIP,~~consent ~~EPA~~decree ~~determined~~it ~~that~~had ~~with~~entered ~~the~~into ~~FIP~~with inan ~~place,~~environmental itgroup ~~had~~in ~~met~~litigation ~~its~~concerning ~~obligation under~~ the ~~consent~~interstate ~~decree,~~transport ~~and~~requirements ~~stated~~of ~~that~~the itCAA. The ~~would~~FIP ~~issue~~included a ~~separate~~regional ~~proposal~~haze orBART ~~would~~determination ~~entertain~~for ~~the~~SJGS ~~withdrawal~~that ofrequires ~~the~~installation ~~SIP~~of inselective ~~favor~~catalytic ofreduction antechnology ~~alternative~~(“SCR”) ~~that~~with ~~may~~stringent beNOx ~~developed~~emission ~~through~~limits ~~discussions~~on ~~with~~all ~~the~~four ~~State~~units ofby ~~New~~September ~~Mexico~~21, ~~and PNM~~2016.

~~On April 25~~PNM, ~~2012, PNM received a copy of a letter from two of~~ the ~~five Commissioners of the NMPRC addressed to the~~ Governor of New Mexico, and ~~the~~NMED ~~New~~petitioned ~~Mexico congressional delegation. In~~ the ~~letter,~~Tenth ~~the~~Circuit ~~Commissioners ask that the parties~~ to ~~the~~review ~~litigation~~EPA's ~~join~~decision toand ~~ask~~requested EPA to ~~stay~~reconsider ~~both~~its ~~the~~decision. The ~~FIP~~Tenth ~~and~~Circuit ~~the~~denied ~~litigation~~petitions ~~and~~ to ~~consider~~stay athe ~~“third~~effective ~~alternative”~~date toof the ~~FIP~~rule ~~and~~on ~~the~~March ~~SIP~~1, 2012. ~~They~~ These ~~suggest~~parties ~~that~~have ~~the~~also ~~third~~formally ~~alternative~~asked beEPA ~~retiring~~to ~~one~~stay orthe ~~more~~effective date of the ~~existing coal-fired units at SJGS and replacing that capacity with gas-fired generation~~rule. On Several ~~April~~environmental ~~26,~~groups ~~2012,~~have ~~PNM~~intervened ~~received~~in asupport ~~copy~~ of aEPA. WEG ~~letter~~also ~~from~~filed ~~the~~an ~~Governor~~action ofto ~~New~~challenge ~~Mexico~~EPA's ~~addressed~~rule toin the ~~EPA~~Tenth ~~Administrator. In that communication~~Circuit, ~~the~~seeking ~~Governor~~to ~~requested~~shorten ~~that~~its ~~EPA~~compliance ~~stay~~period ~~the~~from ~~FIP~~five ~~and~~years ~~respond~~ to ~~the~~three ~~SIP~~years byand ~~approving~~PNM ithas orintervened ~~explaining~~in ~~why~~this itaction. Oral isarguments ~~not~~on ~~approvable. Furthermore,~~ the ~~Governor~~merits ~~requested~~of ~~PNM to develop viable alternatives to~~ the FIP, ~~assuming~~challenges ~~that~~were ~~EPA~~held ~~stays~~in ~~the~~October ~~FIP~~2012 ~~and~~in ~~responds to~~ the ~~SIP~~Tenth Circuit. ~~PNM~~ In ~~agreed~~accordance ~~to comply~~ with the ~~Governor~~court's ~~request. In~~order, ~~her letter to~~ the ~~Governor,~~parties ~~the~~have ~~EPA~~filed ~~Administrator~~supplemental ~~requested~~information. No ~~that~~decision ~~NMED~~has ~~take~~been ~~the~~announced ~~lead~~and inthere ~~working~~is ~~with~~no ~~the~~deadline ~~parties~~for ~~and~~a ~~stakeholders~~court decision.

OnIn ~~July~~litigation 2,involving ~~2012,~~several ~~the~~environmental ~~EPA~~groups, ~~Administrator replied to~~ the ~~Governor~~United ~~stating~~States ~~that~~District ~~she~~Court ~~had~~for ~~signed~~the aDistrict ~~90-day stay~~ of ~~the~~Columbia ~~FIP. The~~entered ~~stay~~a ~~was~~consent ~~published~~decree, inwhich, ~~the~~as ~~Federal Register on July 16~~amended, ~~2012. The~~required ~~stay~~EPA ~~purports~~ to ~~stay~~issue ~~the effectiveness of the FIP for~~ a ~~period~~final ofrulemaking 90on ~~days~~New ~~after~~Mexico's ~~publication. The~~regional ~~stay~~haze ~~states~~SIP ~~that~~by ~~any~~November ~~FIP requirements during the 90-day period are stayed~~15, ~~but also acknowledges that there are no such requirements~~2012. ~~The~~EPA ~~only~~approved ~~mandate~~all components of the ~~FIP is that PNM comply with its emission limit on its ultimate compliance date. Therefore~~SIP, ~~the~~except ~~stay~~for ~~does not alter future compliance requirements of~~ the ~~FIP,~~NOx ~~including~~BART ~~the~~determination ~~compliance~~for ~~deadline in the FIP~~SJGS. ~~The~~With ~~stay~~respect ~~provides~~to that ~~EPA~~element ~~“intends”~~of ~~to proceed to a rulemaking at some future time to either 1) extend~~ the ~~compliance date~~SIP, orEPA 2)determined ~~provide for an alternative proposal~~ that ~~might~~with ~~be developed during~~ the ~~period~~FIP ofin ~~the~~place, ~~stay. Because~~it ~~the~~had ~~stay~~met isits ~~not~~obligation ~~effective~~under ~~to toll~~ the ~~compliance~~consent ~~date absent a subsequent formal EPA rulemaking, the compliance date currently remains September 21, 2016~~decree.

Because the unchanged compliance deadline of the FIP required PNM to continue to take steps to commence installation of SCRs at SJGS, PNM entered into a contract in October 2012 with an engineering, procurement, and construction contractor to install SCRs on behalf of the SJGS owners. The construction contract, which includes termination provisions in the event that SCRs are determined in the future to be unnecessary, has been suspended through November 1, 2014. PNM estimated the total cost to install SCRs on all four units of SJGS to be between approximately $824 million and $910 million, which amounts include costs for construction management, gross receipts taxes, AFUDC, and other PNM costs, although final costs would be refined through an “open book” subcontractor bidding process. The costs for the project to install SCRs would encompass installation of technology to comply with the NAAQS requirements described below.

PNM previously indicated it estimated the cost of SNCRs on all four units of SJGS to be between approximately $85 million and $90 million based on a conceptual design study. Along with the SNCR installation, additional equipment would be required to be installed to meet the NAAQS requirements described below, the cost of which had been estimated to total between approximately $105 million and $110 million for all four units of SJGS. The estimates for SNCRs and the NAAQS requirements include gross receipts taxes, AFUDC, and other PNM costs.

Based upon its current SJGS ownership interest, PNM's share of the costs under either SCRs or SNCRs as described above would be about 46.3%.

During 2012 and early 2013, PNM engaged in discussions with NMED and EPA regarding an alternative to the FIP and SIP. On February 15, 2013, PNM, NMED, and EPA agreed to pursue a revised plan that could provide a new BART path to comply with federal visibility rules at SJGS. The terms of the non-binding agreement would result in the retirement of SJGS Units 2 and

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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)

In3 ~~accordance~~by ~~with~~ the ~~Governor's~~end request, PNM has engaged in discussions with NMED, EPA, and other stakeholders regarding an alternative to the FIP and SIP. In July 2012, the NMED established a process to elicit input from the public via open meetings across New Mexico and from a variety of ~~stakeholders,~~2017 ~~including PNM, the Navajo Nation, local governmental representatives,~~ and ~~a number of environmental groups, regarding an alternative to SCRs and SNCRs. PNM supported that process and advocated for alternatives that would cost consumers less than~~ the FIP while also achieving environmental benefits and considering economic impact to New Mexico. In September 2012, the NMED proposed an alternative to EPA suggesting the closure of Units 1 and 2 at SJGS and the installation of SNCRs on Units 31 and 4 by the ~~end~~later of ~~2017. The~~January ~~NMED~~31, ~~also~~2016 ~~suggested~~or ~~replacement~~15 ofmonths ~~PNM's~~after ~~share~~EPA approval of ~~the~~a ~~capacity~~revised ~~from the two closed units with gas-fired generation~~SIP. ~~The~~Under ~~Company~~this ~~views~~plan, ~~the~~ NMED ~~proposal~~would asdevelop ~~an important step in meeting the objectives of addressing the environmental needs of the regional haze program at~~ a ~~lower~~revised ~~cost~~SIP toand ~~customers~~submit ~~while~~it ~~balancing the economic impact~~ to the ~~"four~~EIB ~~corners"~~for ~~region~~approval. ~~Among~~Upon ~~other~~approval ~~things~~by EIB, ~~there~~the ~~would~~revised ~~need~~SIP towould be ansubmitted ~~agreement~~to ~~in principle among~~ EPA, ~~NMED, and PNM in order~~ for ~~the NMED proposal to proceed~~approval. ~~The~~EIB ~~proposal~~approval ~~would~~is ~~also~~projected befor ~~subject to approval by~~ the ~~other~~fourth ~~owner~~quarter of ~~SJGS~~2013, ~~Units~~with 1EPA ~~and~~action 2in aslate ~~well as various regulatory agencies~~2014. ~~The proposal could also be subject to administrative and judicial challenge by others.~~

OnNMPRC ~~October~~approval ~~12,~~of ~~2012,~~the ~~EPA~~retirement ~~published~~of aSJGS ~~notice~~Units in2 ~~the~~and ~~Federal~~3 ~~Register~~and ~~extending~~plans ~~the~~for ~~existing~~PNM ~~administrative~~to ~~stay~~acquire ~~for~~power anto ~~additional~~replace 45its ~~days~~reduced capacity from SJGS would also be part of implementation. ~~The~~PNM ~~extension~~also isanticipates ~~intended~~requesting approval to ~~allow~~recover ~~for~~from ~~additional~~ratepayers ~~time~~the ~~for~~unrecovered ~~further~~investment ~~discussions~~in ofSJGS ~~alternatives~~Units 2 and 3 and costs incurred to ~~EPA's~~retire ~~FIP~~those units. ~~The~~At ~~administrative~~March ~~stay~~31, ~~does~~2013, ~~not~~PNM's ~~extend~~net ~~the~~book ~~September~~value ~~21,~~of ~~2016~~SJGS ~~compliance~~Units ~~date~~2 ofand ~~the~~3 ~~FIP~~was approximately $290 million.

~~Notwithstanding~~Contemporaneously ~~the~~with ~~above process,~~ the ~~unchanged~~signing ~~compliance deadline~~ of the ~~FIP~~non-binding ~~requires~~agreement, ~~PNM~~EPA toindicated ~~continue~~in towriting ~~take~~that ~~steps~~if tothe ~~commence~~terms ~~installation~~agreed ofto ~~SCRs~~do atnot ~~SJGS. In~~move ~~April~~forward ~~2012,~~due ~~PNM received bids for this project from several bidders pursuant~~ to ~~its~~circumstances ~~RFP. After~~outside ~~further~~of ~~negotiations with~~ the ~~bidders,~~control of PNM ~~entered~~and ~~into~~NMED, aEPA ~~contract~~will onwork ~~October 31, 2012~~ with anthe ~~engineering,~~state ~~procurement,~~ and ~~construction~~PNM ~~contractor~~ to ~~install~~create ~~SCRs and is negotiating~~ a ~~contract~~reasonable ~~with~~FIP ancompliance ~~engineering~~schedule ~~firm~~to ~~for~~reflect ~~construction management services on behalf of~~ the ~~SJGS~~time ~~owners. The~~used ~~construction~~to ~~contract~~develop ~~includes termination provisions in~~ the ~~event~~new ~~that~~state ~~SCRs are determined in the future to be unnecessary~~plan. The construction contract contains a cost estimate, which will be refined through an “open book” subcontractor bidding process with final costs to be determined by June 30, 2013. Based on the indicative bid for construction, PNM ~~estimates~~is ~~the~~also ~~total~~exploring ~~cost~~potential toadditional ~~install~~areas ~~SCRs on all four units~~ of ~~SJGS will be between approximately $824 million and $910 million~~relief, ~~which~~including ~~amounts~~relief ~~include~~from ~~costs for construction management, gross receipts taxes, AFUDC, and other PNM costs. The costs for~~ the ~~project~~Tenth ~~to install SCRs would encompass installation of technology to comply with the NAAQS requirements described below~~Circuit.

~~Based~~In onconnection awith ~~recently completed conceptual design study, PNM currently estimates~~ the ~~installation~~implementation of ~~SNCRs~~the onplan, ~~all~~retirement ~~four units~~ of SJGS ~~would~~Units ~~cost~~2 ~~between~~and ~~approximately~~3 ~~$85~~could ~~million~~result ~~and~~in ~~$90~~shifts ~~million. If~~in ~~SNCRs~~ownership ~~are~~among ~~installed at~~ SJGS, ~~additional~~owners ~~equipment~~as ~~would~~may be ~~required~~agreed toupon beby ~~installed to meet~~ the ~~NAAQS requirements described below~~owners, ~~the~~including ~~cost~~PNM ofacquiring ~~which~~additional isownership ~~estimated~~in toSJGS ~~total~~Unit ~~between approximately $105 million and $110 million for all four units of SJGS~~4. ~~The~~Owners ~~estimates~~of ~~for~~the ~~SNCRs~~affected ~~and~~units ~~the~~also ~~NAAQS~~may ~~requirements~~seek ~~include~~approvals ~~gross~~of ~~receipts~~their ~~taxes,~~utility ~~AFUDC,~~commissions ~~and~~or ~~other~~governing ~~PNM costs~~boards.

~~PNM's~~This ~~share~~plan ~~under~~primarily ~~either~~focuses ~~SCRs~~on orhow ~~SNCRs~~SJGS would bemeet ~~about~~the ~~46.3%~~regional ~~based~~haze ~~upon~~rule, ~~its~~but also indicates that PNM would build a natural gas-fired generating plant to be sited at SJGS ~~ownership~~to ~~interest~~partially replace the capacity from the retired coal units. ~~Operating~~Detailed ~~costs~~replacement ~~would~~power strategies also ~~increase~~would ~~with~~be ~~the~~finalized. PNM ~~installation~~believes ofadequate ~~either~~replacement ~~SCRs~~power oralternatives ~~SNCRs~~will be available to meet its generation needs and ensure reliability.

~~Because~~On ~~legal~~February ~~challenges~~25, to 2013, the ~~FIP~~parties ~~are~~filed ~~continuing~~their ~~and~~status ~~because~~reports ~~PNM~~with the Tenth Circuit. To demonstrate that progress has ~~agreed~~been tomade ~~discuss~~toward ~~alternatives~~settling tothe Tenth Circuit litigation, information, including the ~~SIP~~non-binding agreement and ~~the~~its ~~FIP~~accompanying timeline, ~~PNM~~was issubmitted ~~working~~ to ~~minimize~~the Tenth Circuit. Following the ~~previously~~parties' ~~planned~~submission ~~2012~~of ~~and~~their ~~2013~~status ~~total~~reports, ~~project~~on ~~expenditures. PNM~~February ~~currently~~28, ~~estimates~~2013, ~~its~~the ~~share~~Tenth ofCircuit referred the ~~total~~litigation ~~project~~to ~~expenditures~~the Tenth Circuit Mediation Office, which has authority to berequire upthe parties to $3attend ~~million~~mediation inconferences ~~2012~~to ~~and~~informally ~~$102~~resolve ~~million~~issues in ~~2013~~the pending appeals.

~~PNM~~On ~~anticipates~~April ~~filing~~1, a2013, ~~request~~PNM ~~with~~submitted ~~the~~a ~~NMPRC~~new inBART ~~late~~analysis ~~2012~~to orthe ~~early~~NMED ~~2013~~reflecting ~~for~~the ~~approval~~terms of the ~~SCR~~non-binding ~~project~~agreement ~~and~~including tothe ~~recover~~installation ~~SCR~~of ~~costs~~SNCRs inon ~~rates~~Units ~~charged~~1 toand ~~customers. Furthermore,~~4 ~~PNM~~and ~~will~~the ~~seek~~retirement ~~recovery~~of ~~from~~Units ~~its~~2 ~~ratepayers~~and ~~for~~3. NMED ~~all~~is ~~costs~~currently ~~that~~preparing ~~may be incurred as~~ a ~~result~~new ofproposed ~~the~~SIP ~~CAA~~for ~~requirements~~BART.

~~Due~~If to the ~~compliance~~February ~~deadline~~15, ~~under~~2013 ~~the~~plan ~~FIP~~described above is implemented, PNM iscurrently ~~preparing~~estimates its share of the costs to install ~~SCRs~~SNCRs atand ~~SJGS~~the ~~while~~additional ~~simultaneously~~equipment ~~pursuing~~to ~~two~~comply ~~other~~with ~~paths~~NAAQS ~~regarding~~requirements ~~BART~~on at SJGS~~. PNM~~ ~~continues~~Units to1 ~~vigorously~~and ~~pursue~~4 ~~litigation~~would inbe ~~the~~approximately ~~Tenth~~$63 ~~Circuit~~million, including gross receipts taxes, AFUDC, and other PNM costs. ~~PNM~~This amount is ~~also~~based ~~participating~~on inthe ~~discussions~~anticipation ~~regarding~~that anPNM's ~~alternative~~ownership toshare ~~the~~of ~~FIP~~SJGS Units 1 and ~~SIP~~4 would aggregate to approximately 52%. PNM isalso ~~unable~~estimates tothat ~~predict~~the cost of replacing a portion of PNM's share of the ~~ultimate~~reduction ~~outcome~~in generating capacity due to the retirement of ~~these~~SJGS ~~matters~~Units or2 ~~what,~~and if3 ~~any,~~with ~~additional~~identified ~~pollution~~gas-fired ~~control~~peaking ~~equipment~~capacity ~~will~~would be ~~required~~approximately at$280 ~~SJGS~~million. IfNeither ~~additional~~of ~~equipment~~these amounts is ~~necessary~~included ~~and/or~~in ~~final~~PNM's ~~requirements~~current ~~result~~construction inexpenditure ~~additional~~forecast ~~operating~~since ~~costs~~approval ~~being~~of ~~incurred,~~the ~~PNM~~plan ~~believes~~is ~~that~~subject ~~its~~to ~~access~~numerous toconditions. ~~the~~Additional ~~capital~~base ~~markets~~load isgenerating ~~sufficient~~capacity tomay be ~~able~~required to ~~finance~~replace ~~the~~a ~~installation~~portion of retired SJGS capacity. ItAlthough isthe ~~possible~~nature ~~that~~of ~~requirements~~additional tobase ~~comply~~load capacity has not yet been identified, it could come from PVNGS Unit 3 or additional gas-fired generation. Operating costs would also increase with the ~~final~~installation ~~BART~~of ~~determinations,~~either SCRs or SNCRs.

PNM can provide no assurance that the requirements of the plan agreed to on February 15, 2013 will be accomplished at all or within the required timeframes. If the February 15, 2013 plan is not implemented, PNM would seek to work with NMED and EPA to develop a revised timetable for implementation of the FIP. If an agreement on a revised timetable cannot be reached, PNM will likely be unable to complete the installation of SCRs on all four units at SJGS by the FIP deadline of September 21, 2016. In such event, PNM would likely seek relief from the compliance deadline from EPA or the Tenth Circuit in order to continue to be able to operate the plant during the completion of the installation process. If relief is not granted, PNM could be forced to temporarily cease operation of some or all of the SJGS units. If a shutdown was required, PNM would then have to acquire temporary replacement power through short-term or open-market purchases in order to serve the needs of its customers. There can be no assurance that sufficient replacement power will be available to serve PNM's needs or, if available, what costs would be incurred.

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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 is unable to predict the ultimate outcome of these matters or what additional pollution control equipment will be required at SJGS. PNM will seek recovery from its ratepayers for all costs that may be incurred as a result of the CAA requirements. Although the additional equipment and other final requirements will result in additional capital and operating costs being incurred, PNM believes that its access to the capital markets is sufficient to be able to finance the installation. It is possible that requirements to comply with the CAA, combined with the financial impact of possible future climate change regulation or legislation, if any, other environmental regulations, the result of litigation, and other business considerations, could jeopardize the economic viability of SJGS or the ability of individual participants to continue participation in the plant.

Four Corners

On ~~October~~ August 6, ~~2010~~2012, the EPA issued its ~~proposed~~final ~~regional~~BART ~~haze~~ determination ~~of BART~~ for Four Corners. The rule, asincludes ~~proposed,~~two compliance alternatives. The first emission control strategy finalized by the EPA would require the installation of ~~SCR as~~ post-combustion controls, including SCRs, on each of Units 1-5 at Four Corners to reduce NOx emissions. ~~PNM~~Under ~~estimates~~the ~~its~~second ~~share~~emission ofcontrol ~~costs~~alternative, ~~incurred~~the byowners ~~APS~~of ~~could~~Four beCorners upwould have the option to ~~$69.0~~close ~~million~~permanently ~~for~~Units 1-3 by January 1, 2014 and install SCR post-combustion NOx controls aton ~~Four~~each ~~Corners~~of Units 4 and 5 by July 31, 2018. ~~Such~~For ~~amount~~particulate ~~does~~matter ~~not~~emissions, ~~include~~EPA ~~PNM's~~is ~~AFUDC~~requiring Units 4 and ~~internal~~5 ~~costs~~to meet an emission limit of 0. ~~PNM~~015 ~~has~~lb/MMBTU noand ~~ownership~~the ~~interest~~plant into ~~Four~~meet ~~Corners~~a ~~Units~~20% 1opacity limit, 2both of which are achievable through operation of the existing baghouses. Although unrelated to BART, the final BART rule also imposes a 20% opacity limitation on certain fugitive dust emissions from Four Corners' coal and 3material handling operations. ~~PNM~~The ~~would~~Four ~~seek~~Corners ~~recovery~~participants ~~from~~have ~~its~~until ~~ratepayers~~July 1, 2013 to notify the EPA of ~~all~~which ~~costs~~emission ~~that~~control ~~are~~strategy ~~ultimately~~Four ~~incurred.~~Corners will follow.

~~Following~~The ~~EPA's issuance of its proposed BART, APS submitted a letter to EPA proposing to shut down~~ Four Corners ~~Units~~participants' 1,obligations ~~2, and 3 by 2014 and~~ to ~~install~~comply ~~post-combustion~~with ~~pollution~~EPA's ~~controls~~final ~~for~~BART ~~NOx~~determinations, oncoupled ~~Units~~with ~~4 and 5 by~~ the ~~end~~financial impact of ~~2018,~~possible ~~provided~~future ~~that~~climate ~~EPA~~change ~~agrees~~regulation ~~to a resolution of Four Corners' obligations~~ or ~~liability~~legislation, ifother ~~any~~environmental regulations, ~~under the regional haze~~ and ~~reasonably~~other ~~attributable~~business ~~visibility impairment programs~~considerations, ~~the~~could ~~NSR~~jeopardize ~~program, and NSPS programs of~~ the ~~CAA. The~~economic ~~proposed~~viability ~~shut down~~ of Four Corners ~~Units~~or ~~1, 2, and 3 is also conditioned upon~~ the ~~completion~~ability of ~~APS's~~individual ~~acquisition~~participants ofto ~~SCE's~~continue ~~ownership~~their ~~interest~~participation in Four Corners ~~Units 4 and 5 and the negotiation of a new coal supply agreement~~.

InPNM ~~response~~is continuing to ~~APS~~evaluate the impacts of EPA's ~~proposal~~BART determination for Four Corners. PNM estimates its share of costs, ~~EPA~~including ~~issued~~PNM's aAFUDC, ~~Supplemental~~to ~~Notice~~be ~~Requesting~~up ~~Comment~~to inapproximately ~~February~~$75 ~~2011~~million for post-combustion controls at Four Corners Units 4 and ~~proposed~~5. PNM towould ~~find~~seek recovery from its ratepayers of all costs that anare ~~alternative~~ultimately ~~emission~~incurred. PNM ~~control~~has ~~strategy,~~no ~~largely~~ownership ~~based~~interest ~~upon~~in ~~APS's~~Four ~~proposal~~Corners Units 1, ~~would~~2, ~~achieve~~and ~~more~~3. PNM ~~progress~~is ~~than~~unable ~~EPA's~~to ~~October~~predict ~~2010~~the ~~BART~~ultimate ~~proposal~~outcome of this matter.

~~On August 6~~SCE, ~~2012,~~a ~~the~~participant ~~EPA~~in ~~issued~~Four ~~its~~Corners, ~~final~~has ~~BART~~indicated ~~determination~~that ~~for~~certain ~~Four~~California ~~Corners. The~~legislation ~~rule~~may ~~includes~~prohibit ~~two~~it ~~compliance~~from ~~alternatives. The~~making ~~first~~ emission control ~~strategy~~expenditures ~~finalized by the EPA would require the installation of post-combustion controls on each of Units 1-5~~ at Four Corners ~~to reduce NOx emissions~~. ~~Under~~APS ~~the~~and ~~alternative~~SCE ~~emission~~entered ~~control~~into ~~strategy~~an ~~finalized~~asset bypurchase ~~the EPA~~agreement, ~~the~~providing ~~owners~~for ~~of Four Corners would have~~ the ~~option~~purchase ~~to close permanently Units 1-3~~ by ~~January~~APS 1,of ~~2014~~SCE's ~~and~~48% ~~install~~interest ~~post-combustion~~in ~~NOx controls on~~ each of Units 4 and 5 byof ~~July~~Four ~~31, 2018~~Corners. ~~For~~The ~~particulate~~principal ~~matter~~remaining ~~emissions,~~condition ~~EPA~~to closing is ~~requiring~~the ~~Units~~negotiation 4 and 5execution ~~to meet an emission limit~~ of ~~0.015~~a ~~lb/Decatherm~~new ~~and~~coal ~~the~~supply ~~plant~~contract tofor ~~meet~~Four aCorners ~~20%~~on ~~opacity~~terms ~~limit,~~reasonably ~~both~~acceptable ofto ~~which~~APS. See ~~are~~Coal ~~achievable~~Supply ~~through operation of the existing baghouses~~below. ~~Although~~APS ~~unrelated~~has toannounced ~~BART~~that, ~~the~~if ~~final~~APS's ~~BART~~purchase ~~rule~~of ~~also~~SCE's ~~imposes~~interests ain ~~20%~~Units ~~opacity~~4 ~~limitation~~and on5 ~~certain~~at ~~fugitive dust emissions from~~ Four Corners' ~~coal~~is ~~and~~consummated, ~~material~~it ~~handling~~will ~~operations. The~~shutdown ~~Four~~Units ~~Corners participants have until July~~ 1, ~~2013~~2, toand ~~notify~~3 at the ~~EPA of which emission control strategy Four Corners will follow~~plant.

~~APS continues to work with EPA to resolve these issues. The~~ Four Corners ~~participants' obligations to comply with EPA's final~~ BART ~~determinations,~~FIP ~~coupled~~Challenge with the financial impact of possible future climate change regulation or legislation, other environmental regulations, and other business considerations, could jeopardize the economic viability of Four Corners or the ability of individual participants to continue their participation in Four Corners.

~~PNM~~On isOctober ~~continuing~~22, 2012, WEG filed a petition for review in the Ninth Circuit challenging the Four Corners BART FIP. In its petition, WEG alleges that the final BART rule results in more air pollution being emitted into the air than allowed by law and that EPA failed to ~~evaluate~~follow the ~~impacts~~requirements of ~~EPA's~~the ~~BART~~ESA. APS ~~determination~~intervened in this matter and filed a motion to dismiss this lawsuit for ~~Four~~lack ~~Corners~~of jurisdiction or alternatively to transfer the lawsuit to the Tenth Circuit. ~~PNM~~On isFebruary ~~unable~~25, 2013, the Ninth Circuit denied APS' motion to ~~predict~~dismiss, but granted the ~~ultimate~~request to transfer the case to the Tenth Circuit. PNM cannot currently predict the outcome of this matter or the range of its potential impact.

~~SJGS~~Regional ~~Operating~~Haze ~~Permit~~Challenges ~~Challenge~~

On ~~February~~December 1627, 2012, ~~EPA~~WEG ~~issued~~filed ~~its response to~~ a ~~WildEarth Guardians~~ petition ~~objecting~~for toreview ~~SJGS's~~in ~~operating~~the ~~permit~~Tenth ~~granted~~Circuit bychallenging the ~~NMED~~SO2 inand ~~January~~particulate ~~2011. In~~matter ~~its~~emissions ~~order,~~elements of EPA's ~~required~~approval ~~NMED to provide clarification on several~~ of ~~the~~New ~~matters~~Mexico's ~~raised~~Regional byHaze ~~WildEarth Guardians~~SIP. ~~EPA's~~ PNM ~~order~~intervened in this matter. PNM ~~does~~is ~~not~~continuing ~~constitute~~to aevaluate ~~finding that~~ the ~~plant~~impacts ~~has violated any provision~~ of ~~the~~WEG's ~~CAA~~challenge orto ~~that~~EPA's itapproval ~~has~~of ~~violated~~this ~~any emission limits~~SIP.

In August 2012, NMED issued a response to the EPA order. In the response, NMED stated that SJGS's operating permit would be reopened to make certain modifications to the permit. On September 19, 2012, NMED issued a public notice regarding proposed modifications to the SJGS operating permit. The proposed modifications include changes to the SO2 and particulate matter emission limits that were previously incorporated into the SJGS NSR permit. In addition, NMED has proposed a requirement for the submittal of a compliance plan to address carbon monoxide emissions increases at SJGS Unit 2 raised by WildEarth

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

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~~Guardians~~On February 26, 2013, HEAL Utah and other environmental groups filed petitions in ~~its~~the ~~protest~~Tenth Circuit challenging EPA's final approval of the ~~permit~~remaining ~~issuance. PNM~~elements ~~will~~of ~~comply~~New ~~with NMED~~Mexico's ~~proposal~~Regional ~~and~~Haze ~~does~~SIP, ~~not~~as ~~believe~~well itas ~~will~~EPA's ~~have~~approval aof ~~material~~the ~~impact~~Albuquerque/Bernalillo County Air Quality Control Board SIP.

PNM was granted intervention in both matters. On May 3, 2013, the Tenth Circuit ordered the parties to file consolidated briefing in the WEG and HEAL Utah matters due to the similarity of the WEG and HEAL Utah petitions. PNM is unable to predict the ultimate outcome of these matters.

SJGS Operating Permit Challenge

On February 16, 2012, EPA issued its response to a WEG petition objecting to SJGS's operating permit granted by the NMED in January 2011. In its order, EPA required NMED to provide clarification on several of the matters raised by WEG. EPA's order in this matter does not constitute a finding that the plant has violated any provision of the CAA or that it has violated any emission limits.

In August 2012, NMED issued a response to the EPA order stating that SJGS's operating permit would be reopened to make certain modifications to the permit. NMED issued a public notice regarding proposed modifications to the SJGS operating permit on September 19, 2012 and issued a revised operating permit on November 26, 2012. The revised permit includes changes to the SO₂ and particulate matter emission limits that were previously incorporated into the SJGS NSR permit. In addition, the revised permit requires PNM to submit a compliance plan to address carbon monoxide (“CO”) emissions increases at SJGS Unit 2. The compliance plan must be submitted in May 2013 and requires that SJGS submit either a PSD permit application including BACT analysis for CO emissions from Unit 2 or a PSD avoidance permit application that limits net CO emissions increases below the CO PSD threshold of 100 tons per year. PNM is preparing a compliance plan, but does not believe it will have a material impact.

National Ambient Air Quality Standards (“NAAQS”)

The CAA requires EPA to set NAAQS for pollutants considered harmful to public health and the environment. EPA has set NAAQS for certain pollutants, including NOx, SO2, ozone, and particulate matter. In 2010, EPA updated the primary NOx and SO2 NAAQS to include a 1-hour maximum standard while retaining the annual standards for NOx and SO2 and the 24-hour SO2 standard. New Mexico is in attainment for the 1-hour NOx NAAQS. EPA has issued draft guidance on how to determine whether areas in a state comply with the new 1-hour SO2 NAAQS~~. EPA~~ ~~conducted~~and ~~a stakeholder process, which concluded in June 2012, to discuss how to assess compliance with this standard. EPA~~ announced that it will publish further guidance or initiate rulemaking on these matters ~~after completion of that process~~. Although the determination process ~~of determining compliance with the 1-hour SO2 NAAQS~~ has not been finalized, PNM believes that compliance with the 1-hour SO2 standard may require operational changes and/or equipment modifications at SJGS. On April 6, 2012, PNM filed an application for an amendment to its air permit for SJGS, which would be required for the installation of either SCRs or SNCRs described above. In addition, this application included a proposal by PNM to install equipment modifications for the purpose of reducing fugitive emissions, including NOx, SO2, and particulate matter. These modifications would help SJGS meet the NAAQS. It is anticipated that this technology would be installed at the same time as the installation of regional haze BART controls, in order to most efficiently and cost effectively conduct construction activities at SJGS. The cost of this technology is dependent upon the type of control technology that is ultimately determined to be NOx BART at SJGS. See “Regional Haze - SJGS” above.

~~On June 14, 2012,~~ EPA ~~proposed~~finalized revisions to ~~lower~~its ~~the~~NAAQS ~~standard~~ for fine particulate matter~~. The~~ ~~proposed rule was published in the Federal Register~~ on ~~June 29, 2012. EPA took comments for nine weeks. PNM provided comments through its trade associations. A final rule is expected by~~ December 14, 2012. PNM is currently evaluating the impact of the ~~proposed~~revised standard on SJGS and its operations.

In January 2010, EPA announced it would strengthen the 8-hour ozone standard by setting a new standard in a range of 0.060-0.070 parts per million. ~~EPA~~Work had intended to establish the new standard by July 31, 2011. However, in September 2011, President Obama requested that the EPA administrator withdraw the agency's proposed rule that would have replaced the existing ozone NAAQS. In his release, the President stated that work is ~~already~~ underway to reconsider the ozone standard, with proposed revisions expected in the fall of 2013 and a final standard published by the end of 2014. Depending upon where the standard for ozone is set, San Juan County, where SJGS is situated, could be designated as not attaining the standard for ozone. If that were to occur, NMED would have responsibility for bringing the county into compliance and would look at all sources of NOx and volatile organic compounds since these are the pollutants that form ground-level ozone. As a result, SJGS could be required to install further NOx controls to meet a new ozone NAAQS. In addition, other counties in New Mexico, including Bernalillo County, may be designated as non-attainment. PNM cannot predict the outcome of this matter, the impact of other potential environmental mitigations, or if additional NOx controls would be required as a result of ozone non-attainment designation.

Citizen Suit Under the Clean Air Act

The operations of the SJGS are covered by a Consent Decree with the Grand Canyon Trust and Sierra Club and with the NMED that includes stipulated penalties for non-compliance with specified emissions limits. Stipulated penalty amounts are placed in escrow on a quarterly basis pending review of SJGS's emissions performance. Over the past several years, PNM has also submitted reports addressing mercury and NOx emission controls for SJGS as required by the Consent Decree. Plaintiffs and NMED rejected PNM's reports. PNM disputes the validity of the rejection of the reports. In May 2011, PNM entered into an agreement with NMED and the plaintiffs to resolve the dispute over the applicable NOx emission limits under the Consent Decree. Under the agreement, so long as the NOx emissions limits imposed under the EPA FIP and the New Mexico SIP meet a specified emissions limit, and PNM does not challenge these limits, the parties' dispute is deemed settled.

In May 2010, PNM filed a petition with the federal district court seeking a judicial determination on the dispute relating to PNM's mercury controls. NMED and plaintiffs seek to require PNM to implement additional mercury controls. PNM estimates the implementation would increase annual mercury control costs for the entire station, which are currently $0.6 million, to a total of $6.0 million. The court appointed a special master to evaluate the technical arguments in the case. The special master was asked to address the detection and determination limits of the mercury monitors at SJGS and the appropriate brominated activated

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~~carbon~~Citizen ~~injection~~Suit ~~rate~~Under ~~that maximizes~~ the ~~reduction~~Clean ofAir ~~mercury~~Act emissions from SJGS. The special master issued a report indicating he was unable to make a determination on either of these issues based on the materials provided to him under the court's order. In September 2012, PNM submitted objections to certain portions of the special master report and requested an evidentiary hearing. Also in September 2012, NMED and plaintiffs filed a motion asking the court to affirm certain findings in the special master report and order PNM to conduct additional mercury testing. PNM cannot predict the outcome of this matter.

The operations of SJGS are covered by a Consent Decree with the Grand Canyon Trust and Sierra Club and with the NMED that includes stipulated penalties for non-compliance with specified emissions limits. Stipulated penalty amounts are placed in escrow on a quarterly basis pending review of SJGS's emissions performance. In May 2011, PNM entered into an agreement with NMED and the plaintiffs to resolve a dispute over the applicable NOx emission limits under the Consent Decree. Under the agreement, so long as the NOx emissions limits imposed under the EPA FIP and the New Mexico SIP meet a specified emissions limit, and PNM does not challenge these limits, the parties' dispute is deemed settled.

In May 2010, PNM filed a petition with the federal district court seeking a judicial determination on a dispute relating to PNM's mercury controls. NMED and plaintiffs seek to require PNM to implement additional mercury controls. PNM estimates the implementation would increase annual mercury control costs for the entire station, which are currently $0.6 million, to a total of $6.1 million. The court appointed a special master to evaluate the technical arguments in the case and to address the detection and determination limits of the mercury monitors at SJGS and the appropriate brominated activated carbon injection rate that maximizes the reduction of mercury emissions from SJGS. The special master issued a report indicating he was unable to make a determination on either of these issues. In September 2012, PNM submitted objections to certain portions of the special master report and requested an evidentiary hearing. Also in September 2012, NMED and plaintiffs filed a motion asking the court to affirm certain findings in the special master report and order PNM to conduct additional mercury testing. PNM cannot predict the outcome of this matter.

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 purport to give the Navajo Nation Environmental Protection Agency 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 challenging the applicability of the Navajo Acts to Four Corners. ~~The~~In ~~District~~May ~~Court~~2005, ~~stayed~~APS ~~these~~and ~~proceedings~~the ~~pursuant~~Navajo Nation signed an agreement resolving the dispute regarding the Navajo Nation's authority to adopt operating permit regulations under the Navajo Nation Air Pollution Prevention and Control Act. As a ~~request~~result byof this agreement, APS sought, and the ~~parties~~courts granted, dismissal of the pending litigation in the Navajo Nation Supreme Court and the ~~parties~~Navajo ~~are~~Nation ~~seeking~~District Court, to ~~negotiate~~the aextent ~~settlement~~the claims relate to the CAA. 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 or the range of their potential impacts.

In May 2005, APS and the Navajo Nation signed an agreement resolving the dispute regarding the Navajo Nation's authority to adopt operating permit regulations under the Navajo Nation Air Pollution Prevention and Control Act. As a result of this agreement, APS sought, and the courts granted, dismissal of the pending litigation in the Navajo Nation Supreme Court and the Navajo Nation District Court, to the extent the claims relate to the CAA. 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 or the range of their potential impacts.

Section 114 Request

In April 2009, APS received a request from EPA under Section 114 of the CAA seeking detailed information regarding projects at and operations of Four Corners. EPA has taken the position that many utilities have made physical or operational changes at their plants that should have triggered additional regulatory requirements under the NSR provisions of the CAA. ~~Other electric utilities have received and responded to similar Section 114 requests, and several of them have been subject to notices of violation and lawsuits by EPA.~~ APS has responded to EPA's request. PNM is currently unable to predict the timing or content of EPA's response, if any, or any resulting actions.

Four Corners ~~New~~Clean ~~Source~~Air ~~Review~~Act Lawsuit

~~Following~~In ~~two~~October ~~NOIs~~2011, ~~to sue~~Earthjustice, ~~EarthJustice~~on behalf of several environmental organizations, filed a lawsuit in ~~October 2011 in~~ the ~~U.S.~~United States District Court for the District of New Mexico against APS and the other Four Corners participants, ~~except PNM,~~ alleging violations of the ~~PSD~~NSR provisions of the CAA and NSPS violations. ~~EarthJustice~~The ~~filed~~plaintiffs ~~suit~~seek ~~against~~to ~~PNMR,~~have ~~which~~the iscourt ~~not~~enjoin aoperations at Four Corners ~~participant. In~~until ~~January~~APS ~~2012,~~applies ~~following~~for aand ~~third~~obtains ~~NOI~~any torequired ~~sue,~~NSR ~~EarthJustice~~permits ~~filed~~and ~~its~~complies ~~First~~with ~~Amended~~the ~~Complaint,~~NSPS. The ~~naming~~plaintiffs ~~PNM~~further asrequest athe ~~party~~court ~~instead of PNMR. In addition~~ to order the ~~allegations~~payment of ~~its~~civil ~~original complaint~~penalties, ~~EarthJustice~~including ~~alleged~~a ~~NSPS~~beneficial ~~violations~~mitigation project. ~~PNM~~The ~~was~~case ~~served~~is ~~with~~being ~~the~~held ~~amended complaint~~ in ~~January~~abeyance ~~2012. Among~~while ~~other things,~~ the ~~plaintiffs~~parties seek to ~~have~~negotiate ~~the~~a ~~court~~settlement. On ~~enjoin~~March 30, ~~operations~~2013, atupon ~~Four~~joint ~~Corners~~motion ~~until~~of itthe ~~obtains~~parties, ~~any~~the ~~required~~court ~~PSD~~issued ~~permits~~an ~~and~~order ~~complies~~deeming ~~with~~ the ~~NSPS. The~~motions ~~plaintiffs~~to ~~further~~dismiss ~~request~~withdrawn ~~the~~without ~~Court~~prejudice toduring ~~order~~pendency ~~the payment~~ of ~~civil~~the ~~penalties,~~stay. At ~~including~~such atime ~~beneficial~~as ~~mitigation~~the ~~project.~~stay Inis ~~April 2012~~lifted, the Four Corners participants, ~~including~~may ~~PNM,~~reinstate ~~filed~~their motions to dismiss ~~the~~without ~~complaint. The~~risk ~~Court~~of ~~has not ruled on the pending motions~~default. PNM cannot currently predict the outcome of this matter or the range of its potential impact.

Endangered Species Act

In January 2011, the Center for Biological Diversity, Diné Citizens Against Ruining Our Environment, and San Juan Citizens Alliance filed a lawsuit in the U.S. District Court for the District of Colorado against the OSM and the DOI, alleging that OSM failed to engage in mandatory Endangered Species Act (“ESA”) consultation with the U.S. Fish and Wildlife Service ("FWS") prior to authorizing the renewal of an operating permit for the mine that serves Four Corners. The lawsuit alleges that activities at the mine, including mining and the disposal of coal combustion residue, will adversely affect several endangered species and their critical habitats. The lawsuit requested the court to vacate and remand the mining permit and enjoin all activities carried out under the permit until OSM has complied with the ESA. Neither PNM nor APS was a party to the lawsuit. On March 14, 2012, the Court entered an order dismissing the plaintiffs' lawsuit without prejudice. On May 14, 2012, the plaintiffs appealed the Court's order to the Tenth Circuit.

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OnEndangered ~~March~~Species ~~19,~~Act 2012, Diné Citizens Against Ruining Our Environment, Black Mesa Water Coalition, Toh Nizhoni Ani, San Juan Citizens Alliance, and Center for Biological Diversity sent EPA a NOI threatening to file a lawsuit in federal district court on or after May 18, 2012 if EPA fails to take certain actions allegedly required under the ESA. These environmental groups allege that EPA has failed to meet its duties under the ESA to ensure that operations at Four Corners do not jeopardize the continued existence of endangered or threatened species or their critical habitat as required under the ESA. The environmental groups also allege that the EPA has violated the ESA by failing to carry out its programs for the conservation of listed species. APS is currently evaluating the NOI to determine its potential impact on Four Corners and will continue to monitor any developments. PNM cannot predict the outcome of this matter.

In January 2011, the Center for Biological Diversity, Diné Citizens Against Ruining Our Environment, and San Juan Citizens Alliance filed a lawsuit in the United States District Court for the District of Colorado against the OSM and the DOI, alleging that OSM failed to engage in mandatory ESA consultation with the United States Fish and Wildlife Service prior to authorizing the renewal of an operating permit for the mine that serves Four Corners. The lawsuit alleges that activities at the mine, including mining and the disposal of coal combustion residue, will adversely affect several endangered species and their critical habitats. The lawsuit requested the court to vacate and remand the mining permit and enjoin all activities carried out under the permit until OSM has complied with the ESA. Neither PNM nor APS was a party to the lawsuit. On March 14, 2012, the Court entered an order dismissing the plaintiffs' lawsuit without prejudice. On May 14, 2012, the plaintiffs appealed the Court's order to the Tenth Circuit. PNM cannot currently predict the outcome of this matter or the range of its potential impact.

Cooling Water Intake Structures

EPA issued its proposed cooling water intake structures rule in April 2011, which would provide national standards for certain cooling water intake structures at existing power plants and other facilities under the Clean Water Act~~. The~~ ~~proposed standards are intended~~ to protect fish and other aquatic organisms by minimizing impingement mortality (the capture of aquatic wildlife on intake structures or against screens) and entrainment mortality (the capture of fish or shellfish in water flow entering and passing through intake structures). The proposed rule would require facilities such as Four Corners and SJGS to either demonstrate that impingement mortality at its cooling water intakes does not exceed a specified rate or reduce the flow at those structures to less than a specified velocity and to take certain protective measures with respect to impinged fish. ToThe ~~minimize entrainment mortality, the~~ proposed rule would also require these facilities to either meet the definition of a closed cycle recirculating cooling system or conduct a “structured site-specific analysis” to determine what site-specific controls, if any, should be required.

The proposed rule would require existing facilities to comply with the impingement mortality requirements as soon as possible, but no later than eight years after the effective date of the rule, and to comply with the entrainment requirements as soon as possible under a schedule of compliance established by the permitting authority. EPA is required to issue a final rule by June 27, 2013. PNM and APS continue to follow the rulemaking and are performing analyses to determine the potential costs of compliance with the proposed rule. PNM is unable to predict the outcome of this matter or a range of the potential costs of compliance.

Effluent Limitation Guidelines

On April 19, 2013, EPA proposed revised effluent limitation guidelines establishing technology-based wastewater discharge limitations for steam electric power plants. EPA's proposal offers numerous options that target metals and other pollutants in wastewater streams originating from fly ash and bottom ash handling activities, scrubber activities, and non-chemical metal cleaning wastes operations. EPA is subject to a consent decree deadline to finalize the revised guidelines by May 22, 2014. PNM is in the process of reviewing the pre-publication version of the rule to assess the impact to SJGS and Reeves Station, the only PNM-operated power plants that would be covered by the proposed rule. APS is currently assessing the impact to Four Corners. PNM is unable to predict the outcome of this matter or if it will have a material impact on PNM's financial position, results of operations, or cash flows.

Santa Fe Generating Station

PNM and the NMED are parties to agreements under which PNM installed a remediation system to treat water from a City of Santa Fe municipal supply well, an extraction well, and monitoring wells to address gasoline contamination in the groundwater at the site of the former Santa Fe Generating Station and service center. PNM believes the observed groundwater contamination originated from off-site sources, but agreed to operate the remediation facilities until the groundwater meets applicable federal and state standards or until the NMED determines that additional remediation is not required, whichever is earlier. The municipal 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 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. PNM is unable to predict the outcome of this matter.~~

Coal Combustion Byproducts Waste Disposal

Regulation

CCBs consisting of fly ash, bottom ash, and gypsum from SJGS are currently disposed of in the surface mine pits adjacent to the plant. SJGS does not operate any CCB impoundments. The Mining and Minerals Division of the New Mexico Energy, Minerals and Natural Resources Department currently regulates mine placement of ash with federal oversight by the OSM. APS disposes of CCBs in ash ponds and dry storage areas at Four Corners and also sells a portion of its fly ash for beneficial uses, such as a constituent in concrete production. Ash management at Four Corners is regulated by EPA and the New Mexico State Engineer's Office.

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Innot ~~June~~be ~~2010,~~the ~~EPA~~former ~~published~~Santa aFe ~~proposed~~Generating ~~rule~~Station. The ~~that~~NMED ~~includes~~investigation ~~two~~is ~~options for waste designation of coal ash~~ongoing. ~~One~~In ~~option~~January ~~is to regulate CCBs as a hazardous waste~~2013, ~~which~~NMED ~~would~~notified ~~allow~~PNM ~~EPA~~that tomonitoring ~~create~~results afrom ~~comprehensive~~April ~~federal~~2012 ~~program~~showed ~~for~~elevated ~~waste~~concentrations ~~management and disposal~~ of ~~CCBs. The~~nitrate ~~other~~in ~~option~~three ismonitoring towells ~~regulate~~and ~~CCBs~~an asincrease ain ~~non~~free-~~hazardous~~phase ~~waste,~~hydrocarbons ~~which~~in ~~would~~another ~~provide~~well. None ~~EPA~~of ~~with~~these ~~the~~wells ~~authority~~are toroutinely ~~develop~~monitored ~~performance~~as ~~standards~~part ~~for~~of ~~waste~~PNM's ~~management~~obligations ~~facilities~~under ~~handling~~ the ~~CCBs~~settlement ~~and would be enforced primarily by state authorities or through citizen suits~~agreement. ~~Both~~PNM ~~options~~is ~~allow~~unable ~~for~~to ~~continued~~predict ~~use~~the outcome of ~~CCBs~~this inmatter, ~~beneficial~~but ~~applications. EPA's proposal~~ does not ~~address~~believe the ~~placement~~former ofgenerating ~~CCBs~~station ~~in surface mine pits for reclamation. A final rule regarding waste designation for coal ash~~ is ~~not expected from EPA before~~ the ~~end~~source of ~~2012. An~~the ~~OSM~~nitrates ~~CCB~~or ~~rulemaking~~the ~~team~~increased ~~has~~levels ~~been~~of ~~formed~~free-phase ~~to develop a proposed rule~~hydrocarbons.

OnCoal ~~April~~Combustion 5,Byproducts ~~2012,~~Waste ~~several~~Disposal environmental groups, including Sierra Club, filed a citizen suit in the D.C. Circuit claiming that EPA has failed to review and revise RCRA's regulations with respect to CCBs. The groups allege that EPA has already determined that revisions to the CCBs regulations are necessary. They also claim that EPA now has a non-discretionary duty to revise the regulations. The environmental groups asked the court to direct EPA to complete its review of the regulation of CCBs and a hazardous waste analytical procedure and to issue necessary revisions of such regulations as soon as possible. PNM and industry groups are evaluating the potential implications of the suit on EPA's rulemaking agenda for CCBs.

In June 2010, EPA published a proposed rule that includes two options for waste designation of coal ash. One option is to regulate CCBs as a hazardous waste, which would allow EPA to create a comprehensive federal program for waste management and disposal of CCBs. The other option is to regulate CCBs as a non-hazardous waste, which would provide EPA with the authority to develop performance standards for waste management facilities handling the CCBs and would be enforced primarily by state authorities or through citizen suits. Both options allow for continued use of CCBs in beneficial applications. EPA's proposal does not address the placement of CCBs in surface mine pits for reclamation. An OSM CCB rulemaking team has been formed to develop a proposed rule.

On April 5, 2012, several environmental groups, including Sierra Club, filed a citizen suit in the D.C. Circuit claiming that EPA has failed to review and revise RCRA's regulations with respect to CCBs. The groups allege that EPA has already determined that revisions to the CCBs regulations are necessary. They also claim that EPA now has a non-discretionary duty to revise the regulations. The environmental groups asked the court to direct EPA to complete its review of the regulation of CCBs and a hazardous waste analytical procedure and to issue necessary revisions of such regulations as soon as possible. Two industry group members subsequently filed separate lawsuits in the D.C. Circuit seeking to ensure that disposal of coal ash would not be regulated as a hazardous waste. The environmental and industry lawsuits have been consolidated.

PNM advocates for the non-hazardous regulation of CCBs. However, if CCBs are ultimately regulated as a hazardous waste, costs could increase significantly. PNM would seek recovery from its ratepayers of all costs that are ultimately incurred. PNM cannot predict the outcome of EPA's or OSM's proposed rulemaking regarding CCB regulation, including mine placement of CCBs, or whether these actions will have a material impact on its operations, financial position, or cash flows.

Sierra Club Allegations

In December 2009, PNM and PNMR received a NOI to sue under RCRA from the Sierra Club (“RCRA Notice”). The RCRA Notice was also sent to all SJGS owners, to SJCC, which operates the San Juan Mine that supplies coal to SJGS, and to BHP. Additionally, PNM was informed that SJCC and BHP received a separate NOI to sue under the Surface Mine Control and Reclamation Act ("SMCRA") from the Sierra Club. In April 2010, the Sierra Club filed suit in the U.S. District Court for the District of New Mexico against PNM and PNMR. Also named in the lawsuit were SJCC and BHP. In the complaint, as amended, Sierra Club alleged that activities at SJGS and the San Juan Mine were causing imminent and substantial harm to the environment, including ground and surface water in the region, and that placement of CCBs at the San Juan Mine constituted "open dumping" in violation of RCRA. The suit also includes claims against SJCC and BHP under SMCRA. The complaint requested judgment for injunctive relief, payment of civil penalties, and an award of plaintiffs' attorney's fees and costs.

On March 28, 2012, the parties filed an executed consent decree with the court, which was approved by the court on April 12, 2012, settling the litigation. Under the terms of the consent decree, the SJGS owners and SJCC will construct and operate a slurry wall and recovery trench, fund other environmental projects, and pay Sierra Club's attorneys' and experts' fees. The total estimated cost of the settlement is $10.2 million, of which about $4.5 million is PNM's share. Substantially all of the income statement impact related to this settlement was recorded in 2011. The consent decree also includes a release of claims and covenant not to sue by Sierra Club. PNM is complying with the requirements of the consent decree.

Hazardous Air Pollutants (“HAPs”) Rulemaking

In December 2011, the EPA issued its final Mercury and Air Toxics Standards (“MATS”)~~. MATS~~ ~~is designed~~ to reduce emissions of heavy metals, including mercury, arsenic, chromium, and nickel, as well as acid gases, including hydrochloric and hydrofluoric gases, from coal and oil-fired electric generating units with a capacity of at least 25 MW. Existing facilities will generally have up to four years to demonstrate compliance with the new rule. PNM's assessment of MATS indicates that the control equipment currently used at SJGS allows the plant to meet the emission standards set forth in the rule although the plant may be required to install additional monitoring equipment. With regard to mercury, stack testing performed for EPA during the MATS rulemaking process showed that SJGS achieved a mercury removal rate of 99% or greater. APS will conduct testing to determine what additional controls, if any, will be required at Four Corners. If additional controls are required, the costs are not expected to be material.

Other Commitments and Contingencies

Coal Supply

The coal requirements for SJGS are being supplied by SJCC, a wholly owned subsidiary of BHP. In addition to coal delivered to meet the current needs of SJGS, PNM prepays SJCC for certain coal mined but not yet delivered to the plant site. At March 31, 2013 and December 31, 2012, prepayments for coal, which are included in other current assets, amounted to $14.1

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

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(Unaudited)

million ~~Other~~and ~~Commitments~~$9.9 million. These amounts reflect delivery of a portion of the prepaid coal and ~~Contingencies~~its utilization due to the mine fire incident described below. SJCC holds certain federal, state, and private coal leases and has an underground coal sales agreement to supply processed coal for operation of SJGS through 2017. Under the coal sales agreement, SJCC is reimbursed for all costs for mining and delivering the coal, including an allocated portion of administrative costs, and receives a return on its investment. BHP Minerals International, Inc. has guaranteed the obligations of SJCC under the coal agreement. The coal agreement contemplates the delivery of coal that would supply substantially all the requirements of SJGS through December 31, 2017.

~~Coal~~APS ~~Supply~~purchases all of Four Corners' coal requirements from a supplier that is also a subsidiary of BHP and has a long-term lease of coal reserves with the Navajo Nation. The Four Corners coal contract runs through July 6, 2016 with pricing determined using an escalating base-price. In December 2012, BHP announced that it has entered into a Memorandum of Understanding with the Navajo Nation setting out the key terms under which the coal mine would be sold to the Navajo Nation. The BHP subsidiary would be retained as the mine manager and operator until July 2016. Key terms of the new coal supply contract are being finalized by the Navajo Nation and the Four Corners owners. As a result of this proposed change in ownership, APS now expects that a new coal supply contract would be executed upon completion of negotiations and following the endorsement of the transfer of ownership to a new Navajo Nation commercial enterprise to be established by the Navajo Nation Tribal Council. On April 29, 2013, the Navajo Nation Tribal Council approved the creation of the new commercial enterprise with sufficient power and authority to execute the transaction with BHP. PNM is unable to predict the outcome of this matter.

~~The~~In ~~coal requirements for SJGS are being supplied by SJCC~~2010, aPNM ~~wholly~~updated ~~owned~~its ~~subsidiary~~study of ~~BHP. In~~the ~~addition~~final toreclamation ~~coal~~costs ~~delivered~~for toboth ~~meet~~ the ~~current~~surface ~~needs~~mines ofthat ~~SJGS,~~previously ~~PNM~~provided ~~prepays SJCC for certain~~ coal ~~mined but not yet delivered~~ to ~~the~~SJGS ~~plant site. At September 30, 2012~~ and ~~December~~the ~~31,~~current ~~2011,~~underground ~~prepayments~~mine ~~for~~providing coal, ~~which~~and ~~are~~revised ~~included~~its inestimates ~~other~~of ~~current~~the ~~assets,~~final ~~amounted~~reclamation ~~to $10~~costs.~~7 million and $14.6 million.~~ ~~These~~The ~~amounts~~estimate ~~reflect~~for ~~delivery~~decommissioning ~~of a portion of~~ the ~~prepaid~~Four ~~coal~~Corners ~~and its utilization due to the~~ mine ~~fire~~was ~~incident~~also ~~described~~revised ~~below~~in 2010. ~~SJCC~~Based ~~holds~~on ~~certain~~the ~~federal,~~most ~~state~~recent estimates, ~~and~~remaining ~~private~~payments ~~coal~~for ~~leases~~mine ~~and~~reclamation, ~~has~~in anfuture ~~underground~~dollars, ~~coal~~are ~~sales~~estimated ~~agreement~~ to ~~supply~~be ~~processed~~$59.9 ~~coal~~million for ~~operation~~the ofsurface ~~SJGS~~mines ~~through~~at ~~2017. Under~~both ~~the~~SJGS ~~coal~~and ~~sales~~Four ~~agreement,~~Corners ~~SJCC~~and is$19.7 ~~reimbursed~~million for ~~all costs for mining and delivering~~ the ~~coal,~~underground ~~including~~mine anat ~~allocated~~SJGS ~~portion~~as of ~~administrative~~March ~~costs~~31, ~~and~~2013. At ~~receives~~March a31, ~~return~~2013 onand ~~its~~December ~~investment. BHP~~31, ~~Minerals~~2012, ~~International~~liabilities, ~~Inc.~~in ~~has~~current ~~guaranteed~~dollars, ~~the obligations~~ of ~~SJCC~~$25.9 ~~under~~million ~~the~~and ~~coal agreement~~$26. ~~The~~8 ~~coal~~million ~~agreement~~for ~~contemplates~~surface ~~the~~mine ~~delivery~~reclamation ofand ~~coal~~$4.3 ~~that~~million ~~would~~and ~~supply~~$4.2 ~~substantially~~million ~~all~~for ~~the~~underground ~~requirements~~mine ofreclamation ~~the~~were ~~SJGS~~recorded ~~through~~in ~~December~~other ~~31,~~deferred ~~2017~~credits.

APS purchases all of Four Corners' coal requirements from a supplier with a long-term lease of coal reserves with the Navajo Nation. The Four Corners coal contract runs through July 6, 2016 with pricing determined using an escalating base-price. Negotiations concerning the coal supply contract are continuing.

In 2010, PNM updated its study of the final reclamation costs for both the surface mines that previously provided coal to SJGS and the current underground mine providing coal and revised its estimates of the final reclamation costs. The estimate for decommissioning the Four Corners mine was also revised in 2010. Based on the most recent estimates, remaining payments for mine reclamation, in future dollars, are estimated to be $49.8 million for the surface mines at both SJGS and Four Corners and $21.5 million for the underground mine at SJGS as of September 30, 2012. At September 30, 2012 and December 31, 2011, liabilities, in current dollars, of $23.5 million and $26.5 million for surface mine reclamation and $4.4 million and $4.2 million for underground mine reclamation were recorded in other deferred credits. On June 1, 2012, the SJGS owners entered into a trust funds agreement to provide funding to compensate SJCC for post-term reclamation obligations under the coal sales agreement. The trust funds agreement requires each owner to enter into an individual trust agreement with a financial institution as trustee, create an irrevocable trust, and deposit initial funding into the trust by August 30, 2012. Thereafter, deposits, which are based on funding curves, must be made on an annual basis. PNM made its initial funding requirement of $2.6 million in August 2012 and estimates funding an additional $0.8 million by December 31, 2012.

PNM collects a provision for surface and underground mine reclamation costs in its rates. The NMPRC has capped the amount that can be collected from ratepayers for final reclamation of the surface mines at $100.0 million. Previously, PNM recorded a regulatory asset for the $100.0 million and recovers the amortization of this regulatory asset in rates. If future estimates increase the liability for surface mine reclamation, the excess would be expensed at that time.

San Juan Underground Mine Fire Incident

On September 9, 2011, a fire was discovered at the underground mine owned and operated by SJCC that provides coal for SJGS. The federal Mine Safety and Health Administration (“MSHA”) was notified of the incident. On September 12, 2011, SJCC informed PNM that the fire was extinguished. However, MSHA required sealing the incident area and confirmation of a noncombustible environment before allowing re-entry of the sealed area. SJCC regained entry into the sealed area of the mine in early March 2012. At that time, MSHA conducted a root cause analysis inspection of the incident area, but has not yet issued its report. SJCC has completed inspection of the mine equipment and reported no significant damage. SJCC removed the equipment from the impacted mine panel and reassembed it at a new panel face. On May 4, 2012, SJCC received approval from MSHA and resumed longwall mining operations. ~~However,~~If if further difficulties occur in the longwall mining operation, PNM and the other owners of SJGS would need to consider alternatives for operating SJGS, including running at less than full capacity or shutting down one or more units, the impacts of which cannot be determined at the current time.

The costs of the mine recovery ~~flow~~flowed through the cost-reimbursable component of the coal supply agreement. PNM anticipates that it will recover through its FPPAC the portion of such costs ~~attributable~~allocable to its customers subject to New Mexico regulation. ~~The~~PNM's ~~staff~~filings ofwith the NMPRC ~~has~~reflect ~~requested~~an estimate that ~~PNM~~this ~~provide~~incident ~~information~~increased ~~segregating~~coal costs and the ~~impacts~~deferral of ~~this~~cost ~~incident~~recovery onunder the FPPAC by $21.6 million. SJCC has submitted an insurance claim regarding the costs it incurred due to the mine fire. Any recovery obtained by SJCC through its insurance carrier may be reimbursable (in whole or in part) to PNM through the coal sales agreement. Any insurance recovery would be flowed through PNM's ~~filings~~FPPAC ~~with~~to the ~~NMPRC~~extent ~~reflect~~it arelates ~~preliminary~~to ~~estimate~~increased ~~that~~coal ~~this~~costs ~~incident~~included ~~increased~~in the ~~deferral~~FPPAC. The ~~under~~potential impacts of any insurance settlement cannot be determined at the ~~FPPAC~~current time. Based on information PNM has received from SJCC to date, PNM does not expect the mine fire to have a material effect on its financial condition, results of operations, or cash flows.

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(Unaudited)

through April 30, 2012 by $17.3 million. Based on information PNM has received from SJCC to date, PNM does not expect the mine fire to have a material effect on its financial condition, results of operations, or cash flows.

Nuclear Fuel

The PVNGS participants are continually identifying their future nuclear fuel resource needs and negotiating arrangements to fill those needs. In late August 2012, one of PVNGS's suppliers that converts uranium concentrates to uranium hexafluoride invoked the force majeure provision in its contract when it shut down its conversion plant due to regulatory compliance issues. The PVNGS participants have sufficient strategic reserves of enriched uranium such that they do not anticipate a short-term impact on nuclear fuel supplies as a result of the force majeure declaration. The PVNGS participants are evaluating alternate long-term options for securing conversion services.

PVNGS Liability and Insurance Matters

~~The~~Liability for incidents at nuclear power plants is governed by the Price-Anderson Act, which limits the liability of nuclear reactor owners to the amount of insurance available from both private sources and an industry retrospective payment plan. In accordance with the Price-Anderson Act, the PVNGS participants have insurance for public liability exposure for a nuclear incident totaling $12.6 billion per occurrence. Commercial insurance carriers provide $375 million and $12.2 billion is provided through a mandatory 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. Based on PNM's 10.2% interest in each of 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 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. These coverages are provided by Nuclear Electric Insurance Limited (“NEIL”). Effective April 1, 2013, a sublimit of $1.5 billion for non-nuclear property damage losses has been enacted to the primary policy offered by NEIL. If NEIL's losses in any policy year exceed accumulated funds, PNM is subject to retrospective assessments of $4.3 million for each retrospective assessment declared by NEIL's Board of Directors. The insurance coverages discussed in this and the previous paragraph are subject to policy conditions and exclusions.

Water Supply

Because of New Mexico's arid climate and periodic drought conditions, there is concern in New Mexico about the use of water, including that used for power generation. PNM has secured groundwater rights in connection with the existing plants at Reeves Station, Delta, ~~Valencia,~~ Afton, Luna, and Lordsburg. Water availability does not appear to be an issue for these plants at this time. However, prolonged drought, ESA activities and a Federal lawsuit by the State of Texas suing the State of New Mexico over water allocations could pose a threat of reduced water availability for these plants.

PNM, APS, and BHP have undertaken activities to secure additional water supplies for SJGS, Four Corners, and related mines to accommodate the possibility of inadequate precipitation in coming years. Since 2004, PNM has entered into agreements for voluntary sharing of the impacts of water shortages with tribes and other water users in the San Juan basin. ~~The~~This ~~current~~agreement ~~agreements~~has ~~run through December 31, 2012 and renewals have~~ been ~~negotiated,~~extended ~~but~~through ~~not fully executed~~2016. In addition, in the case of water shortage, PNM, APS, and BHP have reached agreement with the Jicarilla Apache Nation on a ~~long-term~~ supplemental contract relating to water for SJGS and Four Corners that runs through 2016. Although the Company does not believe that its operations will be materially affected by drought conditions at this time, it cannot forecast the weather or its ramifications, or how policy, regulations, and legislation may impact the Company should water shortages occur in the future.

In April 2010, APS signed an agreement on behalf of the PVNGS participants with five cities to provide cooling water essential to power production at PVNGS for ~~the next~~ forty years.

PVNGS Water Supply Litigation

In 1986, an action commenced regarding the rights of APS and the other PVNGS participants to the use of groundwater and effluent at PVNGS. 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~~

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

the Arizona Supreme Court issued a decision in 2000 affirming the lower court's criteria for resolving groundwater claims. Litigation on 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 impact on its results of operation, financial position, or cash flows.

San Juan River Adjudication

In 1975, the State of New Mexico filed an action in New Mexico District Court to adjudicate all water rights in the San Juan River Stream System~~. PNM~~, ~~was~~including ~~made a defendant in the litigation in 1976. The action is expected to adjudicate~~ water ~~rights~~ used at Four Corners and SJGS. InPNM ~~2005,~~was ~~the~~made ~~Navajo Nation and various parties announced~~ a ~~settlement~~defendant ofin the ~~Navajo~~litigation ~~Nation's~~in ~~surface water rights~~1976. In March 2009, President Obama signed legislation confirming ~~the~~a 2005 settlement with the Navajo Nation. Under the terms of the settlement agreement, the Navajo water rights would be settled and finally determined by entry by the court of two proposed adjudication decrees. The court has ordered that settlement of the Navajo Nation's claims under the settlement agreement and entry of the proposed decrees be heard in an expedited proceeding.

PNM's water rights in the San Juan Basin may be affected by the rights recognized in the settlement agreement as being owned by the Navajo Nation, (which comprise a significant portion of water available from sources on the San Juan River and in the San Juan Basin). Therefore, PNM has elected to participate in this proceeding. The Company is unable to predict the ultimate outcome of this matter or estimate the amount or range of potential loss and 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. An agreement reached with the Navajo Nation in 1985, however, provides that if Four Corners loses a portion of its rights in the adjudication, the Navajo Nation will provide, for an agreed upon cost, sufficient water from its allocation to offset the loss.

Complaint Against Southwestern Public Service Company

In September 2005, PNM filed a complaint under the Federal Power Act against SPS~~. PNM~~ ~~argued~~alleging ~~that~~ SPS ~~had~~overcharged ~~been overcharging~~ PNM for deliveries of energy through its fuel cost adjustment clause practices. PNM also intervened in a proceeding brought by other customers raising similar arguments relating to SPS' fuel cost adjustment clause practices (the “Golden Spread proceeding”). In ~~April~~ 2008, FERC issued its order in the Golden Spread proceeding~~. FERC~~ ~~affirmed~~affirming ~~the decision of an ALJ~~ that SPS violated its fuel cost adjustment clause tariffs~~. However~~, ~~FERC~~but ~~shortened~~shortening 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 or the range of possible outcomes.

~~Begay~~Navajo v.Nation ~~PNM~~Allottee etMatters al

A putative class action was filed against PNM and other utilities in February 2009 in the ~~U.S.~~United States District Court in Albuquerque. 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~~and anallege ~~allottee association, make broad, general assertions~~ that defendants, including PNM, are rights-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~~In ~~plaintiffs~~March 2010, ~~who~~the ~~have~~court ~~sued~~ordered that the ~~defendants~~entirety ~~for breach~~ of ~~fiduciary~~the ~~duty,~~plaintiffs' ~~seek~~case abe ~~constructive trust~~dismissed. ~~They~~The ~~have~~court ~~also~~did ~~included~~not agrant ~~breach~~plaintiffs ofleave ~~trust~~to ~~claim~~amend ~~against~~their ~~the~~complaint, ~~United~~finding ~~States~~that they instead must pursue and ~~its~~exhaust ~~Secretary~~their ofadministrative ~~the~~remedies ~~Interior~~before seeking redress in federal court. ~~PNM~~In ~~and~~May 2010, plaintiffs filed a Notice of Appeal with the ~~other~~Bureau ~~defendants~~of ~~filed~~Indian ~~motions~~Affairs to("BIA"), ~~dismiss~~which ~~this~~was ~~action~~denied by the BIA Regional Director. In ~~March~~May ~~2010~~2011, plaintiffs appealed the ~~court~~Regional ~~ordered~~Director's ~~that~~decision to the ~~entirety~~DOI Board of Appeals. Briefings on the ~~plaintiffs'~~merits ~~case~~of bethe ~~dismissed~~appeal are complete and a decision is pending. ~~The~~PNM ~~court~~is ~~did~~participating ~~not~~in ~~grant~~order ~~plaintiffs~~to ~~leave~~preserve toits ~~amend~~interests ~~their~~regarding ~~complaint,~~any ~~finding~~PNM-acquired ~~that~~rights-of-way ~~they~~implicated ~~instead~~in ~~must~~the ~~pursue~~appeal. PNM ~~and~~cannot ~~exhaust~~predict ~~their~~the ~~administrative~~outcome ~~remedies~~of ~~before~~the ~~seeking~~proceeding ~~redress~~or inthe ~~federal~~range ~~court~~of potential outcomes at this time.

In ~~May~~a ~~2010~~separate matter, ~~Plaintiffs~~in September 2012, forty-three landowners claiming to be Navajo allotees filed a ~~Notice~~notice of ~~Appeal~~appeal with the ~~Bureau~~BIA ofappealing ~~Indian~~a ~~Affairs~~March ~~("BIA"),~~2011 ~~which~~decision ~~was~~of ~~denied by~~ the BIA Regional Director regarding renewal of a right-of-way for a PNM transmission line. InThe ~~May 2011~~allotees, ~~plaintiffs~~many ~~appealed~~of ~~the~~whom ~~Regional~~are ~~Director's~~also ~~decision~~allottees toin the ~~DOI~~above ~~Board~~matter, ofgenerally ~~Appeals. Briefings~~allege onthat ~~the~~they ~~merits~~were not paid fair market value for the right-of-way, that they were denied the ~~appeal~~opportunity ~~are~~to ~~complete~~make a showing as to their view of fair market value, and athus ~~decision~~denied isdue ~~pending~~process. PNM is participating in this matter in order to preserve its interests regarding ~~any~~the ~~PNM~~right-~~acquired rights-~~of-way implicated in the appeal. PNM cannot predict the outcome of the proceeding or the range of potential outcomes at this time.

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Transmission Issues

Cargill Complaint

In April 2010, Cargill Power Markets, LLC (“Cargill”) filed a complaint with FERC, asserting that PNM improperly processed its transmission service queue and unfairly invalidated a transmission service request by Cargill. In July 2010, FERC issued an order establishing a schedule for hearing and settlement procedures. In its order, FERC determined that PNM had improperly invalidated a single Cargill transmission service request submitted in February 2008 and set the issue for hearing to determine an appropriate remedy. In August 2010, Cargill filed a motion for rehearing. In January 2011, PNM and Cargill filed a settlement agreement with FERC in which PNM agreed to pay Cargill $0.2 million and put Cargill's transmission service request back into the queue. The settlement also left Cargill's rehearing motion in place before FERC. One intervenor in the proceeding contested the settlement. In December 2011, FERC issued an order approving the settlement as filed but requiring a compliance filing to modify the standard of review for third parties and FERC. Pursuant to the December 2011 order, the settlement agreement has been modified to reflect the change to the standard of review and was filed with FERC in March 2012. On May 25, 2012, FERC issued an order accepting the modified settlement agreement. PNM paid the $0.2 million in July 2012. On October 9, 2012, Cargill made a filing urging FERC to rule on Cargill's outstanding motion for rehearing. FERC has not ruled on Cargill's outstanding motion for rehearing. PNM is unable to predict the final outcome of this matter at FERC.

TGP Complaint

On March 2, 2012, TGP Granada, LLC and its affiliate (collectively, “TGP”) filed a complaint at FERC against PNM and Tortoise Capital Resources Corp. (“TTO”). PNM owns 60% of the EIP and leases the other 40% from TTO. ~~TGP~~PNM's ~~filing~~lease ~~requested~~of ~~FERC to direct PNM and TTO to identify~~ the ~~party~~portion ~~that will immediately assume the obligation~~ of ~~making transmission capacity on~~ the EIP ~~available~~owned toby ~~customers~~TTO ~~for~~expires ~~use~~on ~~after the~~ April 1, 2015 ~~expiration of the EIP lease agreement~~. ~~TGP~~The ~~also~~lease ~~requested~~provides aPNM ~~declaratory~~the ~~order~~option, orwith ~~waiver~~24 ~~regarding~~months ~~certain~~advance ~~provisions~~notice, of ~~PNM's~~ ~~Open~~purchasing ~~Access~~the ~~Transmission~~leased ~~Tariff~~assets toat ~~allow~~the ~~its~~end ~~affiliate~~of ~~to change~~ the ~~point-of-receipt~~lease ~~associated~~for ~~with~~fair amarket ~~transmission~~value, ~~service~~as ~~agreement~~well ~~related~~as options to renew the ~~EIP without losing its transmission service priority~~lease.

~~PNM~~TGP's ~~lease~~filing ofrequested ~~the~~FERC ~~portion~~to ofdirect ~~the~~PNM ~~EIP~~and ~~owned by~~ TTO ~~expires~~to onidentify ~~April~~the 1,party ~~2015. The~~that ~~lease~~will ~~provides~~immediately ~~PNM~~assume the ~~options~~obligation ~~(“End-~~of~~-Lease~~ ~~Options”),~~making ~~with~~transmission 24capacity ~~months~~on ~~advance~~the ~~notice,~~EIP ofavailable ~~purchasing~~to ~~the~~customers ~~leased~~for ~~assets~~use atafter the ~~end~~April 1, 2015 expiration of the EIP lease ~~for~~agreement. TGP ~~fair~~also ~~market~~requested ~~value,~~a declaratory order or ~~purchasing~~waiver ~~the~~regarding ~~leased~~certain ~~assets~~provisions ~~prior~~of PNM's Open Access Transmission Tariff to ~~the~~allow ~~lease~~its ~~expiration~~affiliate atto change the ~~greater~~ point-of-receipt ~~fair~~associated ~~market~~with ~~value~~a ~~and~~transmission ~~stipulated~~service ~~values~~agreement ~~contained~~related into the ~~lease. The~~EIP ~~lease~~without ~~also~~losing ~~allows~~its ~~PNM~~transmission toservice ~~renew~~priority. On ~~the~~July ~~lease~~5, ~~for~~2012, aFERC ~~series~~issued ofan ~~terms~~order ~~with~~denying ~~lease~~TGP's ~~payments~~requests atfor ~~the~~declaratory ~~fair~~order ~~market~~and ~~value~~waiver. In ~~rate~~addition, ~~and~~FERC ~~provides~~directed PNM ~~the option~~, ifin ~~certain~~consultation ~~conditions~~with ~~are met~~TTO, to ~~renew~~identify the ~~lease~~party atthat ~~50%~~will ofprovide ~~the current lease payments for a maximum~~ long-term totransmission beservice ~~calculated~~over at the ~~end~~leased portion of the ~~initial lease term~~EIP.

On ~~April~~November 21, 2012, PNM ~~filed~~and ~~its~~TTO ~~response~~entered tointo ~~TGP's~~a ~~complaint.~~definitive ~~PNM argued~~agreement ~~that the~~for ~~claims~~PNM into exercise the ~~complaint~~option ~~are without~~to ~~legal~~purchase ~~merit,~~on ~~but~~April ~~took~~1, no2015 ~~position on~~ the ~~declaratory~~leased ~~order~~capacity orat ~~waiver~~fair ~~request. On~~market ~~July 2~~value, ~~2012,~~which ~~PNM~~the ~~notified~~parties ~~TTO~~agreed ~~that~~would ~~PNM~~be ~~does~~$7.7 ~~not~~million. The ~~intend~~lease toremains ~~invoke~~in ~~any~~existence ofand ~~the~~PNM ~~End-of-Lease~~will ~~Options~~record ~~and~~the ~~that~~purchase ~~PNM~~at isthe ~~evaluating~~termination ~~whether~~of ~~any~~the ~~NMPRC~~lease ~~approvals~~on ~~are~~April ~~required~~1, in2015. The ~~order~~definitive toagreement ~~finalize~~sets ~~its~~forth ~~decision~~the ~~not~~terms toand ~~invoke~~conditions ~~any~~under ~~End-of-Lease~~which ~~Options. On~~PNM ~~July~~would 3,also ~~2012,~~assume ~~PNM~~responsibility ~~informed~~for ~~FERC~~scheduling ~~that~~long-term ~~PNM~~transmission ~~had~~service ~~notified~~on ~~TTO~~the ofleased ~~its election~~capacity. OnIn ~~July~~November 5, 2012, ~~FERC~~PNM ~~issued~~requested anthe ~~order~~necessary ~~denying~~FERC ~~TGP's~~approvals ~~requests~~ for ~~declaratory~~the ~~order~~definitive ~~and waiver~~agreement. In ~~addition~~January 2013, FERC ~~directed~~approved PNM,'s inrequests. On ~~consultation~~February ~~with~~8, ~~TTO~~2013, toFERC ~~identify~~issued ~~the~~an ~~party~~order ~~that~~dismissing ~~will~~as ~~provide~~moot ~~long-term~~a ~~transmission~~motion ~~service~~filed ~~over~~by ~~the~~TGP ~~leased~~for ~~portion~~clarification of ~~the EIP within 30 days of the date of~~ FERC's ~~order. On~~July ~~August 13~~5, 2012, ~~FERC~~order. Since ~~granted~~no ~~PNM's~~rehearing ~~and~~request ~~TTO's~~or ~~requests~~appeal ~~for~~was anfiled, ~~additional 30 days to identify~~ the ~~party~~February ~~that~~8, ~~will~~2013 ~~provide~~order ~~long-term~~is ~~transmission~~final ~~service~~and ~~over the leased portion of the EIP~~non-appealable.

On September 5, 2012, PNM filed an informational filing with FERC stating that PNM and TTO had reached an agreement in principle setting out the terms and conditions under which PNM would exercise its option to purchase the 40% leased capacity as provided under the lease on April 1, 2015 and provide long-term transmission service on the leased capacity after April 1, 2015. PNM's informational filing also stated that PNM and TTO would use their reasonable best efforts to execute a definitive purchase agreement by October 31, 2012 and, within fourteen days of such date of execution, to request FERC approval(s10) ofRegulatory ~~the purchase agreement. On October 9, 2012, TGP filed comments requesting that FERC direct PNM~~ and ~~TTO~~Rate to conclude their negotiations expeditiously and ensure that the leased capacity is being made available to transmission customers now for use on a long-term basis pursuant to FERC's open access requirements. On November 1, 2012, PNM and TTO entered into a definitive agreement for PNM to exercise the option to purchase on April 1, 2015 the leased capacity at fair market value, which the parties agreed Matters

The Company is involved in various regulatory matters, some of which contain contingencies that are subject to the same uncertainties as those described in Note 9. Additional information concerning regulatory and rate matters is contained in Note 17 of the Notes to Consolidated Financial Statements in the 2012 Annual Reports on Form 10-K.

PNM

Renewable Portfolio Standard

The REA establishes a mandatory RPS requiring a utility to acquire a renewable energy portfolio equal to 10% of retail electric sales by 2011, 15% by 2015, and 20% by 2020. The NMPRC requires renewable energy portfolios to be “fully diversified.” Prior to December 2012, the diversity requirements were 20% from wind energy, 20% from solar energy, 10% from other renewable technologies, and 1.5% from distributed generation with the distributed generation component increasing to 3% in 2015. In December 2012, NMPRC issued an order that amended the diversity requirements to 30% wind, 20% solar, 5% other, and 1.5% distributed generation, increasing to 3% in 2015, and adopted other changes to its renewable energy rule, including the increase in the RCT discussed below.

The REA provides for streamlined proceedings for approval of utilities' renewable energy procurement plans, assures utilities recovery of costs incurred consistent with approved procurement plans, and requires the NMPRC to establish a RCT for the procurement of renewable resources to prevent excessive costs being added to rates. The NMPRC had established a RCT for 2011 of 2% of all customers' aggregated overall annual electric charges that increased by 0.25% annually until reaching 3% in 2015. In December 2012, the NMPRC approved an amended RCT set at 3% of customers' annual electric charges beginning in 2013 and continuing thereafter.

In July 2011, PNM filed its renewable energy procurement plan for 2012. The plan requested a variance from the RPS due to RCT limitations. The plan was diversity-compliant based on the reduced RPS, except for non-wind/non-solar resources, which were not available. In December 2011, the NMPRC approved PNM's 2012 plan, but ordered PNM to spend an additional $0.9 million on renewable procurements in 2012. PNM intends to recover the costs of the supplemental procurements through the renewable rider discussed below. The NMPRC also required PNM to file its 2013 renewable energy procurement plan by April

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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)

~~would~~30, be2012. The 2013 plan proposed procurements for 2013 and 2014 of 20 MW of PNM-owned solar PV facilities, at an estimated cost of $745.75 million, wind and solar REC purchases in 2013, and a PPA for the output of a new geothermal facility. The ~~definitive~~plan ~~agreement~~also ~~sets~~included ~~forth~~an ~~the~~additional ~~terms~~procurement ~~and~~of ~~conditions~~2 ~~under~~MW ~~which~~of PNM-owned ~~would~~solar ~~also~~PV ~~assume~~facilities ~~responsibility~~at ~~for~~an ~~scheduling~~estimated ~~long-term~~cost ~~transmission~~of ~~service~~$4.5 onmillion to supply the ~~leased~~energy ~~capacity~~sold under PNM's voluntary renewable energy tariff. The ~~agreement~~plan iswill ~~subject~~enable PNM to ~~FERC~~comply ~~approval~~with ~~and~~the ~~could~~statutory beRPS ~~challenged~~amount in 2013, but requires a variance from the NMPRC's diversity requirements in 2013 while the proposed geothermal facilities are being constructed. This plan had been expected to achieve full RPS quantity and diversity compliance by ~~other~~2014 ~~parties~~without exceeding the RCT. ~~PNM~~The ~~cannot~~NMPRC ~~predict~~approved the ~~outcome~~plan in December 2012, but reduced the additional solar PV procurement from 2 MW to 1.5 MW. Construction of ~~this~~the ~~proceeding~~geothermal facility has been delayed due to a longer than expected permitting process. This will delay the in-service date of the geothermal facility until later in 2014. PNM does not believe this delay will affect its ability to comply with the diversity requirements as amended in December 2012.

~~(10)~~PNM ~~Regulatory~~is ~~and~~recovering ~~Rate~~certain ~~Matters~~renewable procurement costs from customers through a rate rider. See Renewable Energy Rider below.

~~The~~Renewable ~~Company~~Energy isRider involved in various regulatory matters, some of which contain contingencies that are subject to the same uncertainties as those described in Note 9. Additional information concerning regulatory and rate matters is contained in Note 17 of the Notes to Consolidated Financial Statements in the 2011 Annual Reports on Form 10-K.

On August 14, 2012, the NMPRC authorized PNM to recover certain renewable procurement costs through a rate rider on a per KWh basis. The approved rates are $0.0022335 per KWh in 2012 and $0.0028371 per KWh in 2013. The order disapproved the recovery of the cost of a supplemental REC procurement ordered by the NMPRC in the 2012 procurement plan case because the NMPRC had not yet acted on the specific $0.9 million procurement proposed by PNM, which is discussed under Renewable Portfolio Standard above. The NMPRC subsequently approved the supplemental REC procurement, but ordered that a hearing be held on its inclusion in the rider. PNM implemented the rider on August 20, 2012. The rider will terminate upon a final order in PNM's next general rate case unless the NMPRC authorizes PNM to continue it. Amounts collected under the rider are capped at $18.0 million in 2012 and $24.6 million in 2013. Any amounts above the caps are deferred for future recovery without carrying costs. As a separate component of the rider, if PNM's earned return on jurisdictional equity in 2013, adjusted for weather and other items not representative of normal operations, exceeds 10.5%, PNM must refund to customers during May through December 2014 the amount over 10.5%.

~~Renewable~~In ~~Portfolio~~compliance ~~Standard~~with the NMPRC's rate rider order, PNM filed a notice to implement a 3.37% increase in the current rider rate effective with May 2013 bills. The NMPRC suspended the effective date of the new rate for a period of nine months from April 1, 2013 and appointed a Hearing Examiner to conduct a hearing on the proposed change. The Hearing Examiner recommended approval of the notice. On April 24, 2013, the NMPRC issued an order denying approval of the Hearing Examiner's Recommended Decision but did not disapprove the notice. The costs proposed to be recovered have been previously approved for recovery by the NMPRC. The order did not rescind these prior approvals. The order does not indicate what further proceedings, if any, the NMPRC intends to conduct. On May 3, 2013, PNM, the NMPRC staff, and an intervening party filed a joint motion for rehearing of the NMPRC order.

~~The~~Energy ~~REA~~Efficiency ~~establishes a mandatory RPS requiring a utility to acquire a renewable energy portfolio equal to 5% of retail electric sales by January 1, 2006, increasing to 10% by 2011, 15% by 2015,~~ and ~~20%~~Load byManagement 2020. The NMPRC requires renewable energy portfolios to be “fully diversified” beginning in 2011, with at least 20% from wind energy, 20% from solar energy, 10% from other renewable technologies, and 1.5% from distributed generation with the distributed generation component increasing to 3% in 2015. The REA provides for streamlined proceedings for approval of utilities' renewable energy procurement plans, assures utilities recovery of costs incurred consistent with approved procurement plans, and requires the NMPRC to establish a RCT for the procurement of renewable resources to prevent excessive costs being added to rates. The NMPRC has established a RCT for 2011 of 2% of all customers' aggregated overall annual electric charges that increases by 0.25% annually until reaching 3% in 2015. The NMPRC has docketed a new rulemaking to determine the appropriate calculation methodology of the RCT and whether the RCT level should be increased. The rulemaking also proposes changes to the RPS diversity requirements. A hearing on the RCT level was held on October 24, 2012.

InProgram July 2010, PNM filed its renewable energy procurement plan for 2011. The NMPRC ultimately rejected PNM's proposal to satisfy its 2011 RPS requirement through the purchase of wind RECs and ordered PNM to procure actual wind energy in 2011. While the rejection of RECs was under appeal at the New Mexico Supreme Court, PNM procured the wind energy as ordered in 2011. PNM requested a variance from the diversity requirements for solar and certain “other resources” for 2011 based on the RCT and availability constraints, which the NMPRC granted conditioned upon PNM including in its 2012 procurement plan a proposal that would meet the diversity requirements by April 5, 2013. On June 7, 2012, the New Mexico Supreme Court dismissed the appeal as moot because the energy had been procured.Costs

InPublic ~~July~~utilities 2011, PNM filed its renewable energy procurement plan for 2012. The plan requested a variance from the RPS due to RCT limitations. The plan was diversity-compliant based on the reduced RPS, except for non-wind/non-solar resources, which were not currently available. In December 2011, the NMPRC approved PNM's 2012 plan with modifications. Under the modified plan, PNM must propose to spend $0.9 million more on renewable procurements in 2012 than it originally proposed. If PNM's proposed additional procurements are ~~approved~~required by the ~~NMPRC,~~Efficient ~~the~~Use ~~resulting portfolio~~ of ~~renewable~~Energy ~~resources~~Act ~~will~~to ~~constitute~~achieve ~~approximately~~specified ~~7.3%~~levels of ~~PNM's~~ energy ~~sales~~savings inand ~~2012, which is less than the statutory RPS of 10% due~~ to ~~the~~obtain ~~RCT. The~~ NMPRC ~~has~~approval ~~not acted on the proposed additional procurements. The NMPRC also required PNM~~ to ~~file~~implement ~~a supplemental plan by April 30, 2012, within which PNM was authorized to include an early filing of its 2013 renewable~~ energy ~~procurement~~efficiency ~~plan~~and ~~proposing~~load ~~procurements~~management ~~to meet the 10% RPS by 2014 or sooner~~programs. ~~PNM~~Costs ~~made~~to ~~the~~implement ~~required~~approved ~~filing~~programs onare ~~April~~recovered ~~30,~~through ~~2012,~~a ~~which~~rate ~~included its renewable energy procurement plan for 2013~~rider. ~~The~~In 2013 ~~plan proposes procurements for 2013 and 2014 of 20 MW of PNM-owned solar PV facilities~~, ~~wind~~this ~~and~~act ~~solar~~was ~~REC~~amended ~~purchases~~to inset ~~2013,~~an ~~and~~annual aprogram ~~purchased~~budget ~~power~~equal ~~agreement~~to ~~for~~3% ~~the output~~ of a new geothermal facility. The estimated cost of the new 20 MW of solar PV capacity is $45.5 million. If the proposed projects are approved and develop as planned, PNM will comply with the statutory RPS amount in 2013, but will require a variance from the NMPRCutility's ~~diversity~~annual ~~requirements in 2013 while the proposed geothermal facilities are being constructed~~revenue. This plan is expected to achieve full RPS quantity and diversity compliance by 2014 without exceeding the RCT. A hearing on the 2013 plan was held September 4, 2012 and a final order is expected by November 30, 2012.

In October 2012, PNM isfiled ~~unable~~an energy efficiency program application for programs to ~~predict~~be offered beginning in May 2013. The filing included proposed program costs of $22.5 million plus a proposed profit incentive of $4.2 million and requested that the ~~outcome~~NMPRC orissue ~~impact~~an order by April 1, 2013. Portions of ~~these~~the ~~matters~~program plan and proposed profit incentive are opposed by other parties to the case. PNM issubsequently ~~recovering~~revised ~~certain~~its ~~renewable~~proposed ~~procurement~~profit ~~costs~~incentive ~~from~~to ~~customers~~$2.9 ~~through~~million. A ahearing ~~rate~~on ~~rider~~the application was held in February 2013. ~~See~~PNM ~~Renewable~~is ~~Energy~~not ~~Rider~~able ~~below~~to predict the outcome of this matter.

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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)

Energy Efficiency and Load Management

Program Costs

Public utilities are required to obtain NMPRC approval to implement energy efficiency and load management programs. Costs to implement approved programs are recovered through a rate rider. On October 5, 2012, PNM filed an energy efficiency program application for programs to be offered beginning in May 2013. The filing included proposed program costs of $22.5 million plus proposed profit incentive adder revenues of $4.2 million. PNM requested that the NMPRC issue an order in this matter by April 1, 2013. Additional information concerning the program costs is contained in Note 17 of the Notes to Consolidated Financial Statements in the 2011 Annual Reports on Form 10-K.

Disincentives/Incentives Adder

The Efficient Use of Energy Act requires the NMPRC to remove utility disincentives to implementing energy efficiency and load management programs and to provide incentives for such programs. A rule approved by the NMPRC authorized electric utilities to collect rate adders of $0.01 per KWh for lifetime energy savings and $10 per KW for demand savings related to energy efficiency and demand response programs beginning in 2010. The NMAG and NMIEC appealed the NMPRC order adopting this rule to the New Mexico Supreme Court. PNM began implementing a rate rider under the rule to collect adders related to its 2010 program savings in December 2010 while the appeal of the rule was pending. In July 2011, the Supreme Court annulled and vacated the order adopting the rule and remanded the matter to the NMPRC. As a result of the Supreme Court decision, PNM filed revised tariffs and ceased collecting this adder for 2010 program savings on August 21, 2011. Of the $4.2 million authorized for recovery, $2.6 million was collected through August 20, 2011.

In June 2011, prior to the Supreme Court decision, the NMPRC approved PNM-specific adders of $0.002 per KWh and $4 per KW for savings due to programs implemented in 2011. PNM is presently collecting $1.3 million in adder revenues consistent with this order. After the Supreme Court decision vacating the rule, the NMPRC initiated a proceeding to determine whether PNM should be required to cease collecting the adders and to refund all adder revenues collected since December 2010. In November 2011, the NMPRC issued orders that PNM is not required to refund any adder revenues and is authorized to continue collecting the adders. However, in an order on rehearing, which it subsequently rescinded, the NMPRC further reduced the amount of the authorized adders. Prior to the rescission, PNM appealed the rehearing order to the Supreme Court. In March 2012, the Supreme Court granted PNM's motion to vacate the rehearing order and dismiss PNM's appeal. In a separate appeal and writ proceeding in the Supreme Court, NMIEC and the NMAG seek to overturn the NMPRC order allowing PNM to continue to collect adders in light of the 2011 Supreme Court decision. On May 21, 2012 the Supreme Court dismissed the writ proceeding. Oral ~~arguments~~argument onin the appeal ~~are~~was ~~scheduled~~held ~~for~~in December 102012, ~~2012 before the Supreme Court~~ and a decision in the appeal is expected in 2013. PNM is unable to predict the outcome of the appeal.

On March 27, 2013, PNM filed the reconciliation for actual energy efficiency program costs, associated incentives, and actual collections for calendar year 2012. The reconciliation filing showed a net over-recovery of $0.2 million, composed of an over-recovery of $1.0 million of program costs and an under-recovery of incentives of $0.8 million. PNM subsequently revised the estimated incentive under-recovery to $0.5 million. PNM and the NMPRC staff filed a motion seeking to substitute the new reconciliation filing with a proposed effective date of May 28, 2013. On April 24, 2013, the NMPRC issued an order granting the motion. Under the order, the new rate based on the adjusted reconciliation amount will become effective on May 28, 2013, unless suspended by the NMPRC.

Decoupling Rulemaking

On May 15, 2012, the NMPRC issued a NOPR that would ~~amend~~have amended the NMPRC's energy efficiency rule to authorize use of a decoupling mechanism to recover certain fixed costs of providing retail electric service from the rates charged on a per KWh of consumption, as the mechanism for removal of disincentives associated with the implementation of energy efficiency programs. The proposed ~~mechanism was generally consistent with the decoupling proposal that PNM included, and subsequently agreed to withdraw, in its 2010 Electric Rate Case application. The proposed~~ rule also addressed ~~both disincentives and~~ incentives associated with energy efficiency. On July 26, 2012, the NMPRC closed the proposed rulemaking and opened a new energy efficiency rulemaking docket that may address decoupling and incentives. Workshops to develop a proposed rule have been held, but no order proposing a rule has been issued. PNM is unable to predict the outcome of this matter.

2010 Electric Rate Case and FPPAC

~~PNM~~An ~~filed~~order ~~its~~of the NMPRC approving an amended stipulation in PNM's 2010 Electric Rate Case ~~application~~limits ~~with~~ the ~~NMPRC~~amount inthat ~~June~~can ~~2010~~be torecovered ~~increase~~on ~~rates~~an ~~for~~annual ~~its~~basis ~~New~~for ~~Mexico~~fuel ~~retail~~costs, ~~customers. On~~renewable ~~August~~energy 21costs, ~~2011,~~and ~~PNM~~energy ~~implemented~~efficiency acosts ~~$72.1~~during ~~million~~certain ~~annual~~years. Costs ~~increase~~ in ~~rates~~excess asof ~~authorized~~the bylimits anare ~~order~~deferred, ofwithout ~~the~~carrying ~~NMPRC~~costs, ~~which~~for ~~modified~~recovery ain ~~stipulation~~future ~~agreed~~periods. The tofuel bycost ~~PNM~~caps ~~and~~are ~~several~~$38.8 ~~other~~million ~~parties. The~~for ~~amended~~the ~~stipulation~~FPPAC ~~allows~~year ~~PNM~~beginning toJuly ~~file~~1, a2012, ~~new~~which ~~general~~PNM ~~rate~~began ~~case~~collecting ~~for~~at ~~rates~~that totime, beand ~~effective~~$36.2 asmillion ~~soon~~for asthe FPPAC year beginning July 1, 2013. InPNM ~~addition,~~estimates that the ~~stipulation~~caps ~~limits~~will ~~the~~result ~~amount~~in ~~that~~approximately ~~can~~$45.5 bemillion ~~recovered~~of onFPPAC ancosts ~~annual~~being ~~basis~~deferred for ~~fuel~~future ~~costs,~~collection ~~renewable~~at ~~energy~~June ~~costs~~30, ~~and~~2014. Costs ~~energy~~attributed ~~efficiency~~to ~~costs~~the ~~during~~mine ~~certain~~fire ~~years~~incident asdiscussed ~~described~~in Note 9 are included in the ~~stipulation~~FPPAC amounts. ~~Recovery~~Possible recovery of costs inthrough ~~excess~~SJCC's ofinsurance, ~~the~~also ~~limits~~discussed isin toNote ~~be deferred for recovery~~9, ~~without~~is ~~carrying~~not ~~costs,~~reflected in ~~future~~the ~~periods~~FPPAC amounts.

PNM must file an application for continued use of its FPPAC every four years. PNM anticipates making this continuation filing in May 2013.

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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 cap for the FPPAC year beginning July 1, 2012 is $38.8 million, which PNM began collecting at that time. PNM estimates that at June 30, 2013 approximately $28.8 million of FPPAC costs incurred will be deferred for future collection. Costs attributed to the mine fire incident discussed in Note 9 are included in the FPPAC amounts. Additional information concerning the 2010 Electric Rate Case is contained in Note 17 of the Notes to Consolidated Financial Statements in the 2011 Annual Reports on Form 10-K.

Renewable Energy Rider

In January 2012, PNM filed an application for a rate rider that PNM proposed would go into effect in August 2012 to collect costs for renewable energy procurements incurred after December 31, 2010 that are not otherwise being collected in rates. These costs include the procurement of solar RECs from customers, wind resource procurements during November and December 2011 as ordered by the NMPRC, and the revenue requirements for PNM-owned solar PV facilities and a solar battery storage demonstration project that went into service during 2011. The rider's rate for 2012 would be set at 2.081% of the retail customer's monthly bill. The rate would be reset to 2.695% as of January 1, 2013 to reflect unrecovered costs from 2012 and projected costs to be incurred in 2013. The rider would terminate upon a final order in PNM's next general rate case unless that order authorized a continuation of the rider. Amounts that can be collected under the proposed rider are capped at $18.0 million in 2012 and $24.6 million in 2013 under the stipulation in PNM's 2010 Electric Rate Case. Any amounts above the caps are deferred for future recovery without carrying costs. As a separate component of the rider, PNM proposes that if its earned return on jurisdictional equity in 2013 exceeds 10.5%, it would refund to customers during May through December 2014 the amount over 10.5%. On August 14, 2012, the NMPRC issued an order approving the rider with modifications. The NMPRC ordered that the rider be billed on a per KWh basis, rather than as a percentage of the bill. The approved rate is $0.0022335 per KWh in 2012 and $0.0028371 per KWh in 2013. The order disapproved the recovery of the cost of the supplemental procurement ordered by the NMPRC in the 2012 procurement plan because the NMPRC had not acted on the specific $0.9 million procurement proposed by PNM, which is discussed under Renewable Portfolio Standard above. In October 2012, a motion by an intervenor for rehearing was granted in part by the NMPRC to clarify that no separate hearing is required prior to increasing the rider rate for new procurements if a legally appropriate hearing on the increase was conducted as part of the hearing on the procurement plan. PNM implemented the rider on August 20, 2012.

2011 Integrated Resource Plan

NMPRC rules require that investor owned utilities file an IRP every three years. The IRP is required to cover a 20-year planning period and contain an action plan covering the first four years of that period. In its most recent IRP, which was filed in July 2011, PNM indicated that it planned to meet its anticipated load growth through a combination of new natural gas-fired generating plants, renewable energy resources, load management, and energy efficiency programs. However, PNM has not entered into any commitments regarding these plans beyond what is otherwise described herein. As required by NMPRC rules, PNM utilized a public advisory group process during the development of the 2011 IRP. Two protests were filed to the IRP requesting rejection of the plan. The NMPRC assigned the case to a Hearing Examiner and designated a mediator to facilitate negotiations. The NMPRC staff filed a motion in December 2011 to dismiss the protests and terminate the proceeding on the ground that PNM's IRP fully complies with NMPRC rules. PNM is unable to predict the outcome of this matter.

Emergency FPPAC

In 2008, the NMPRC authorized PNM to implement an Emergency FPPAC from June 2, 2008 through June 30, 2009. The NMPRC order approving the Emergency FPPAC also provided that if PNM's base load generating units did not operate at or above a specified capacity factor and PNM was required to obtain replacement power to serve jurisdictional customers, PNM would be required to make a filing with the NMPRC seeking approval of the replacement power costs. In its required filing, PNM stated that the costs of the replacement power amounting to $8.0 million were prudently incurred and made a motion that they be approved. The NMPRC staff opposed PNM's motion and recommended that PNM be required to refund the amount collected. Auditors selected by the NMPRC found that PNM was prudent in operating its base load units and in securing replacement power but had not obtained prior NMPRC approval in the manner required by the NMPRC order. PNM continues to assert that its recovery of replacement power costs was proper and did not violate the NMPRC's order. The NMPRC has not ruled on this matter. Under the terms of the approved stipulation in the 2010 Electric Rate Case, the parties to the stipulation, including the NMPRC staff, jointly requested that the NMPRC take no further action in this matter and close the docket. No party has opposed that request. Although the NMPRC has not acted on the joint request, the NMPRC electronic docket shows the docket closed. PNM is unable to predict the outcome of this matter.

Applications for Approvals to Purchase Delta

As discussed in Note 9 of the Notes to Consolidated Financial Statements in the 2012 Annual Reports on Form 10-K, PNM has entered in to an agreement to purchase Delta, a 132 MW natural gas peaking unit from which PNM currently acquires energy and capacity under a PPA. The agreement to purchase Delta is subject to approvals by the NMPRC and FERC. On January 3, 2013, PNM filed an application with the NMPRC for a Certificate of Convenience and Necessity to own and operate Delta and for a determination of related ratemaking principles and treatment. PNM requested expedited consideration of the application so that a final order could be issued by May 31, 2013. The NMPRC has assigned the matter to a hearing examiner. A hearing on the application is scheduled to begin on May 13, 2013. PNM filed an application for approval of the Delta acquisition at FERC on January 24, 2013. FERC approved the purchase on February 26, 2013. PNM is unable to predict the outcome of this matter.

Application for Approval of La Luz Generating Station

PNM anticipates filing an application for a Certificate of Convenience and Necessity for a new 40 MW gas-fired generating facility near Belen, New Mexico with the NMPRC in May 2013. The application also will ask for a determination of related ratemaking principles and treatment. The estimated cost of this facility is approximately $63.2 million. PNM anticipates an in-service date in the first quarter of 2016. PNM has entered into a contract for the turbine to be used for this project. PNM also has entered into a turn-key contract with an outside contractor for the construction of the generating facility. Both of these contracts allow PNM to cancel the project if NMPRC approval is not obtained. PNM is unable to predict the outcome of this matter.

Transmission Rate Case

In October 2010, PNM filed a notice with FERC to increase its wholesale electric transmission revenues by $11.1 million annually, based on a return on equity of 12.25%. The filing also sought to revise certain Open Access Transmission Tariff provisions and bi-lateral contractual terms. In December 2010, FERC issued an order accepting PNM's filing and suspending the proposed tariff revisions for five months. The proposed rates were implemented on June 1, 2011, subject to refund. The rate increase applied to all of PNM's wholesale electric transmission service customers, which include other utilities, electric cooperatives, and entities that use PNM's transmission system to transmit power at the wholesale level. The rate increase did not impact PNM's retail

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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)

~~Transmission~~customers. On ~~Rate~~January ~~Case~~2, 2013, FERC approved an unopposed settlement agreement, which increases transmission service revenues by $2.9 million annually. In addition, the parties agreed that if PNM files for a formula based rate change within one year from FERC's approval of the settlement agreement, no party will oppose the general principle of a formula rate, although the parties may still object to particular aspects of the formula. PNM refunded amounts collected in excess of the settled rates in January 2013. See Tri-State Complaint below.

InFormula October 2010, PNM filed a notice with FERC to increase its wholesale electric transmission revenues by $11.1 million annually, based on a return on equity of 12.25%. The filing also seeks to revise certain Open Access Transmission ~~Tariff~~Rate ~~provisions~~Case and bi-lateral contractual terms. If approved, the rate increase would apply to all of PNM's wholesale electric transmission service customers, which include other utilities, electric cooperatives, and entities that use PNM's transmission system to transmit power at the wholesale level. The proposed rate increase would not impact PNM's retail customers. In December 2010, FERC issued an order accepting PNM's filing and suspending the proposed tariff revisions for five months. The proposed rates were implemented on June 1, 2011, subject to refund. On July 3, 2012, PNM filed an unopposed settlement agreement with the FERC. Under the settlement agreement, PNM would increase transmission service revenues by $2.9 million annually and would refund amounts collected in excess of the settled rates. In addition, the parties agreed that if PNM files for a formula based rate change within one year from FERC's approval of the settlement agreement, no party will oppose the general principle of a formula rate, although the parties may still object to particular aspects of the formula. The ALJ has certified the settlement, which is subject to FERC approval. PNM is unable to predict the outcome of this proceeding.

~~Firm~~On December 31, 2012, PNM filed an application with FERC for authorization to move from charging stated rates for wholesale electric transmission service to a formula rate mechanism pursuant to which rates for wholesale transmission service are calculated annually in accordance with an approved formula. The proposed formula includes updating cost of service components, including investment in plant and operating expenses, based on information contained in PNM's annual financial report filed with FERC, as well as including projected large transmission capital projects to be placed into service in the following year. The projections included are subject to true-~~Requirements~~up ~~Wholesale~~in ~~Customer~~the ~~Rate~~following ~~Case~~year formula rate. Certain items, including changes to return on equity and depreciation rates, require a separate filing to be made with FERC before being included in the formula rate. The rates resulting from PNM's application are intended to replace the rates approved by the FERC on January 2, 2013 in the transmission rate case discussed above. As filed, PNM's request would result in a $3.2 million wholesale electric transmission rate increase, based on PNM's 2011 data and a 10.81% return on equity, and authority to adjust transmission rates annually based on an approved formula. The proposed $3.2 million rate increase would be in addition to the $2.9 million rate increase approved by the FERC on January 2, 2013 in the transmission rate case discussed above.

InOn ~~September~~March ~~2011~~1, ~~PNM~~2013, ~~filed~~FERC issued an ~~unexecuted~~order ~~amended~~(1) ~~sales~~accepting ~~agreement~~PNM's ~~between~~revisions ~~PNM~~to ~~and~~its ~~NEC~~rates ~~with~~for ~~FERC. The~~filing ~~agreement~~and ~~proposes~~suspending athe ~~cost~~proposed ofrevisions ~~service~~to ~~based~~become ~~rate~~effective ~~for~~August ~~the~~2, ~~electric~~2013, ~~service~~subject ~~and~~to ~~ancillary~~refund; ~~services~~(2) directing PNM ~~provides~~to submit a compliance filing to ~~NEC~~establish its return-on-equity (“ROE”) using the median, ~~which~~rather ~~would~~than ~~result~~the inmid-point, anof ~~annual~~the ~~increase~~ROEs from a proxy group of ~~$8.7~~companies; ~~million~~(3) ordirecting PNM to submit a ~~39.8~~compliance filing to remove the acquisition adjustment related to PNM's 60% ~~increase~~ownership ~~over~~of ~~existing~~the ~~rates~~EIP transmission line from its rate proposal; and (4) setting the proceeding for hearing and settlement judge procedures. PNM ~~also~~would ~~requested~~be allowed to make a ~~FPPAC~~separate ~~and~~filing ~~full~~related to recovery of ~~certain~~the ~~third-party~~EIP ~~transmission~~acquisition ~~charges~~adjustment. On April 1, 2013, PNM ~~incurs~~made tothe ~~serve~~required ~~NEC~~compliance filing. ~~NEC~~In addition, PNM filed afor ~~protest~~rehearing toof ~~PNM~~FERC's ~~filing~~order ~~with~~regarding ~~FERC~~the ROE. InOn ~~November~~May ~~2011~~1, ~~FERC~~2013, ~~issued~~PNM provided an ~~order~~updated ~~accepting~~rate ~~the~~request ~~agreement~~to asits ~~filed,~~wholesale ~~suspending~~electric transmission service customers incorporating 2012 data and the ~~effective~~FERC ~~date~~order ~~for~~into athe ~~five-month~~formula ~~period,~~rate. The toupdated beformula ~~effective~~rate ~~April~~would ~~14,~~result ~~2012,~~in ~~subject~~a to$1.3 ~~refund,~~million ~~and~~rate ~~set~~increase over the ~~proceeding~~rates ~~for~~approved ~~settlement. On~~by ~~June~~FERC ~~25,~~on ~~2012~~January 2, 2013. PNM anticipates filing the updated rate request with FERC ~~settlement~~on ~~judge~~June ~~issued~~1, a2013. The ~~settlement~~new ~~status~~rates ~~report~~will ~~stating~~apply ~~the~~to ~~parties~~all ~~had~~of ~~reached~~PNM's awholesale ~~settlement~~electric intransmission ~~principle~~service ~~and~~customers, ~~recommending~~which ~~that~~include ~~the~~other ~~settlement~~utilities, ~~process~~electric becooperatives, ~~continued.~~and ~~The~~entities ~~parties~~that ~~are~~use ~~currently~~PNM's ~~working~~transmission onsystem ~~finalizing~~to transmit power at the ~~settlement~~wholesale level. The ~~finalized~~new ~~settlement~~rates ~~would~~will benot ~~subject~~apply to ~~FERC~~PNM's ~~approval~~retail customers. PNM is unable to predict the outcome of this proceeding.

~~TNMP~~Tri-State Complaint

~~Interest~~On March 13, 2013, Tri-State filed a complaint with FERC alleging that PNM's existing transmission rates approved by FERC on January 2, 2013 in the transmission rate case discussed above are unjust and unreasonable under the Federal Power Act. Tri-State's allegations are premised upon FERC's March 1, 2013 order and certain data provided by PNM in PNM's Formula Transmission Rate ~~Compliance~~Case ~~Tariff~~discussed above. Tri-State seeks a reduction in PNM's annual transmission revenue requirement for the period between March 13, 2013 and the implementation of PNM's proposed rates under the Formula Transmission Rate Case. Tri-State also requests that FERC consolidate the complaint proceeding with the Formula Transmission Rate Case. On April 2, 2013, PNM answered Tri-State's complaint, asking FERC to dismiss the complaint and deny Tri-State's request to consolidate the complaint proceeding with the Formula Transmission Rate Case. PNM is unable to predict the outcome of this proceeding.

Following a revision of the interest rate on TNMP's CTC, TNMP filed a compliance tariff to implement the new lower 8.31% rate. Intervenors asserted objections and, after regulatory proceedings, the PUCT issued an order making the new rate retroactive to July 20, 2006. TNMP successfully appealed to the District Court in Austin, Texas for the new rate not to be effective prior to December 27, 2007. However, the Texas 3rd Court of Appeals reversed the District Court and reaffirmed the PUCT's decision. Due to the new retroactive ratemaking theory contained in the Texas 3rd Court of Appeals opinion, TNMP recorded a preFirm-~~tax~~Requirements ~~regulatory~~Wholesale ~~disallowance of $3.9 million in the three months ended June 30, 2011 to reflect the impact of applying the 8.31% rate retroactively.~~Customers TNMP petitioned the Texas Supreme Court for review in July 2011. On June 8, 2012, the Texas Supreme Court denied TNMP's petition for review. TNMP filed a motion for rehearing on June 25, 2012, which was denied in August 2012 concluding this matter.

Navopache ~~Advanced~~Electric ~~Meter~~Cooperative, ~~System~~Inc. ~~Deployment~~Rate ~~and Surcharge Request~~ Case

In ~~July~~September 2011, ~~the~~PNM ~~PUCT~~filed ~~approved a settlement and authorized~~ an ~~advanced~~unexecuted ~~meter~~amended ~~deployment~~sales ~~plan~~agreement ~~that~~between ~~permits~~PNM ~~TNMP~~and toNEC ~~collect~~with ~~$113~~FERC.3 The ~~million~~agreement inproposed ~~deployment costs through~~ a ~~surcharge~~cost ~~over~~of aservice ~~12-year~~based ~~period. TNMP~~rate ~~began~~for ~~collecting~~ the ~~surcharge~~electric onservice ~~August 11,~~and ~~2011. Deployment~~ancillary ofservices ~~advanced~~PNM ~~meters~~provides ~~began in September 2011 and is scheduled~~ to ~~be completed over a 5-year period. In February 2012~~NEC, ~~the~~which ~~PUCT~~would ~~opened~~result ain ~~proceeding to consider the feasibility of~~ an ~~“opt-out”~~annual ~~program~~increase ~~for retail consumers that wish to decline receipt~~ of ~~an advanced meter~~$8. ~~The~~7 ~~PUCT~~million ~~has~~or ~~requested comments and convened~~ a ~~public meeting to hear various issues~~39. No8% ~~proposal~~increase orover ~~decision~~existing ~~has yet been announced by the PUCT~~rates. ~~However,~~PNM ~~various~~also ~~individuals~~requested ~~filed~~ a ~~petition~~FPPAC ~~with the PUCT seeking a moratorium on any advanced meter deployment. The PUCT denied the petition~~ and anfull ~~appeal~~recovery ~~was~~of ~~filed~~certain ~~with~~third-party ~~the~~transmission ~~Texas~~charges ~~District~~PNM ~~Court~~incurs onto ~~September~~serve ~~28, 2012~~NEC. ~~Any~~NEC ~~opt-out~~filed ~~program~~a ~~would~~protest ~~apply~~ to ~~all~~PNM's ~~transmission~~filing ~~and~~with ~~distribution utilities in ERCOT~~FERC. ~~TNMP~~In ~~cannot~~November ~~predict the outcome or effect of this proceeding.~~

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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)

~~Remand~~2011, FERC issued an order accepting the filing, suspending the effective date to be effective April 14, 2012, subject to refund, and set the proceeding for settlement. The parties finalized a settlement agreement and PNM filed for the necessary FERC approval on December 6, 2012. The settlement agreement would result in an annual increase of ~~ERCOT~~$5.3 ~~Transmission~~million, ~~Rates~~an extension of the contract for ~~1999~~10 years, and ~~2000~~an agreement that PNM will be able to file an application for formula based rates to be effective in 2015. On April 5, 2013, FERC approved the settlement agreement. PNM anticipates refunding amounts collected in excess of the settled rates by June 4, 2013.

~~Following~~City ~~a variety~~ of ~~appeals~~Gallup, ~~the~~ ~~ERCOT~~New ~~transmission~~Mexico ~~rates~~Contract ~~approved~~Approval in 1999 and 2000 were remanded back to the PUCT. These dockets concern the recalculation of rates for the fourth quarter of 1999 and all of 2000. In October 2011, TNMP joined in a non-unanimous settlement of the issues relating to resettlement of the last four months of 1999. In January 2012, the PUCT approved the non-unanimous settlement. TNMP received $1.6 million under the settlement. In June 2012, TNMP filed its transmission cost recovery factor filing (“TCRF") seeking $3.2 million in additional transmission costs. The PUCT staff requested a hearing asserting the settlement proceeds from the 1999 remand settlement need to be credited against the costs TNMP requested in its TCRF. TNMP maintains that the settlement proceeds should not be passed on to customers since TNMP was unable to recover those costs in 1999. Subsequently, the PUCT staff agreed to interim rate relief permitting TNMP to add $1.6 million in uncontested costs to its existing TCRF and add $1.6 million in costs in a subsequent TCRF if TNMP is successful in the contested case. The ALJ approved the interim relief on July 16, 2012. TNMP implemented the interim rates on September 1, 2012. On September 26, 2012, the contested portion of the case was remanded back to the PUCT pursuant to a joint motion of TNMP and PUCT staff. The joint filing represents an agreed resolution that permits the $1.6 million in interim rates to become final and authorizes TNMP to institute a surcharge in March 2013 to collect the additional $1.6 million in initially disputed costs plus interest at the PUCT under-billing rate. The matter is pending approval from the PUCT. TNMP cannot predict the ultimate outcome of this matter.Case

PNM provides both energy and power services to Gallup, PNM's second largest firm-requirements wholesale customer, under an electric service agreement that expires June 30, 2013. On May 1, 2013, PNM and Gallup agreed to extend the term of the agreement to June 30, 2014 and to increase the demand and energy rates under the agreement. On May 1, 2013, PNM requested FERC approval of the amended agreement to be effective July 1, 2013. If approved by FERC, revenue from Gallup would increase by $3.1 million during the term of the amended agreement. PNM is unable to predict the outcome of this proceeding.

TNMP

Advanced Meter System Deployment and Surcharge Request

In July 2011, the PUCT approved a settlement and authorized an AMS deployment plan that permits TNMP to collect $113.3 million in deployment costs through a surcharge over a 12-year period. TNMP began collecting the surcharge on August 11, 2011. Deployment of advanced meters began in September 2011 and is scheduled to be completed over a 5-year period. In February 2012, the PUCT opened a proceeding to consider the feasibility of an “opt-out” program for retail consumers that wish to decline receipt of an advanced meter. The PUCT has requested comments and convened a public meeting to hear various issues. No proposal or decision has yet been announced by the PUCT. However, various individuals filed a petition with the PUCT seeking a moratorium on any advanced meter deployment. The PUCT denied the petition and an appeal was filed with the Texas District Court on September 28, 2012. On February 21, 2013, the PUCT filed a proposed rule to permit customers to opt-out of the AMS deployment. A hearing to receive additional comment on the proposed rulemaking was held on April 19, 2013. Any opt-out program would apply to all transmission and distribution utilities in ERCOT. TNMP cannot predict the outcome or effect of this proceeding.

Energy Efficiency

TNMP recovers the costs of its energy efficiency programs through an energy efficiency cost recovery factor. On August 28, 2012, the PUCT approved a settlement that permits TNMP to collect estimated 2013 program costs of $4.8 million, plus recovery of an aggregate of $0.4 million in under-collected costs from prior years, case expenses, and a performance bonus for 2011. TNMP's new rates were effective January 1, 2013. TNMP anticipates filing by June 1, 2013 to collect estimated 2014 energy efficiency program costs of $4.7 million and a $0.7 million bonus for 2012.

Transmission Cost of Service Rates

~~On August 23, 2012,~~ TNMP ~~filed~~can ~~an application to~~ update its transmission rates twice per year to reflect changes in its invested capital. ~~The~~Updated ~~requested increase in total rate base is $26.4 million, which will increase revenues $2.5 million annually. The proposed~~ rates 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. ~~The PUCT approved the interim adjustment and TNMP implemented it on September 27, 2012.~~

~~(11)~~On ~~Optim~~August ~~Energy~~23, 2012, TNMP filed an application to update its transmission rates to reflect changes in its invested capital. The application reflected an increase in total rate base of $26.4 million and requested an increase in revenues of $2.5 million annually. The PUCT approved the interim adjustment and TNMP implemented it on September 27, 2012.

~~Additional~~On ~~information~~January ~~concerning~~31, ~~Optim~~2013, ~~Energy~~TNMP isfiled ~~discussed~~an inapplication ~~Note~~to 21further ofupdate ~~the~~its ~~Notes~~transmission rates to ~~Consolidated~~reflect ~~Financial~~changes ~~Statements~~ in ~~the~~its ~~2011~~invested ~~Annual Reports on Form 10-K~~capital. ~~PNMR~~The ~~and~~requested ~~ECJV~~increase ~~each had a 50 percent ownership interest~~ in ~~Optim~~total ~~Energy,~~rate abase ~~limited~~is ~~liability~~$21.9 ~~company~~million, ~~until~~which ~~September~~will ~~23,~~increase ~~2011,~~revenues ~~when~~$2.9 ~~Optim~~million ~~Energy was restructured and PNM's interest was reduced to 1%~~annually. On ~~January~~March 419, ~~2012~~2013, ~~ECJV~~the ~~exercised~~PUCT ~~its~~ALJ ~~option~~approved ~~to acquire PNMR~~TNMP's ~~remaining~~interim 1%transmission ~~ownership~~cost ~~interest in Optim Energy at fair market value, which was determined to be zero. PNMR accounted for its investment in Optim Energy using the equity method~~ of ~~accounting~~service ~~until~~filing ~~September 23, 2011~~ and ~~then~~rates ~~used~~went ~~the~~into ~~cost~~effect ~~method~~with ~~through~~bills ~~January~~rendered 4,March ~~2012. PNMR Services Company provided certain corporate services to Optim Energy through December 31~~20, ~~2011 and is continuing to provide services with respect to certain open tax matters~~2013.

PNMR fully impaired its investment in Optim Energy at December 31, 2010 and, in accordance with GAAP, did not recognize losses of Optim Energy from January 1, 2011 through September 23, 2011, when PNMR ceased to account for its investment using the equity method of accounting. Accordingly, Optim Energy had no impact on PNMR's December 31, 2011 balance sheet or the statements of earnings and statements of cash flows for 2012 and 2011. Therefore, summarized financial information for Optim Energy is not presented.

(12) Related Party Transactions

PNMR, PNM, and TNMP are considered related parties as defined under GAAP. TNMP provides transmission and distribution services to First Choice. On November 1, 2011, PNMR sold First Choice. TNMP revenues from First Choice through October 31, 2011 were related party revenues and included in the table below. PNMR Services Company provides corporate services to PNMR and its subsidiaries in accordance with shared services agreements. Optim Energy was a related party prior to September 23, 2011. PNMR Services Company provided corporate services to Optim Energy under a services agreement. There was also a services agreement for Optim Energy to provide services to PNMR. See Note 11 for information concerning Optim Energy.

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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~~(11) ~~table~~Related ~~below~~Party ~~summarizes the nature and amount of related party transactions of PNMR, PNM, and TNMP:~~ Transactions

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
	(In thousands)
Electricity, transmission and distribution related services billings:
TNMP to PNMR	$	—	$	12,196	$	—	$	30,608
Services billings:
PNMR to PNM	22,143		24,680		68,030		70,849
PNMR to TNMP	6,439		7,295		20,206		21,250
PNM to TNMP	184		40		473		327
TNMP to PNMR	4		48		12		145
PNMR to Optim Energy	—		1,277		—		4,083
Optim Energy to PNMR	—		4		—		23
Interest billings:
PNMR to TNMP	22		8		72		36
PNMR to PNM	—		9		1		45
PNM to PNMR	45		33		134		97
Income tax sharing payments:
PNMR to PNM	—		—		63,114		—
PNMR to TNMP	—		—		1,952		—

PNMR, PNM, and TNMP are considered related parties as defined under GAAP. PNMR Services Company provides corporate services to PNMR and its subsidiaries in accordance with shared services agreements. The table below summarizes the nature and amount of related party transactions of PNMR, PNM, and TNMP:

(13) New Accounting Pronouncements



	Three Months Ended
	March 31,
	2013		2012
	(In thousands)
Services billings:
PNMR to PNM	$	22,652	$	22,055
PNMR to TNMP	7,361		6,951
PNM to TNMP	108		121
TNMP to PNMR	2		4
Interest billings:
PNMR to TNMP	96		18
PNMR to PNM	1		—
PNM to PNMR	41		45
Income tax sharing payments:
PNMR to PNM	—		63,114
PNMR to TNMP	—		1,952

~~Information~~(12) ~~concerning~~Income ~~recently issued accounting pronouncements that have not been adopted by the Company and could have a material impact is presented below.~~Taxes

~~Accounting~~As ~~Standards~~required ~~Update~~under ~~2011~~GAAP, the Company makes an estimate of its anticipated effective tax rate for the year as of the end of each quarterly period within its fiscal year. Year-11to-date income tax expense is then calculated by applying the anticipated annual effective tax rate to year-to-date ~~Balance~~earnings ~~Sheet:~~before ~~Disclosures~~taxes, ~~about~~which ~~Offsetting~~includes ~~Assets~~the ~~and~~earnings ~~Liabilities~~attributable to the Valencia non-controlling interest. GAAP also provides that certain unusual or infrequently occurring items, as well as adjustments due to enactment of new tax laws, be excluded from the estimated annual effective tax rate calculation.

~~The~~On ~~FASB~~January ~~released~~3, ~~amended~~2013, ~~guidance~~the ~~that~~American ~~will~~Taxpayer ~~require~~Relief ~~entities~~Act toof ~~disclose~~2012, ~~both~~which ~~gross~~extended ~~and~~fifty ~~net~~percent ~~information~~bonus ~~about~~depreciation, ~~instruments~~was ~~and~~signed ~~transactions~~into ~~eligible~~law. Due ~~for~~to ~~offset~~provisions in the ~~statement~~act, oftaxes ~~financial~~payable ~~position as well as instruments and transactions subject~~ to anthe ~~agreement~~State ~~similar~~of toNew aMexico ~~master~~for ~~netting~~2013 ~~arrangement. In~~were ~~addition~~reduced, ~~the~~which ~~update~~results ~~requires~~in ~~disclosure~~an impairment of ~~collateral~~New ~~received~~Mexico ~~and~~wind ~~posted~~energy inproduction ~~connection~~tax ~~with master netting agreements or similar agreements~~credits. ~~The~~In ~~update~~accordance iswith ~~effective~~GAAP, ~~for~~PNMR ~~annual~~was ~~reporting~~required ~~periods~~to ~~beginning~~record onthis orimpairment, which after ~~January~~federal 1,income ~~2013,~~tax ~~and~~benefit ~~interim~~amounted ~~periods~~to ~~therein~~$1. ~~The~~5 ~~disclosures~~million, ~~required~~as byadditional ~~this~~income ~~amendment~~tax ~~will~~expense beduring ~~applied~~the ~~retrospectively~~three ~~for~~months ~~all~~ended ~~comparative~~March ~~periods~~31, ~~presented~~2013. ~~The~~This ~~Company~~impairment ~~does~~is ~~not~~reflected ~~believe~~in ~~this guidance will have a material impact on the Company~~PNMR's ~~financial~~Corporate ~~statements~~ and ~~will~~Other ~~comply with the disclosure requirements in 2013~~segment.

~~(14)~~On ~~Sale~~April 30,2013, the IRS issued Revenue Procedure 2013-24, which provides a safe harbor method of ~~First~~accounting ~~Choice~~that taxpayers may use to determine repair costs for electric generation property. Adoption of the safe harbor method is elective for years ending on or after December 31, 2012. The Company is evaluating the possible effects of adopting the safe harbor method and the ultimate outcome cannot be determined at this time.

On September 23, 2011, PNMR entered into an agreement for the sale of First Choice to Direct LP, Inc. for $270.0 million, subject to adjustment to reflect the amounts of certain components of working capital at closing. Closing occurred on November 1, 2011, with PNMR receiving $329.3 million, which included an estimate of the components of working capital. For accounting purposes, the sale was effective as of the close of business on October 31, 2011. PNMR recognized a pre-tax gain of $174.9 million on the sale. In early 2012, the purchaser asserted that the amount paid at closing for working capital at October 31, 2011 was overstated by $2.4 million. PNMR responded disputing the purchaser's calculation and indicating that the amount paid at closing for working capital at October 31, 2011 was understated by $5.8 million. In accordance with the agreement for the sale, this matter was submitted to an independent party for a decision binding on the parties. A decision was received in August 2012. The decision resulted in PNMR being awarded $6.4 million of the $8.2 million in dispute. PNMR recorded an additional pre-tax gain of $1.0 million, which is included in other income in the three months ended September 30, 2012. PNMR Services Company provided

Table of Contents

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)

~~certain~~(13) ~~services~~Accumulated atOther ~~cost~~Comprehensive toIncome First Choice for a transitional period through August 1, 2012. Because PNMR continues to have direct cash flows resulting from transmission and distribution services provided by TNMP to First Choice, First Choice is not reflected as discontinued operations. After October 31, 2011, TNMP's revenues from First Choice are not intercompany and are not eliminated in consolidation by PNMR. (Loss)

Information regarding accumulated other comprehensive income (15loss) ~~Goodwill~~for ~~and~~the ~~Other~~three ~~Intangible~~months ~~Assets~~ended March 31, 2013 is as follows:

The excess purchase price over the fair value of the assets acquired and the liabilities assumed by PNMR for its June 6, 2005 acquisition of TNP was recorded as goodwill and was pushed down to the businesses acquired. In 2007, the TNMP assets that were included in its New Mexico operations, including goodwill, were transferred to PNM. Additionally, the trade name “First Choice” and the First Choice customer list were acquired in the TNP acquisition. The trade name was considered to have an indefinite useful life; therefore, no amortization was recorded. The useful life of the customer list was estimated to be approximately eight years. As discussed in Note 14, PNMR completed the sale of First Choice on November 1, 2011. As a result, the goodwill and other intangible assets of First Choice are no longer included in PNMR's Condensed Consolidated Balance Sheet and PNMR no longer has any other intangible assets.



	Accumulated Other Comprehensive Income (Loss)
	Unrealized						Fair Value
	Gain on			Pension			Adjustment
	Investment			Liability			for Cash Flow
	Securities			Adjustment			Hedges			Total
	(In thousands)
PNMR
Balance at December 31, 2012	$	16,406		$	(97,820	)	$	(216	)	$	(81,630	)
Amounts reclassified from AOCI (pre-tax)	(1,336		)	1,591			48			303
Income tax impact of amounts reclassified	529			(631		)	(17		)	(119		)
Other OCI changes (pre-tax)	7,858			—			12			7,870
Income tax impact of other OCI changes	(3,111		)	—			(4		)	(3,115		)
Net change after income taxes	3,940			960			39			4,939
Balance at March 31, 2013	$	20,346		$	(96,860	)	$	(177	)	$	(76,691	)

GAAP requires the Company to evaluate its goodwill and non-amortizing intangible assets for impairment annually at the reporting unit level or more frequently if circumstances indicate that the goodwill or intangible assets may be impaired. Application of the impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, and determination of the fair value of each reporting unit. A discounted cash flow methodology is primarily used to estimate the fair value of each reporting unit. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of long-term growth rates for the business, and determination of appropriate weighted average cost of capital for each reporting unit. Changes in these estimates and assumptions could materially affect the determination of fair value and the conclusion of impairment for each reporting unit.



PNM
Balance at December 31, 2012	$	16,406		$	(97,820	)	$	—	$	(81,414	)
Amounts reclassified from AOCI (pre-tax)	(1,336		)	1,591			—		255
Income tax impact of amounts reclassified	529			(631		)	—		(102		)
Other OCI changes (pre-tax)	7,858			—			—		7,858
Income tax impact of other OCI changes	(3,111		)	—			—		(3,111		)
Net change after income taxes	3,940			960			—		4,900
Balance at March 31, 2013	$	20,346		$	(96,860	)	$	—	$	(76,514	)

For goodwill, the first step of the impairment test requires that the Company compare the fair value of each reporting unit with its carrying value, including goodwill. If as a result of this analysis, the Company concludes there is an indication of impairment in a reporting unit having goodwill, the Company is required to perform the second step of the impairment analysis, determining the amount of goodwill impairment to be recorded. The amount is calculated by comparing the implied fair value of the goodwill to its carrying amount. This exercise would require the Company to allocate the fair value determined in step one to the individual assets and liabilities of the reporting unit. Any remaining fair value would be the implied fair value of goodwill on the testing date. To the extent the recorded amount of goodwill of a reporting unit exceeds the implied fair value determined in step two, an impairment loss would be reflected in results of operations. Prior to 2012, the Company compared the fair value of non-amortizing intangibles other than goodwill to the recorded values.



TNMP
Balance at December 31, 2012	$	—	$	—	$	(216	)	$	(216	)
Amounts reclassified from AOCI (pre-tax)	—		—		48			48
Income tax impact of amounts reclassified	—		—		(17		)	(17		)
Other OCI changes (pre-tax)	—		—		12			12
Income tax impact of other OCI changes	—		—		(4		)	(4		)
Net change after income taxes	—		—		39			39
Balance at March 31, 2013	$	—	$	—	$	(177	)	$	(177	)

~~The~~Pre-tax ~~annual~~amounts ~~evaluations~~reclassified ~~performed~~from asAOCI ofrelated ~~April 1,~~to ~~2012~~"Unrealized ~~and~~Gain ~~2011~~on ~~did~~Investment ~~not~~Securities" ~~indicate~~are ~~impairments~~included ofin ~~the~~"Gains ~~goodwill~~on orinvestments ~~other~~held ~~intangible~~by ~~assets~~NDT" ofin ~~any~~the ofCondensed ~~the~~Consolidated ~~Company’s~~Statements ~~reporting~~of ~~units~~Earnings. ~~Since~~Pre-tax ~~the~~amounts ~~annual~~reclassified ~~evaluation,~~from ~~there~~AOCI ~~have~~related ~~been~~to no"Pension ~~indications~~Liability ~~that~~Adjustment ~~the~~" ~~fair~~are ~~values~~reclassified ofto ~~the~~"Operating ~~reporting~~Expenses ~~units~~- ~~with~~Administrative ~~recorded~~and ~~goodwill~~general" ~~have~~in ~~decreased~~the ~~below~~Condensed ~~the~~Consolidated ~~carrying~~Statements ~~values~~of Earnings. ~~Additional~~Approximately ~~information~~15.0% ~~concerning~~of the ~~Company’s~~amount ~~goodwill,~~reclassified ~~other~~is ~~intangible~~then ~~assets,~~capitalized ~~and~~into ~~impairments~~construction iswork ~~contained~~ in ~~Note~~process 23and ofapproximately ~~Notes~~2.5% tois ~~Consolidated~~capitalized ~~Financial~~into ~~Statements~~other inaccounts. Pre-tax ~~the~~amounts ~~2011~~reclassified ~~Annual~~from ~~Reports~~AOCI onrelated ~~Form~~to ~~10-K.~~"Fair

Value Adjustment for Cash Flow Hedges" are reclassified to "Interest Charges" in the Condensed Consolidated Statements of Earnings. An insignificant amount is then capitalized as AFUDC. The income tax impacts of all amounts reclassified from AOCI are included in "Income Taxes" in the Condensed Consolidated Statements of Earnings.

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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). This report uses 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

EXECUTIVE SUMMARY

~~Company~~ Overview and Strategy

PNMR is a holding company with two regulated utilities serving approximately ~~739~~741,000 residential, commercial, and industrial customers and end-users of electricity in New Mexico and Texas. In the latter part of 2011, PNMR exited both of its competitive businesses, First Choice and Optim Energy, and repositioned itself as a holding company solely operating its electric utilities, PNM and TNMP. Optim Energy had no impact on 2011 results of operations because it was written off in 2010 and PNMR had no further financial commitment to Optim Energy.

Strategic Goals

PNMR is focused on achieving the following strategic goals:


•	Earning authorized returns on its regulated businesses


•	Continuing to improve credit ratings


•	Providing a top-quartile total return to investors

~~PNMR's~~In ~~success~~conjunction inwith ~~accomplishing~~ these ~~strategic~~ goals, ~~is highly dependent on continued favorable regulatory treatment for its utilities. Both~~ PNM and TNMP ~~seek~~are ~~cost~~dedicated recovery for their investments through general rate cases and various rate riders. The PUCT has approved mechanisms that allow for recovery of capital invested in transmission and distribution projects without having to ~~file a general rate case and allows for more timely recovery of amounts invested in TNMP's systems.~~ :

~~PNM~~• ~~and~~Achieving TNMP completed rate proceedings before their state regulators in 2011. PNM has two rate cases pending before FERC. A settlement in one case is pending FERC approval and an agreement in principle has been reached in the other. In August 2012, the NMPRC approved PNM's application for a renewable energy rider to recover NMPRC approved renewable energy costs. Additional information about rate filings is provided in Note 17 of the Notes to Consolidated Financial Statements in the 2011 Annual Reports on Form 10industry-Kleading ~~and~~safety inperformance Note 10. PNM previously announced that it intended to file a request for an increase in the rates charged to New Mexico retail customers in late 2012, but now anticipates this filing will occur in mid-2013, partially due to the lack of clarity around the timing and ~~amount~~customer ~~of capital that will be required for BART at SJGS, as discussed below.~~ satisfaction


•	Maintaining strong plant performance and reliability

Earning Authorized Returns on Regulated Businesses

PNMR's success in accomplishing its strategic goals is highly dependent on continued favorable regulatory treatment for its utilities. The Company has multiple strategies to achieve favorable regulatory treatment, all of which have as their foundation a focus on the basics: managing the Company's business and serving our customers well, while engaging stakeholders to build productive relationships.

Both PNM and TNMP seek cost recovery for their investments through general rate cases and various rate riders. The PUCT has approved mechanisms that allow for recovery of capital invested in transmission and distribution projects without having to file a general rate case and allow for more timely recovery of amounts invested in TNMP's systems. In 2011 and 2012, PNM made significant progress toward the goal of achieving authorized returns for its retail customers. In 2012, PNM saw additional progress toward achieving authorized returns for its transmission and generation customers regulated by FERC. PNM and TNMP completed several rate proceedings before their state regulators in 2011, 2012, and early 2013. Additional information about rate filings is provided in Note 17 of the Notes to Consolidated Financial Statements in the 2012 Annual Reports on Form 10-K and in Note 10.

Fair and timely rate treatment from regulators is crucial to achieving PNMR's strategic goals because it leads to PNM and TNMP earning their allowed returns. PNMR believes that if the utilities earn their allowed returns, it would be viewed positively by rating agencies and would further improve credit ratings, which could lower costs to customers. Also, earning allowed returns should result in increased earnings for PNMR, which should lead to increased total returns to investors.

PNM's interest in PVNGS Unit 3 is ~~permanently~~ excluded from NMPRC jurisdictional rates. While PVNGS Unit 3's financial contribution is not calculated in the authorized returns on its regulated business, it impacts PNM's earnings and has demonstrated to be a valuable asset. Power generated from PNM's 134 MW interest in PVNGS Unit 3 is currently sold into the wholesale market and any earnings or losses are attributable to shareholders.

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~~Exit~~Continuing ~~from~~to ~~Competitive~~Improve ~~Businesses~~Credit Ratings

AsPNM ais ~~result~~committed ofto ~~the~~maintaining ~~exit~~investment ~~from~~grade ~~its~~credit ~~competitive~~ratings. The ~~businesses,~~credit ~~First~~ratings ~~Choice~~for ~~and~~PNMR, ~~Optim Energy~~PNM, ~~PNMR's~~and ~~business~~TNMP ~~model~~were isset ~~centered~~forth onunder ~~its~~the ~~electric~~heading ~~utilities. The~~Liquidity ~~elimination~~in of the ~~competitive~~MD&A ~~businesses~~contained ~~should~~in ~~reduce~~the ~~PNMR's~~2012 ~~risk~~Annual ~~and~~Reports ~~earnings~~on ~~volatility~~Form 10-K. ~~Additional~~As ~~discussion~~discussed ~~about~~under the ~~exit~~subheading ~~from~~Liquidity ~~the~~in ~~competitive~~MD&A ~~businesses~~below, isS&P ~~found~~raised inthe ~~Notes~~corporate 2credit ratings and 21senior ofdebt ~~the~~ratings ~~Notes~~for toPNMR, ~~Consolidated~~PNM, ~~Financial~~and ~~Statements~~TNMP, inas well as the ~~2011~~preferred ~~Annual~~stock ~~Reports~~rating for PNM, on ~~Form~~April ~~10-K~~5, 2013. S&P retained the outlook as stable for all entities.

~~Business~~Providing ~~Principles~~Top-Quartile Total Returns to Investors

InPNMR's ~~addition~~strategic goal to ~~its~~provide ~~strategic~~top ~~goals,~~quartile ~~three~~total ~~principles~~return ~~drive~~to investors is based on five-year ongoing EPS growth along with five-year average dividend yield. Top quartile total return currently is equal to an average annual rate of 10 percent to 13 percent. PNMR's ~~business~~long-term ~~strategy~~target is a dividend payout ratio of 50 percent to 60 percent of its ongoing earnings. Ongoing earnings, which is a non-GAAP financial measure, excludes certain non-recurring, infrequent, and ~~decision~~other items from earnings determined in accordance with GAAP. The annual common stock dividend was raised by 16 percent in February 2012 and 14 percent in February 2013. PNMR expects to provide above-~~making:~~average dividend growth in the near-term and to manage the payout ratio to meet its long-term target. The PNMR board will continue to evaluate the dividend on an annual basis, considering sustainability and growth, capital planning, and industry standards.

•Business ~~Contribute to the economic vitality of the communities we serve~~Focus

•In ~~Demonstrate~~addition ~~environmental~~to ~~stewardship~~its strategic goals, PNMR's strategy and decision-making are focused on safely providing reliable, affordable, and environmentally responsible power to create enduring value for customers and communities. To accomplish this, PNMR works closely with customers, stakeholders, legislators, and regulators to ensure that our resource plans and infrastructure investments benefit from robust public dialogue and balance the diverse needs of our communities.

•Reliable ~~Exhibit~~and ~~social~~Affordable ~~responsibility~~Power

PNMR Inand ~~support~~its utilities are keenly aware of ~~these~~the ~~principles,~~roles ~~PNMR~~they ~~works~~play ~~closely~~in ~~with~~enhancing ~~customers,~~economic ~~stakeholders,~~vitality ~~legislators,~~in their New Mexico and ~~regulators~~Texas service territories. We believe there is a direct connection between electric infrastructure to ensure ~~that~~reliability ~~our~~and ~~resource~~economic ~~plans~~growth. When ~~and~~considering ~~infrastructure~~expanding ~~investments~~or ~~benefit~~relocating ~~from~~to ~~robust~~other ~~public~~communities, ~~dialogue~~businesses consider energy affordability and energy reliability to be important factors. PNM and TNMP strive to balance ~~the~~service ~~diverse~~affordability ~~needs~~with infrastructure investment to maintain a high level of ~~our~~electric ~~communities~~reliability. The utilities also work to ensure that rates reflect actual costs of providing service.

~~Economic~~Investing ~~Vitality~~in PNM's and TNMP's infrastructure is critical to ensure reliability and meet future energy needs. Both utilities have long-established records of providing customers with top-tier electric reliability. In September 2011, TNMP began its deployment of smart meters in homes and businesses across its Texas service area. Through the end of 2012, TNMP had completed installation of more than 75,000 smart meters. TNMP's deployment is expected to be completed in 2016.

~~PNMR~~As ~~and~~part ~~its utilities are keenly aware~~ of the ~~roles~~State ~~they~~of ~~play in enhancing economic vitality in their New Mexico and~~ Texas' ~~service~~long-term ~~territories. We~~initiative ~~believe~~to ~~there~~create is a ~~direct~~smart ~~connection between~~ electric ~~infrastructure~~grid, ~~and~~the ~~economic~~smart ~~growth. When~~meter ~~considering~~rollout ~~expanding~~will orultimately ~~relocating~~give toconsumers ~~other~~more ~~communities, businesses consider~~ energy ~~affordability~~consumption data and ~~energy~~help ~~reliability~~them tomake bemore ~~important~~informed ~~factors~~decisions. ~~PNM~~In ~~and~~2013, TNMP ~~strive~~will toinstall ~~balance~~a ~~service~~new ~~affordability~~outage ~~with~~management ~~infrastructure~~system ~~investment~~that towill ~~maintain~~leverage acapabilities ~~high level~~ of ~~electric~~the ~~reliability. The~~smart ~~utilities~~meters ~~also work~~ to ~~ensure~~enhance ~~that~~the ~~rates~~company's ~~reflect~~responsiveness ~~actual~~to ~~costs of providing service~~outages.

~~Investing~~During inthe 2010 to 2012 period, PNM's and TNMP's ~~infrastructure~~together isinvested ~~critical~~$803.7 tomillion ~~ensure~~in ~~reliability~~substations, power plants, and ~~meet~~transmission ~~future~~and ~~energy~~distribution ~~needs~~systems in New Mexico and Texas. ~~Both~~In ~~utilities~~2012, ~~have~~PNM ~~long-established~~announced ~~records~~its ofplanned ~~providing~~40 ~~customers~~MW ~~with~~natural ~~top~~gas-~~tier~~fired ~~electric~~La ~~reliability. In~~Luz ~~September~~peaking ~~2011,~~generating ~~TNMP~~station ~~began~~to ~~its~~be ~~deployment~~located ofnear ~~smart~~Belen, ~~meters~~New Mexico. PNM anticipates filing a request in ~~homes~~May ~~and~~2013 ~~businesses~~with ~~across~~the ~~its~~NMPRC ~~Texas~~for ~~service~~approval ~~area. As~~for ~~part~~construction of the ~~State~~La ofLuz ~~Texas'~~project, ~~long-term~~which ~~initiative~~is expected to ~~create~~begin ain ~~smart electric grid~~2014, with the ~~smart~~facility ~~meter~~going ~~rollout~~into ~~will~~service ~~ultimately~~in ~~give~~2016. PNM ~~consumers~~also ~~more~~announced ~~energy~~an ~~consumption~~agreement ~~data~~to ~~and~~purchase ~~help~~Delta, ~~them~~a ~~make~~132 ~~more~~MW ~~informed~~gas-fired ~~decisions. TNMP's~~peaking ~~deployment~~facility, iswhich ~~expected~~has toserved bePNM ~~completed~~jurisdictional inneeds ~~2016.~~under a 20-year purchase power agreement since 2000.

~~Environmental~~Environmentally ~~Stewardship~~Responsible Power

~~For years,~~ PNMR has ~~demonstrated~~a ~~its~~long-standing ~~commitment~~record toof environmental stewardship. ~~PNMR's~~ ~~environmental~~In ~~objectives~~2012 and 2013, its environmental focus onhas ~~four~~been in three key areas:

•Preparing ~~Deploying~~to meet New Mexico's increasing renewable energy requirements as cost-effectively as possible

• ~~Reducing~~Developing ~~emissions~~strategies ~~from~~to ~~existing~~meet ~~fossil~~regional haze rules at the coal-~~fueled~~fired ~~power~~SJGS ~~plants~~as cost effectively as possible while providing broad environmental benefits

• Increasing energy efficiency participation

• Reducing waste

In 2011, PNM completed its $95 million investment in a utility-owned renewable energy project when five utility-scale solar facilities went online. The five solar sites located in Alamogordo, Deming, Los Lunas, Las Vegas, and Albuquerque provide a combined 22 MW of power. A sixth facility, the 500-KW PNM Prosperity Energy Storage Project, uses advanced batteries to store solar power and dispatch the energy either during high-use periods or when solar production is limited. The project features one of the largest combinations of battery storage and PV energy in the nation and involves extensive research and development of smart grid concepts with the Electric Power Research Institute, East Penn Manufacturing Co., Northern New Mexico College, Sandia National Laboratories, and the University of New Mexico. When the facility went online in September 2011, it was the nation's first solar storage facility fully integrated into a utility's power grid.

In addition, PNM's resource portfolio includes the purchase of 200 MW of wind power. PNM also purchases power from a customer-owned distributed solar generation program having an installed capacity of 14 MW at the end of 2011, which capacity is expected to increase to 21 MW by the end of 2012. Distributed generation, wind, and solar power are key means for PNM to meet the RPS established by the REA and related regulations issued by the NMPRC. These rules require a utility to achieve prescribed levels of energy sales from renewable sources within its generation mix, if that can be accomplished without exceeding the RCT cost limit set by the NMPRC, which aims to moderate the cost to consumers when utilities use more renewable resources.

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~~PNM~~Another ~~sought~~area ~~and~~of ~~received~~emphasis ais ~~waiver~~the ~~from~~reduction of the ~~NMPRC~~amount ~~excusing~~of itfresh ~~from~~water ~~meeting~~used during the ~~RPS~~generation inof ~~2012~~power ~~because~~at ~~the~~PNM's ~~cost~~power plants. The fresh water used per MWh generated has dropped by 22.3% since 2002, primarily due to ~~achieve~~the growth of renewable energy sources, the ~~full~~expansion ~~RPS~~of ~~would~~Afton ~~exceed~~to combined-cycle plant that has both air and water cooling systems, and the ~~RCT~~use of gray water for cooling at Luna. ~~However~~In addition to the above areas of focus, ~~PNM~~in ~~will~~2013, ~~continue~~the toCompany ~~procure~~also ~~renewable~~will ~~resources~~be ~~while~~working ~~balancing~~to reduce the ~~bill~~amount ~~impact~~of solid waste going to ~~customers~~landfills through increased recycling and reduction of waste. The Company has performed well in ~~order~~this toarea ~~meet~~in ~~New~~the ~~Mexico's~~past ~~escalating~~and ~~RPS~~has ~~requirements~~set goals for even further reductions.

On ~~April 30, 2012, PNM filed its 2013~~ Renewable Energy ~~Plan, which calls for:~~

•In 202012, PNM filed and the NMPRC approved PNM's 2013 renewable procurement strategy. The approved strategy will almost double PNM's solar capacity with the addition of 21.5 MW of ~~PNM~~utility-owned solar ~~facilities~~capacity having an estimated cost of almost $50 million. In addition to the solar expansion, the 2013 proposal includes a 20-year agreement to purchase energy from a geothermal facility to be inbuilt ~~service~~near byLordsburg, New Mexico. The 10 MW facility will be the ~~end~~first ofgeothermal ~~2013~~project for the PNM system.

•In Aaddition ~~20-year~~to ~~PPA~~the ~~for~~22 MW of solar currently available through the ~~output~~five ofplants constructed in 2011, PNM also owns a 10sixth facility, the 500-MWKW ~~geothermal~~PNM ~~facility~~Prosperity Energy Storage Project, which uses advanced batteries to bestore solar power and dispatch the energy either during high-use periods or when solar production is limited. The project features one of the largest combinations of battery storage and PV energy in ~~service~~the bynation ~~January~~and 1involves extensive research and development of smart grid concepts with the Electric Power Research Institute, ~~2014~~East Penn Manufacturing Co., Northern New Mexico College, Sandia National Laboratories, and the University of New Mexico. When the facility went online in September 2011, it was the nation's first solar storage facility fully integrated into a utility's power grid.

•PNM's ~~Limited~~resource portfolio includes the purchase of 204 MW of wind power. PNM also purchases power from a customer-owned distributed solar generation program having an installed capacity of 19.8 MW at the end of 2012. Distributed generation, wind, and solar ~~REC~~power ~~purchases~~are inkey ~~2013~~means for PNM to meet the RPS established by the REA and related regulations issued by the NMPRC. These rules require a utility to achieve prescribed levels of energy sales from renewable sources within its generation mix, if that can be accomplished without exceeding the RCT cost limit set by the NMPRC, which aims to moderate the cost to consumers when utilities use more renewable resources.

~~The~~PNM ~~proposed~~sought ~~plan~~and ~~would~~received a waiver from the NMPRC excusing it from meeting the RPS in 2012 because the cost to achieve the full RPS ~~quantity~~would ~~compliance~~exceed the RCT. The 2013 plan will enable PNM to comply with the statutory RPS amount in 2013, but ~~likely~~required ~~will~~a bevariance ~~slightly~~from ~~below~~the NMPRC's diversity requirements in 2013 while the ~~20%~~proposed ~~solar~~geothermal ~~renewable~~facilities ~~energy~~are ~~diversity~~being ~~requirement~~constructed. ~~However,~~Although ~~the~~this plan ~~would~~had been expected to enable PNM to achieve full RPS quantity and diversity compliance inby 2014 ~~and~~without ~~will~~exceeding bethe ~~beneath~~RCT, delays in the ~~RCT~~permitting process for ~~both~~the ~~years~~geothermal facility have delayed its anticipated in-service date to later in 2014. APNM ~~hearing~~does onnot believe this delay will affect its ability to comply with the ~~proposed~~diversity ~~plan~~requirements ~~was~~as ~~held~~amended in ~~September~~December 2012. PNM ~~before~~will continue to procure renewable resources while balancing the ~~NMPRC~~bill ~~and~~impact ato ~~decision~~customers isin ~~expected~~order byto ~~November~~meet ~~30,~~New ~~2012~~Mexico's escalating RPS requirements.

~~PNM's~~ SJGS near Farmington, New Mexico, is one of the top performers in the nation with respect to mercury removal. The plant outperforms the mercury limit imposed by EPA in the 2011 Mercury and Air Toxics Standards. Major environmental upgrades on each of the four units at SJGS, which were completed in early 2009, have significantly reduced emissions of NOx, SO2, particulate matter, and mercury. PNM's share of the costs of these upgrades was $161 million. Since 2006, SJGS has reduced NOx emissions by 38%, SO2 by 69%, particulate matter by 65%, and mercury by 99%.

InPNM ~~order~~continues toits ~~keep~~efforts ~~costs~~ to ~~customers~~comply aswith ~~low~~the asEPA ~~possible while also reducing visibility impairment related to~~ regional haze, ~~PNM~~rule ~~has~~in ~~supported the installation of SNCRs at SJGS,~~ a ~~technology~~manner ~~also~~that ~~proposed~~minimizes by the ~~State~~cost ofimpact ~~New~~to ~~Mexico~~customers towhile ~~meet~~still ~~the~~achieving ~~regional~~broad ~~haze~~environmental ~~regulations~~benefits. ~~However,~~ EPA's ~~issued its~~ FIP ~~requiring~~for ~~SCRs~~regional tohaze becurrently ~~installed~~in ateffect ~~SJGS,~~requires ~~which PNM estimates would significantly exceed~~ the ~~cost~~installation of ~~installing SNCRs. Due to the compliance deadline under the FIP, PNM is preparing to install~~ SCRs aton ~~SJGS~~all ~~while~~four ~~simultaneously~~units ~~pursuing two other paths regarding BART~~ at SJGS~~. PNM~~ isby ~~pursuing~~September ~~legal relief in the Tenth Circuit and administrative relief from the EPA regarding the FIP~~2016. ~~PNM is also participating in discussions with stakeholders regarding an alternative to the FIP and SIP. See Note 9.~~

On ~~PNM~~February is15, ~~challenging~~2013, ~~EPA's~~PNM, ~~proposal~~NMED, ~~in the courts~~ and ~~administratively within~~ EPA~~. Oral~~ ~~arguments~~agreed onto ~~the~~pursue ~~court~~a ~~challenge~~revised ~~were~~plan ~~held~~that ~~October~~could ~~23,~~provide ~~2012,~~a ~~but~~new noBART ~~decision~~path ~~has~~to ~~been~~comply ~~issued. There~~with isfederal novisibility ~~deadline~~rules ~~for~~at ~~a court decision~~SJGS. InThe ~~July~~terms ~~2012,~~of the ~~NMED~~non-binding ~~established a process to explore whether stakeholders could reach~~ agreement ~~on an alternative to SCRs and SNCRs. PNM supported that process and advocated for alternatives that~~ would ~~cost~~result ~~consumers~~in ~~less than~~ the ~~FIP~~retirement ~~while~~of ~~also~~SJGS ~~achieving~~Units ~~environmental~~2 ~~benefits~~ and ~~considering~~3 ~~economic~~by ~~impact to New Mexico. In September 2012, NMED proposed an alternative to EPA suggesting~~ the ~~closure~~end of ~~Units~~2017 1 and ~~2 at SJGS and~~ the installation of SNCRs on Units 31 and 4 by the ~~end~~later of ~~2017. The~~January ~~NMED~~31, ~~also~~2016 ~~suggested~~or ~~replacement~~15 ofmonths ~~PNM's~~after ~~share~~EPA approval of ~~the~~a ~~capacity~~revised SIP from the ~~two~~State ~~closed~~of ~~units~~New ~~with gas-fired generation~~Mexico. ~~The~~PNM ~~Company~~would ~~views~~also ~~the~~build ~~NMED~~a ~~proposal~~natural asgas-fired anpeaking ~~important~~generating ~~step~~plant into ~~meeting~~be ~~the~~sited ~~objectives of addressing the environmental needs of the regional haze program~~ at aSJGS ~~lower cost~~ to ~~customers~~partially ~~while~~replace ~~balancing~~ the ~~economic~~capacity ~~impact~~from to the ~~"four~~retired ~~corners"~~coal ~~region~~units. InAdditional ~~order~~base ~~for~~load ~~the~~generating ~~NMED~~capacity ~~proposal~~may toalso ~~proceed, there would need to~~ be ~~an agreement in principle among EPA~~required, ~~NMED,~~which ~~and~~could ~~PNM. The~~come ~~proposal~~from ~~would~~PVNGS ~~also~~Unit be3 ~~subject~~or toadditional ~~approval~~gas-fired ~~by the other owner of SJGS Units 1 and 2, as well as various regulatory agencies~~generation. ~~The~~Implementing ~~proposal~~this ~~could~~plan ~~also~~would ~~be subject to administrative and judicial challenge by others.~~ include:

In• ~~order~~NMED todevelopment ~~be able to install SCRs on all four units~~ of ~~SJGS by the compliance deadline set forth in the FIP, PNM obtained bids for the installation of SCR technology. PNM entered into~~ a ~~contract~~revised on October 31, 2012 with an engineering, procurement, and construction contractor to install SCRs and is negotiating a contract with an engineering firm for construction management services on behalf of the SJGS owners. The construction contract includes termination provisions in the event that SCRs are determined in the future to be unnecessary. The construction contract contains a cost estimate, which will be refined through an “open book” subcontractor bidding process with final costs to be determined by June 30, 2013. Based on the indicative bid for construction, PNM estimates the total cost to install SCRs on all four units of SJGS will be between approximately $824 million and $910 million, which amounts include costs for construction management, gross receipts taxes, AFUDC, and other PNM costs. PNM's share of the costs would be about 46.3% based upon its SJGS ownership interest.SIP

~~Energy~~• ~~effi~~

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