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

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.              )

 

 

 

PNM Resources, Inc. Alvarado Square Albuquerque, NM  87158

 

Notice of Annual Meeting of Shareholders

Tuesday, May 22, 2007

9:00 a.m., Mountain Daylight Time

South Broadway Cultural Center

1025 Broadway, SE

Albuquerque, New Mexico

April 12, 2007

Dear Shareholder:

You are cordially invited to attend the Annual Meeting of Shareholders of PNM Resources, Inc.   The meeting will be held on Tuesday, May 22, 2007, at 9:00 a.m. (Mountain Daylight Time), at the South Broadway Cultural Center, 1025 Broadway, SE, Albuquerque, New Mexico.  A map to the meeting location is included on the back page of this proxy statement for your reference.

At the meeting, shareholders are being asked to:

·                  Elect nine (9) directors.

·                  Approve the appointment of Deloitte & Touche LLP, as independent public accountants for 2007.

·                  Transact any other business properly brought up at the meeting.

Holders of PNM Resources, Inc. common stock of record at the close of business April 2, 2007 may vote at the meeting.

This proxy statement and proxy card are being distributed on or about April 12, 2007.  Whether or not you plan to attend the meeting, please complete and return the accompanying proxy card or vote by telephone or the Internet promptly, so that we can be assured of having a quorum present at the meeting and so your shares may be voted in accordance with your wishes.  Your vote is important.  The continuing interest of our shareholders in the business of PNM Resources, Inc. is appreciated and we hope you will be able to attend.

Sincerely,

 

Jeffry E. Sterba

Chairman of the Board, President and

Chief Executive Officer

TABLE OF CONTENTS

Notice of Annual Meeting of Shareholders
Table of Contents
Glossary
Summary of Proposals You Are Asked to Vote On
Introduction
Governance
Code of Ethics
Other Governance Policies
Attendance and Voting Matters
Proposal 1: Election of Directors
General Information
Directors Nominated This Year
Director Independence
Board Meetings
Communication with the Board
Director Service Policy
Board Committees and their Functions
PNM Resources Common Stock Owned by Executive Officers and Directors
Ownership of More than Five Percent of PNM Resources Common Stock
Related Person Transactions
Director Compensation
Summary of Non-Employee Director Compensation in 2006
Stock Ownership Guidelines
Audit and Ethics Committee Report
Independent Auditor Fees
Proposal 2: Approval of Independent Public Accountants
Executive Compensation
Compensation Discussion and Analysis
Compensation Committee Report
Summary of Executive Compensation in 2006
Equity Compensation Plan Information
Other Matters
Appendix A – Corporate Governance Principles
Appendix B – Stock Option Grant Policy
Appendix C – Policy and Procedure Governing Related Party Transactions
Appendix D – Audit and Ethics Committee Charter
Appendix E – Finance Committee Charter
Appendix F – Governance and Public Policy Committee Charter
Appendix G – Human Resources and Compensation Committee Charter

 

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GLOSSARY OF TERMS USED IN THIS PROXY

Audit Committee		Audit and Ethics Committee of the Board
Annual Meeting		2007 Annual Meeting of PNMR shareholders to be held on May 22, 2007
Board		Board of Directors of PNM Resources
Cascade		Cascade Investment, L.L.C.
CAO		Chief Administrative Officer of PNMR
CEO		Chief Executive Officer of PNMR
CFO		Chief Financial Officer of PNMR
Company, PNMR or PNM Resources		PNM Resources, Inc.
Compensation Committee, Committee or HRCC		Human Resources and Compensation Committee of the Board
Consultant		Outside compensation consultant retained by HRCC, currently, Kennedy & Rand Consulting, Inc.
Deloitte & Touche		Deloitte & Touche, LLP
ESA		PNMR Executive Spending Account Plan
ECJV		ECJV Holdings, LLC
ERP		PNMR Employees’ Retirement Plan
ESP		PNMR Executive Savings Plan
ESP II		PNMR Executive Savings Plan II
ESPP		PNMR Employee Stock Purchase Plan
GPPC		Governance and Public Policy Committee of the Board
HRCC		Human Resources and Compensation Committee of the Board
Incentive EPS		Adjusted earnings per share measure used for OIP award purposes
Index		S&P Midcap 400 Utilities Index
LT$		PNMR Long-term Performance Cash Program
NEO(s) or Named Executive Officer(s)		Named executive officers of PNMR consisting of the CEO, CFO and the 3 other highest paid executives
NYSE		New York Stock Exchange
OIP		PNMR 2006 Officer Incentive Plan
OPT		Award of stock options under the PEP
Peer Group		Utility and energy companies within the S&P Midcap 400 Utilities Index that comprise PNMR’s compensation peer group
PEP or Performance Equity Plan		PNMR Omnibus Performance Equity Plan
PNM		Public Service Company of New Mexico, a wholly owned subsidiary of PNM Resources
PNMR		PNM Resources, Inc., a company which trades on the NYSE under the symbol “PNM”
PNM Resources		PNM Resources, Inc.
PSA		Award of performance shares under the PEP
PSP		PNMR Performance Stock Plan (expired in 2000, except as to then outstanding options)
Retention Plan		PNMR Officer Retention Plan
RSP		PNMR Retirement Savings Plan, a 401(k) plan
SEC		Securities and Exchange Commission
SERP		Supplemental employee retirement agreement either between (1) PNMR and Mr. Sterba or (2) PNMR and Mr. Ortiz
Tax Code		Internal Revenue Code of 1986, as amended
Towers Perrin Compensation Database		Towers Perrin Energy Services Compensation Survey Database
TNMP		Texas-New Mexico Power Company, a wholly-owned subsidiary of PNMR
TSR		PNMR’s total shareholder return as calculated under the LT$

 

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PNM Resources, Inc.

Proxy Statement for 2007 Annual Meeting of Shareholders

Tuesday, May 22, 2007

SUMMARY OF PROPOSALS YOU ARE ASKED TO VOTE ON

This proxy statement summarizes the information you need to know to vote at the 2007 Annual Meeting of Shareholders (“Annual Meeting”).  You do not need to attend the Annual Meeting to vote your shares.  We first mailed the proxy statement and proxy card to shareholders on or about April 12, 2007.  For a complete listing of terms defined and used in this proxy statement, see the Glossary on page ii.

Proposal 1 — Election of Directors

All nine current members of the Board of Directors of PNM Resources, Inc. (the “Board”) are seeking election for one-year terms at this year’s Annual Meeting.  The Board recommends:

 

for election to the Board at the Annual Meeting.  Detailed information about these nominees is provided beginning on page 5.

If a nominee becomes unavailable for election, proxy holders will vote for another nominee proposed by the Board or the seat will remain vacant until the Board proposes another nominee.

The Board of Directors unanimously recommends a vote FOR each director nominee.

Proposal 2 — Approval of Independent Public Accountants

The Audit and Ethics Committee (“Audit Committee”) of the Board, which is composed entirely of independent non-employee directors, selects and hires the independent registered public accountant, subject to ratification by the Company’s shareholders, to audit the Company’s books.  The Audit Committee has selected Deloitte & Touche LLP to audit the Company’s consolidated financial statements for the fiscal year beginning January 1, 2007.

Representatives of Deloitte & Touche LLP will attend the Annual Meeting, where they will have the opportunity to make statements and answer questions.  If shareholders fail to ratify the appointment of Deloitte & Touche LLP, the Audit Committee would reconsider its selection.

The Board of Directors unanimously recommends a vote FOR the appointment of Deloitte & Touche LLP, as independent public accountants for fiscal year 2007.

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INTRODUCTION

PNM Resources, Inc. (“PNM Resources,” “PNMR,” or the “Company”) is an investor-owned holding company of energy and energy-related businesses.  Its headquarters are in Albuquerque, New Mexico and it trades on the New York Stock Exchange (“NYSE”) under the symbol “PNM.”

Governance

The Board recognizes the importance of corporate governance to the proper management of the Company.  Accordingly, the Board has organized the various governance policies adopted and practiced over the years into a consolidated Corporate Governance Principles document so that investors, employees, customers, regulators and the community may be aware of the policies followed by the Company.  These principles have been approved by the full Board after analysis of policy considerations and peer benchmarks.  The Board has chosen those practices it believes to be in the best interests of its investors.  Because the Board recognizes the on-going debate with regard to corporate governance practices, it has charged its Governance and Public Policy Committee with reviewing the principles at least annually (more often if necessary) and recommending any necessary changes to the Board.

The Corporate Governance Principles document was amended in 2006 by adding new sections on Communication with the Board and Board Meeting Materials, and enhancing the “Independence Section” to clarify that PNM Resources follows the NYSE independence requirements.  The Corporate Governance Principles document is attached as Appendix A, and can also be found on PNM Resources’ website at www.pnmresources.com/ge/cg.  The principles document sets forth key practices and addresses the following:

·                  Responsibilities of the Board

·                  Process for Director Nominations

·                  Director Qualifications

·                  Director Independence

·                  Planning/Oversight Functions

·                  Stock Ownership Guidelines

·                  Director Service

·                  Director Compensation

Code of Ethics

The Company has adopted a code of ethics, Do the Right Thing-Principles of Business Conduct, that applies to all directors, officers (including the principal executive officer, principal financial officer and principal accounting officer) and employees.  Do the Right Thing is available in print to any shareholder who requests it by writing to the Ethics and Compliance Department, PNM Resources, Inc., Alvarado Square, MS-2804, Albuquerque New Mexico 87158.  Do the Right Thing is also available on our website at www.pnmresources.com/ge/ec.  The Company will post amendments to or waivers from its code of ethics (to the extent applicable to the Company’s executive officers and directors) at this location on its website.

Concerns relating to financial statement disclosures, accounting, internal accounting controls, or auditing matters, and other matters involving violations of law are handled in accordance with the complaint procedures adopted by the Audit and Ethics Committee that are posted on the Company’s website at www.pnmresources.com/ge/cg. The Company also established an anonymous/confidential hotline through which employees and others may report concerns about the Company’s business practices.

OTHER GOVERNANCE POLICIES

Stock Option Grant Policy

In light of recent SEC guidance for public companies regarding stock option grant disclosures and the suggestion to provide narrative disclosure regarding a company’s option granting policies, the Board adopted the Stock Option Grant Policy on December 4, 2006, which governs the granting of all forms of equity compensation.  The policy was amended in February 2007 to set forth additional good governance procedures for making equity awards when the

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regular schedule for the grant of equity compensation falls within a black-out period for trading in the Company’s securities under PNM Resources’ Insider Trading Policy.  The Stock Option Grant Policy, as amended to date, is attached as Appendix B, and can also be found on our website at www.pnmresources.com/ge/cg.

The Company also took a proactive approach in conducting an internal audit review of past stock grant practices, and no issues relating to backdating or any other irregularities were identified in the audit review.

Related Person Transactions Policy

On February 13, 2007, the Board approved the “Policy and Procedures Governing Related Party Transactions,” attached as Appendix C to this proxy statement, and posted on our website at www.pnmresources.com/ge/cg.  The policy provides that all transactions with executive officers, directors or greater than 5% shareholders or any immediate family member of any of the foregoing where the aggregate amount involved is expected to exceed $120,000 per year, are subject to pre-approval or ratification by the Governance and Public Policy Committee (“GPPC”), or by the Board or another committee in the normal fulfillment of their respective charters and responsibilities. In determining whether to approve such transactions, the GPCC will consider, among other factors, the extent of the related person’s interest in the transaction; the availability of other sources of comparable products or services; whether the terms are no less favorable than terms generally available in unaffiliated transactions under like circumstances; the benefit to PNMR; and the aggregate value of the transaction at issue.

Attendance and Voting Matters

Admission tickets will be distributed at the registration tables in the lobby of the South Broadway Cultural Center prior to the Annual Meeting.  Attendance is limited to shareholders of record on April 2, 2007.  If your shares are held in the name of your broker, bank, or other nominee, please bring an account statement or letter from the nominee indicating that you are the beneficial owner of the shares as of the record date.

For your convenience, we have established four easy methods for voting:

In Person:		You can attend and cast your vote at the Annual Meeting.
By Telephone:		For automated telephone voting, call 1-866-540-5760 (toll free). (Please refer to the instructions on the enclosed proxy card.)
By Internet:		Access http://www.proxyvoting.com/pnm (Please refer to the instructions on the enclosed proxy card. NOTE: There is a different Internet address for shares held in the 401(k) plan. Access http://www.proxyvoting.com/pnm-emp) Shareholders voting through the Internet should understand that there may be costs associated with electronic access, such as usage charges from Internet access providers and telephone companies that must be paid by the shareholder.
By Mail:		Simply return your executed proxy card in the enclosed postage-paid envelope.

 

Your shares will be voted in the manner you indicate.  In the absence of specific instructions, proxies will be voted by those named in the proxy FOR the election of the directors nominated, FOR the approval of the selection of Deloitte & Touche LLP (“Deloitte & Touche”), as independent public accountants, and on all other matters in accordance with their judgment.  Any subsequent vote by any means will change your prior vote.  The last vote actually received before the Annual Meeting will be the one counted.  You may also revoke your proxy by voting in person at the Annual Meeting.

Each share of PNM Resources common stock you own entitles you to one vote.  As of April 2, 2007, there were 76,683,386 shares of PNM Resources common stock outstanding.

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Quorum and Vote Necessary for Action - A quorum of shareholders is necessary to hold a valid meeting. If at least a majority of the PNM Resources common stock outstanding on the record date is represented at the Annual Meeting, in person or by proxy, a quorum will exist.

A quorum and the affirmative vote of the holders of a majority of the shares of PNM Resources common stock present, in person or by proxy, and entitled to vote at the Annual Meeting are required to elect directors, and approve the appointment of independent public accountants.   Abstentions will have the effect of a vote against these matters, while broker non-votes will not be counted in calculating voting results on these matters.

Shares Held In Street Name - If your shares are registered in your name on the books and records of the Company’s transfer agent, you are a registered stockholder.  If your shares are held for you in the name of your broker or bank, your shares are held in street name.   If you do not return your proxy and your shares are held in street name, your brokerage firm may vote your shares on certain “routine” matters.   When a brokerage firm votes its customers’ unvoted shares on routine matters, these shares are counted to determine if a quorum exists to conduct business at the meeting.  The election of directors and the approval of the appointment of Deloitte & Touche as independent public accountants for 2007 are considered routine matters for which brokerage firms may vote your shares without your proxy.

A broker non-vote occurs when a broker is not permitted under NYSE rules to vote on a “non-routine” matter without instructions from the beneficial owner of the shares and no instruction is given.  There are no non-routine matters on the ballot this year.

Shares Held in the Retirement Savings Plan (“RSP”) — If you are a participant in the RSP (a 401(k) Plan) and shares of PNM Resources have been allocated to your account under the PNM Resources Stock Fund investment option of the RSP, then you will receive a separate vote authorization form and supplemental materials on voting instructions for these shares from the Corporate Investment Committee.

Voting Registered Shares, Including Shares Held in the Employee Stock Purchase Plan (“ESPP”) and RSP Shares — Please use the enclosed proxy card to vote your registered shares, which includes shares purchased by employees through the ESPP prior to the record date.  Thus, if you are a registered shareholder and have shares allocated to your RSP account, you will need to vote your registered shares with the proxy card and vote your RSP shares with the RSP vote authorization form.

Matters Raised at the Meeting not Included in this Proxy Statement — The Board knows of no other business to be conducted at the Annual Meeting other than those discussed in this proxy statement.  If any other matter is properly presented, the proxy committee will vote on the matter in accordance with its judgment.  Shareholders attending the meeting will directly vote on those matters.

PROPOSAL 1:  ELECTION OF DIRECTORS (PROPOSAL 1 ON YOUR PROXY CARD)

General Information

All nine current directors are seeking election for one-year terms at this year’s Annual Meeting.  There are no vacancies as the Board fixed the number of directors at nine effective with the 2006 Annual Meeting.  No third party fees were paid in 2006 for identifying Board candidates.

The Director Service Policy provides that ordinarily a director will not serve for more than 12 years on the Board.  Robert M. Price has served as a director for 15 years.  The Board is recommending that Mr. Price be elected to serve an additional one-year term because Mr. Price’s continued service is in the best interests of the Company due to his extensive qualifications and experience which will be critical as the Company pursues its growth strategies, including the start-up of its recently announced joint venture with a subsidiary of Cascade Investment, L.L.C.  In accordance with the Director Service Policy, referenced in this proxy on page 9, Mr. Price submitted a written resignation to the Board for acceptance at such time as the Board, in its discretion, deems advisable.  There is no current expectation that the resignation would be accepted by the Board within the one-year term.

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Each nominee has consented to being nominated and to serve if elected. In the unlikely event that any nominee becomes unable to serve for any reason, the proxies will be voted for a substitute nominee selected by the Board upon the recommendation of the Governance and Public Policy Committee of the Board.  Alternatively, the seat will remain vacant if a substitute nominee is not selected prior to the Annual Meeting.

 All of the director nominees are non-employee independent directors, except Jeffry E. Sterba, Chief Executive Officer of the Company.  Biographical information regarding each nominee is noted below.

DIRECTORS NOMINATED THIS YEAR — TERM EXPIRING IN 2008

	Adelmo E. Archuleta Director since July 15, 2003
	Principal Occupation During Past Five Years: President and CEO, Molzen-Corbin & Associates, a New Mexico consulting engineering and architecture firm, since 1982
	Mr. Archuleta, age 56, is a resident of Albuquerque, New Mexico, and holds a Master’s degree in Civil Engineering from New Mexico State University.  He joined Molzen-Corbin & Associates in 1975, and has led the firm as its President and Chief Executive Officer since 1982.  Other directorships include:  the Bank of Albuquerque; Presbyterian Healthcare Services; the United Way of Central New Mexico; and Explora Children and Science Museum. Mr. Archuleta currently serves on the Audit and Ethics Committee and the Human Resources and Compensation Committee.

 

Julie A. Dobson Director since July 16, 2002

Principal Occupation During Past Five Years: Chairman, TeleBright Corp., a telecommunications decision-support technology company, since 2002 Chief Operating Officer, TeleCorp PCS, 1998-2002   Ms. Dobson, age 50, is a resident of Potomac, Maryland, and was Chief Operating Officer and one of the founding principals of TeleCorp PCS, a wireless/mobile phone company serving more than a million customers when sold to AT&T Wireless.  A 1978 William & Mary graduate, she earned an MBA in Finance at the University of Pittsburgh the following year before beginning a long career in what became Verizon, starting in sales with Bell of Pennsylvania, and concluding as president of one of the company’s non-regulated businesses, Bell Atlantic Mobile (New York).  Other directorships include:  Safeguard Scientifics, Inc., Wayne, PA; and LCCI, McLean, VA.  Ms. Dobson currently serves as Chair of the Finance Committee and is a member of the Audit and Ethics Committee.  The Board of Directors has determined that Ms. Dobson qualifies as an “audit committee financial expert” as defined by the SEC regulations.

 

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Woody L. Hunt Director since September 27, 2005   Principal Occupation During Past Five Years: Chairman and Chief Executive Officer, Hunt Building Co., Ltd, and Affiliated Companies, since 1977   Mr. Hunt, age 61, is a resident of El Paso, Texas, and is chief executive officer of Hunt Building Company, Ltd., a privately owned development, construction, and property management company based in El Paso.  He graduated with honors from the University of Texas at Austin with a Bachelor’s degree in Finance in 1966 and an MBA in Finance in 1970.  He earned an M.A. in management from the Claremont Graduate School in California in 1989.  He is a former director of The University of Texas Investment Management Company.  Mr. Hunt serves on the Audit and Ethics and Finance Committees and has been designated an “audit committee financial expert” as defined by the SEC regulations.

 

Charles E. McMahen Director since May 17, 2005

Principal Occupation During Past Five Years: Retired December 31, 2003, as an officer of Compass Bank and Compass Bancshares Vice Chairman of Compass Bank and Compass Bancshares - 1999-2003   Mr. McMahen, age 67, is a resident of Schulenburg, Texas, and retired from Compass Bank and Compass Bancshares in 2003.  A graduate from the University of Houston, he earned a Bachelor of Business Administration degree in Accounting.  He is the recipient of the Distinguished Alumnus Award from the University of Houston and in 2002 was awarded an Honorary Doctorate degree.  Other directorships include: Compass Bancshares, Inc., and Enterprise GP Holdings, L.P for which he serves as Chair of the Audit, Conflicts and Governance Committee.  Enterprise GP Holdings L.P. is an energy company providing a range of processing, storage and transportation services. Mr. McMahen currently serves as Chair of the Audit and Ethics Committee, and is a member of the Human Resources and Compensation Committee.  The Board of Directors has determined that Mr. McMahen qualifies as an “audit committee financial expert” as defined by the SEC regulations.

 

	Manuel T. Pacheco, Ph.D. Director since November 20, 2001
	Principal Occupation During Past Five Years: Interim President, Highlands University — July 2006-January 2007 Retired President, University of Missouri System — 1997-2003
	Dr. Pacheco, age 65, is a resident of Phoenix, Arizona, and served as Interim President of New Mexico Highlands University, Las Vegas, New Mexico, from July 2006 to January 2007.  He retired in 2003 as the President of the University of Missouri System.  From 1984 to 1997, he served as President of various universities, including the University of Arizona and the University of Houston. He holds a Doctorate degree in Foreign Language Education.  Dr. Pacheco currently serves as Chair of the Governance and Public Policy Committee and is a member of the Human Resources and Compensation Committee.

 

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	Robert M. Price Director since July 7, 1992
	Principal Occupation During Past Five Years: President, PSV, Inc., a technology consulting business, since 1990
	Mr. Price, age 76, is a resident of Edina, Minnesota, and has been President of PSV Inc. located in Burnsville, MN, since 1990.  Between 1961 and 1990, Mr. Price served in various executive positions, including Chairman and Chief Executive Officer, of Control Data Corporation, a mainframe computer manufacturer and business services provider.  Other directorships include:  Affinity Technology Group, Inc. and Datalink Corporation.  He currently serves as a member of the Human Resources and Compensation Committee, Finance Committee and Governance and Public Policy Committee.

 

	Bonnie S. Reitz Director since July 16, 2002
	Principal Occupation During Past Five Years: Owner, InsideOut…Culture to Customer, a business consulting company, since March 2003 President, EOS Airlines, a new premium transatlantic airline - April-August 2005 Senior Vice President, Sales and Distribution, Continental Airlines, Inc., 1994-2003
	Ms. Reitz, age 54, is a resident of St. Petersburg, Florida, and is the owner/founder of InsideOut…Culture to Customer, a business consulting company.  Ms. Reitz was President of EOS Airlines from April to August 2005.  Ms. Reitz retired in 2003, as Senior Vice President for Sales and Distribution of Continental Airlines.  Ms. Reitz is a 1974 Purdue graduate and began her career in the airline industry in 1977.  Other directorships include: Express Jet Holdings of Houston, Texas for which she serves on the compensation committee, and the local and national organizations of Dress for Success.  Ms. Reitz currently serves as Chair of the Human Resources and Compensation Committee and is a member of the Governance and Public Policy Committee.

 

	Jeffry E. Sterba Director since March 7, 2000
	Principal Occupation During Past Five Years: Chairman, President and Chief Executive Officer, PNM Resources, Inc. since 2000 Executive Vice President, USEC, 1999-2000 Executive Vice President and Chief Operating Officer, Public Service Company of New Mexico (“PNM”), 1997-1999   Mr. Sterba, age 52, is a resident of Albuquerque, New Mexico, and is Chairman, President and Chief Executive Officer of PNM Resources and PNM.  Mr. Sterba became President of PNM on March 6, 2000, became President and CEO of PNM on June 6, 2000, and was elected Chairman of the Board of the Company on October 1, 2000.  Previously, Mr. Sterba served as Executive Vice President of USEC, Inc., from January 1999 to February 2000.  Before joining USEC in January 1999, Mr. Sterba was Executive Vice President and Chief Operating Officer of PNM overseeing all of its business units.  During his previous years at the Company, Mr. Sterba held various executive positions and was responsible for bulk power services, corporate strategy and asset restructuring,  retail  electric  and  water  services,  and  electric  business

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development and finance.  Other directorships in addition to various Company subsidiaries include: Vice Chair, Edison Electric Institute; Chair, Electric Power Research Institute; U. S. Chamber of Commerce; and EnergyCo, LLC.  Mr. Sterba also serves on an advisory board for Wells Fargo Bank, N.A.

 

	Joan B. Woodard Director since July 15, 2003
	Principal Occupation During Past Five Years: Executive Vice President and Deputy Director, Sandia National Laboratories, since March 1999
	Dr. Woodard, age 54, is a resident of Albuquerque, New Mexico, and is Executive Vice President and Deputy Director for Sandia National Laboratories in Albuquerque. She holds a Doctorate degree in Mechanical Engineering from the University of California.  She is currently responsible for the nuclear deterrent program at the lab, and previously served as the lead Vice President for energy research and development and as the chief operations officer.    She serves on advisory boards for the University of Missouri, as well as the Air Force Scientific Advisory Board.  Dr. Woodard currently serves on the Governance and Public Policy Committee, the Finance Committee, and as the presiding director of the independent directors’ meetings.

 

The Board of Directors unanimously recommends a vote FOR each director nominee.

DIRECTOR INDEPENDENCE

In accordance with the Company’s Corporate Governance Principles, the Board has affirmatively determined that all of the directors, except Jeffry E. Sterba, are independent of PNM Resources and its management.  Mr. Sterba is considered an inside director because of his employment as the senior executive.  In addition to determining that all of the non-employee directors of PNM Resources satisfy all of the specific independence criteria under applicable law, including the NYSE listing standards, the Board determined that there were no direct or indirect relationships between PNM Resources and each non-employee director (other than service on the Board or a Board committee, or being a shareholder or a retail utility customer of the Company).

BOARD MEETINGS

The Chairman of the Board presides at all meetings of the shareholders and of the Board.  In circumstances where the independent directors meet without the Chairman, the Board selects a presiding director.  A presiding director is nominated and approved by the independent directors annually.  Dr. Joan B. Woodard currently serves as the presiding director.  The director selected is responsible for facilitating and chairing the independent directors’ meetings scheduled for that year.  The independent directors meet at least twice a year without management present, and will meet more often as the need arises.

In 2006, the full Board met 9 times.  The independent directors held four regularly scheduled meetings in 2006.  Attendance in 2006 at full Board and committee meetings exceeded 98%.

Directors are expected to attend the Annual Meeting, and as stated in the Corporate Governance Principles (Appendix A), directors are responsible for attending all director meetings and for reviewing materials provided in advance of each meeting.  Directors are expected to actively participate in Board and committee meetings.  All directors attended the 2006 Annual Meeting held on May 16, 2006, with the exception of Bonnie S. Reitz, who did not attend due to the death of her husband.

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COMMUNICATION WITH THE BOARD

Shareholders wishing to communicate with the Board, or with a specific director, may do so by writing to the Board, or to the particular director, and delivering the communication in person or mailing it to: Board of Directors, c/o Corporate Secretary, PNM Resources, Inc., Alvarado Square, MS-0806, Albuquerque, New Mexico 87158. All shareholder communications will be relayed to the Board of Directors or an appropriate committee of the Board.  If the shareholder desires to communicate a concern directly with the Board without initial review by the Corporate Secretary, the concern should be submitted in writing, in a sealed envelope addressed to the Board, in care of the Corporate Secretary, with a notation indicating that it is to be opened only by the Board.  The Corporate Secretary shall promptly forward the unopened envelope to the Board.  From time to time, the Board may change the process for shareholder communications with the Board or its members. Please refer to the Company’s website www.pnmresources.com/ge/cg for any changes in this process.

Shareholders and other interested parties wishing to communicate directly with the presiding director or with the non-management directors as a group may do so by writing to Presiding Director, c/o Corporate Secretary, PNM Resources, Inc., Alvarado Square, MS-0806, Albuquerque, New Mexico 87158.

DIRECTOR SERVICE POLICY

On February 19, 2002, the Board adopted a revised Director Service Policy addressing various aspects of board service, retirement practices, terms of office and inside directors.  The current Director Service Policy can be found on page A-7 of the Corporate Governance Principles, (Appendix A) and on the Company’s website at www.pnmresources.com/ge/cg.  As previously noted, prior to his election in 2003, and in accordance with the Director Service Policy, Mr. Price submitted a written resignation to the Board for acceptance at such time as the Board, in its discretion, deems advisable.  There is no current expectation that the resignation would be accepted by the Board within the one-year term following the Annual Meeting.

BOARD COMMITTEES AND THEIR FUNCTIONS

The Board has four standing committees: the Audit and Ethics Committee, the Finance Committee, the Governance and Public Policy Committee, and the Human Resources and Compensation Committee, all comprised solely of independent directors.  Each committee has a written charter that addresses the committee’s purpose and responsibilities.  All charters attached to this proxy statement can be found at www.pnmresources.com/ge/cg, and are available in print to any shareholder who requests it.  The charters are in compliance with applicable NYSE Listing Standards.

A summary of the committee responsibilities is included below.

Audit and Ethics Committee (“Audit Committee”)

Members:		Four independent, non-employee directors: Charles E. McMahen (Chair), Adelmo E. Archuleta, Julie A. Dobson, and Woody L. Hunt
Number of Meetings held in 2006:		10 (Including 6 Executive Sessions)
Functions:		·       Oversees the integrity of the Company’s financial statements, system of disclosure and internal controls regarding finance, accounting, legal, compliance and ethics that management and the Board have established. ·       Ensures compliance with legal and regulatory requirements by the Company. ·       Assesses and ensures the independent accountant’s qualifications and independence. ·       Reviews and approves the performance of the Company’s internal audit function and independent accountants. ·       Approves independent accountant services and fees for audit and non-audit services.
Charter:		A copy of the Audit Committee Charter may be found in Appendix D to this proxy statement and can also be found at www.pnmresources.com/ge/cg. The Audit Committee Charter prohibits any committee member from serving on the audit committees of more than two other publicly traded companies.

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Evaluation:		The Audit Committee conducted an evaluation of its performance in 2006.
Financial Experts:		The Board has unanimously determined that all Audit Committee members are financially literate under current NYSE listing standards, and in addition, Mr. Charles E. McMahen, Ms. Julie A. Dobson, and Mr. Woody L. Hunt qualify as “audit committee financial experts” within the meaning of SEC regulations.

 

Finance Committee

Members:		Four independent, non-employee directors: Julie A. Dobson (Chair), Woody L. Hunt, Robert M. Price, and Joan B. Woodard
Number of Meetings held in 2006:		4
Functions:		·       Reviews financial policies and performance objectives, including dividend policy. ·       Reviews and recommends to the Board the Company’s capital structure, including debt issuances. ·       Oversees the Company’s pension fund governance, performance, and funding level.
Charter:		A copy of the Finance Committee Charter, as amended on February 13, 2007, may be found in Appendix E to this proxy statement and can also be found at www.pnmresources.com/ge/cg.
Evaluation:		The Finance Committee conducted an evaluation of its performance in 2006.

 

Governance and Public Policy Committee (“GPPC”)

Members:		Four independent, non-employee directors: Manuel T. Pacheco (Chair), Robert M. Price, Bonnie S. Reitz, and Joan B. Woodard
Number of Meetings held in 2006:		6
Functions:		·       Recommend candidates for election to the Board. ·       Develops policy on composition and size of the Board, as well as tenure and retirement of directors. ·       Develops and recommends to the Board standards for determining director independence consistent with applicable laws or regulations. ·       Recommends Board compensation levels and stock ownership guidelines. ·       Oversees the evaluation of the Board. ·       Recommends to the Board a set of corporate governance principles applicable to the Company. ·       Reviews environmental sustainability strategy. ·       Oversees the Policy and Procedure Governing Related Party Transactions. ·       Oversees the Company’s public responsibilities and corporate citizenship.
Charter:		A copy of the GPPC Charter, as amended on February 13, 2007, may be found in Appendix F to this proxy statement and can also be found at www.pnmresources.com/ge/cg.
Evaluation:		The GPPC conducted an evaluation of its performance in 2006.

 

The GPPC will consider director candidates proposed by shareholders.  Director candidates recommended by shareholders will be evaluated against the same criteria as nominees submitted by the GPPC.  Candidates must be highly qualified and exhibit both willingness and interest in serving on the Board.  Candidates should represent

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the interests of all shareholders and not those of a special interest group.  A shareholder wishing to nominate a candidate should forward the candidate’s name and a detailed description of the candidate’s qualifications, appropriate biographical information and signed consent to serve to the Secretary of the Company, taking into consideration the criteria for new directors:

·                  directors should be individuals of the highest character and integrity and have inquiring minds, vision and the ability to work well with others and exercise good judgment;

·                  directors should be free of any conflict of interest which would violate any applicable law or regulation or interfere with the proper performance of the responsibilities of a director;

·                  directors should possess substantial and significant experience which would be of particular importance to the Company in the performance of the duties of a director;

·                  directors should have sufficient time available to devote to the affairs of the Company in order to carry out the responsibilities of a director;

·                  directors should have the capacity and desire to represent the balanced, best interests of the shareholders as a whole and not primarily a special interest group or constituency; and

·                  directors are required to have an equity ownership interest in the Company prior to commencing service on the Board. Each director’s ownership interest should increase over time, consistent with the stock ownership guidelines and applicable insider trading restrictions, so that an appropriate amount of stock is accumulated.

General Board attributes and director qualifications can also be found on page A-3 of the Corporate Governance Principles (Appendix A).

Human Resources and Compensation Committee (“HRCC”)

Members:		Five independent, non-employee directors (including meeting the outside director rules under Section 162(m) of the Tax Code): Bonnie S. Reitz (Chair), Adelmo E. Archuleta, Charles E. McMahen, Manuel T. Pacheco, and Robert M. Price
Number of Meetings held in 2006:		6 (Including 3 Executive Sessions)
Functions:		·       Recommends to the full board the compensation philosophy and guidelines for officers (emphasizing rewarding long term results and maximizing shareholder value) and the use of equity-based compensation plans for officers and other employees. ·       Establishes an appropriate compensation program for the CEO and review and approve corporate goals and objectives relevant to CEO compensation. ·       Evaluates CEO performance in light of corporate goals and objectives. ·       Reviews, and recommends to the independent directors, the CEO’s annual compensation level and components. ·       Establishes an appropriate compensation program for executive officers. ·       Reviews and approves all components of compensation for all officers and other highly compensated employees, including base salaries, short and long term incentive cash awards and all equity awards, giving due consideration to the CEO’s recommendations and review of the performance evaluations provided by the CEO for such individuals. ·       Oversees and approves guidelines for all other employee compensation programs.
Charter:		A copy of the HRCC Charter, as amended on February 13, 2007, may be found in Appendix G to this proxy statement, and can also be found at www.pnmresources.com/ge/cg.
Evaluation:		The HRCC conducted an evaluation of its performance in 2006.

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PNM Resources Common Stock Owned by Executive Officers and Directors

(As of March 30, 2007)

		Amount and Nature of Shares Beneficially Owned (a)
Name		Aggregate No. of Shares Held (b)		Right to Acquire within 60 Days (c)		Percent of Shares Beneficially Owned
Adelmo E. Archuleta		5,482		16,050		*
Alice A. Cobb		25,113		26,099		*
Julie A. Dobson		8,150		18,300		*
Charles N. Eldred		8,335		1,672		*
Terry R. Horn (d)		7,536		9,809		*
Woody L. Hunt		4,050		350		*
Charles E. McMahen		8,150		1,050		*
Patrick T. Ortiz		45,089		18,629		*
Manuel T. Pacheco		3,815		16,050		*
Robert M. Price		5,100		19,050		*
William J. Real		20,762		20,087		*
Bonnie S. Reitz		4,350		22,050		*
Jeffry E. Sterba		139,496		547,529		*
Joan B. Woodard		3,762		16,050		*
Directors and Executive Officers as a Group (17)		327,593		755,806		1.4	%

(a)          Beneficial ownership means the sole or shared power to vote, or to direct the voting of a security and/or investment power with respect to a security.

(b)         Shares held in the individual’s name, individually or jointly with others, or in the name of a bank, broker, or nominee for the individual’s account. The amounts shown also include the number of restricted stock units held by each director and officer.

(c)          The number of shares directors and executive officers have a right to acquire through stock option exercises within 60 days after March 30, 2007, and number of shares that executive officers have a right to acquire through the Executive Savings Plan and the Executive Savings Plan II upon the participant’s death or termination of employment.  As of March 30, 2007, the Executive Savings Plan share rights consist of 6,255 and the Executive Savings Plan II share rights consist of the 8,695 of the 547,529 shares reported for Jeffry E. Sterba, and an additional 18,319 shares of the 755,806 shares reported for directors and executive officers as a group.

(d)         Terry R. Horn is a NEO due to his temporary assignment as Acting Chief Financial Officer from August 10, 2005 to January 15, 2006.

*Less than 1% of PNM Resources outstanding shares of common stock.

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Ownership of More than Five Percent of PNM Resources’ Common Stock

		Voting Authority				Dispositive Authority				Total		Percent of
Name and Address		Sole		Shared		Sole		Shared		Amount		Class
Lord, Abbett & Co. LLC (1) 90 Hudson Street, 11th Floor Jersey City, NJ 07302		6,378,772		0		6,793,272		0		6,793,272		8.95	%
Cascade Investment, L.L.C. (2) 2365 Carillon Point Kirkland, WA 98033		6,519,550		0		6,519,550		0		6,519,550		8.5	%(3)
EARNEST Partners, LLC (4) 1180 Peachtree Street NE, Suite 2300 Atlanta, GA 30309		1,688,269		1,983,352		6,027,321		0		6,027,321		7.9	%
Wellington Management Company, LLP (5) 75 State Street Boston, MA 02109		0		3,720,312		0		4,614,312		4,675,712		6.16	%
Barclays Global Investors, NA (6) 45 Freemont Street, 17th Floor San Francisco, CA 94105		4,094,436		0		4,461,594		0		4,461,594		5.88	%

(1)          As reported on Schedule 13G/A filed February 14, 2007 with the SEC by Lord, Abbett & Co. LLC.

(2)          As reported on Schedule 13G/A filed April 3, 2006 with the SEC by Cascade Investment, L.L.C. (“Cascade”).  The filing reported that all shares held by Cascade may be deemed to be beneficially owned by William H. Gates III as the sole member of Cascade.  As explained more clearly below under “Transaction with Cascade”, on October 7, 2005, PNM Resources issued 4,000,000 equity-linked units to Cascade.  Pursuant to the transaction, Cascade has the right to purchase shares of common stock from the Company, the exact number of shares depending on the average closing price per share of PNM Resources common stock over a 20-day trading period ending on the third trading day immediately preceding the purchase contract settlement date, subject to anti-dilution adjustments. Under the terms of the equity-linked units, Cascade can purchase a minimum of 3,981,600 shares and a maximum of 4,778,000 shares upon settlement of the purchase contracts.  The number of shares in the table does not reflect any shares that Cascade would be entitled to purchase and does not take into account any anti-dilution adjustments.  Certain regulatory approvals must be obtained prior to settling the purchase contracts with common stock if such settlement would result in Cascade owning 10% or more of the outstanding common stock of PNM Resources.

(3)          Cascade reported its Percent of Class ownership in the Schedule 13G/A filed April 3, 2006 as 9.5%, based on the number of issued and outstanding shares of PNMR common stock on December 31, 2005.  From December 31, 2005 to December 31, 2006, the number of issued and outstanding shares of PNMR common stock increased by 7,862,186 shares to 76,648,472 shares, which results in Cascade holding the Percent of Class as of December 31, 2006.

(4)          As reported on Schedule 13G/A filed February 14, 2007 with the SEC by EARNEST Partners, LLC.

(5)          As reported on Schedule 13G filed February 14, 2007 with the SEC by Wellington Management Company, LLP.

(6)          As reported on Schedule 13G filed February 14, 2007 with the SEC by Barclays Global Investors, NA.  This filing reported that Barclays Global Investors, NA beneficially owned 1,613,125 shares with sole voting power and 1,980,283 shares with sole dispositive power and that Barclays Global Fund Advisors beneficially owned 2,481,311 shares with sole voting power and 2,481,311 shares will sole dispositive power and reported the total aggregate amounts and Percent of Class set forth above in this table.

Except for the information related to the number of shares that Cascade may have the right to acquire in footnote (2) above, the information provided above is based on reports filed with the SEC.  PNM Resources makes no representation as to the accuracy or completeness of the information.  These are the only persons known to PNM Resources to be the beneficial owners of more than five percent of PNM Resources’ common stock, as of April 9, 2007.

RELATED PERSON TRANSACTIONS

Since January 1, 2006, PNM Resources has not participated, and has no current plans to participate, in any transactions in which its directors or executive officers or any of their immediate family members have a material interest that is reportable under applicable SEC rules.  PNM Resources has participated in the following transactions with Cascade, a shareholder which owns more than 5% of our common stock as indicated in the table above.

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SALE OF EQUITY-LINKED UNITS

On August 16, 2004, we announced that Cascade had agreed to invest $100 million in equity-linked units to be issued by PNM Resources.  Cascade is the second largest holder of our common stock.  This investment and securities issuance was a key element in the financing assembled to fund the purchase of TNP Enterprises, Inc. and its subsidiaries, including Texas-New Mexico Power Company (“TNMP”) and First Choice Power that was completed in June 2005.  In October 2005, we completed the private offering to Cascade of 4,000,000 equity-linked units at 6.625%.  PNM Resources received $100 million in proceeds from this transaction and used the proceeds to repay short-term borrowings, which included borrowings for the acquisition of TNP Enterprises, Inc.

Each equity-linked unit consists of a purchase contract and a 2.5% undivided beneficial ownership interest in one of PNM Resources’ senior notes. The ownership interest in the senior notes has been initially pledged to secure Cascade’s obligation to purchase PNM Resources common stock or preferred stock (at Cascade’s option) under the related purchase contract. Each purchase contract obligates Cascade to purchase, and PNM Resources to sell, at a purchase price of $25.00 in cash, a number of shares of PNM Resources common stock or preferred stock on or before November 16, 2008 (the purchase contract settlement date).  Pursuant to the transaction, Cascade has the right to settle the purchase contract early and purchase shares of common stock from the Company, the exact number of shares depending on the average closing price per share of PNM Resources common stock over a 20-day trading period ending on the third trading day immediately preceding the purchase contract settlement date, subject to anti-dilution adjustments. 

ENERGYCO

In January 2007, PNM Resources and ECJV Holdings LLC, (“ECJV”) a wholly owned subsidiary of Cascade, created a new unregulated energy company, temporarily named EnergyCo, LLC, which will serve expanding U.S. markets throughout the Southwest, Texas and the West. PNM Resources and ECJV each have a 50% ownership interest in EnergyCo, a limited liability company.  PNM Resources intends to capitalize on the growth opportunities in these markets through its participation and ownership of EnergyCo.  In particular, it is anticipated that ECJV will commit capital for the acquisition of assets and that Cascade will make significant credit guarantees to increase EnergyCo’s scale in its three anticipated business lines: competitive retail electricity sales; development, operation and ownership of diverse generation assets; and wholesale marketing and trading to optimize its assets.

In addition to purchasing energy-related assets, EnergyCo could grow by PNM Resources contributing existing unregulated assets and ECJV, in turn, matching those contributions with cash.  In that regard, PNM Resources, ECJV and EnergyCo have signed a non-binding letter of intent which provides for PNM Resources to contribute to EnergyCo its ownership of the subsidiaries that hold the Twin Oaks Power Plant at fair market value of approximately  $554 million (the “Twin Oaks Contribution Amount”), for ECJV to make a related cash contribution to EnergyCo equal to 50% of the Twin Oaks Contribution Amount and for EnergyCo to make a related cash distribution to PNM Resources equal to 50% of the Twin Oaks Contribution Amount.

The contribution of assets by PNM Resources to EnergyCo would enable PNM Resources to better separate its regulated utility operations from its unregulated generation assets and businesses.  The separation of regulated and unregulated operations also would increase transparency and reduce complexity in PNM Resources’ business segments.

On February 12, 2007, PNM Resources received $847,479 from Cascade for 50% of the costs incurred by PNM Resources to form EnergyCo.

REVIEW AND APPROVAL OF RELATED PERSON TRANSACTIONS

All of the above-described transactions with Cascade were pre-approved by the full Board as would be required under the Policy and Procedures Governing Related Party Transactions that was adopted by the Board on February 13, 2007.

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DIRECTOR COMPENSATION

The Governance and Public Policy Committee recommends non-employee director compensation levels and stock ownership guidelines for review and approval by the full Board.  The GPPC does not delegate its authority to recommend, and the full Board does not delegate its authority to review and approve, non-employee director compensation.  Of PNM Resources’ current directors, only Jeffry E. Sterba, the Chairman, President and Chief Executive Officer, is a salaried employee who receives no compensation for serving on the Board.

In order to recommend a reasonable compensation package that will attract and retain highly qualified non-employee directors, the GPCC selects, weighs and reviews each element of director compensation on an annual basis to recommend a total compensation amount that will approximate the 50th percentile of non-employee director compensation for directors of comparable utility and energy companies in the list of the Company’s compensation Peer Group as identified on page 22 of this proxy statement.

Periodically, the GPCC directs the Corporate Governance Department of the Company to prepare a compensation benchmark analysis (based upon director compensation information for the Peer Group available on Salary.com, and a survey of director compensation provided by the National Association of Corporate Directors), including an overview of the trends in director compensation.  The Corporate Secretary asks the compensation consultant retained by the HRCC, Kennedy & Rand Consulting, Inc., to review the analysis to determine if it correctly summarizes the relevant data and then provides the analysis to the GPCC together with a recommendation on action to be taken on director compensation.  The GPCC recommended and the Board approved no changes to compensation for 2006 over the amounts received in 2005.

Non-employee directors receive their annual retainer in the form of cash and stock-based compensation as determined by the Board.  The annual retainer for 2006 was as follows:

Annual Retainer:		$35,000, paid in quarterly installments 1,050 stock options(1), awarded annually 1,050 restricted stock rights(1), awarded annually
Annual Committee Chair Fee:		$4,000(2), paid in quarterly installments (in addition to attendance fees)
Attendance Fees:		$     0  per Board meeting $1,250 per Board committee meeting

(1)Stock options and restricted stock rights granted under the PNMR Omnibus Performance Equity Plan (“PEP”) each vest in three equal annual installments beginning on the first anniversary of the grant date.  These awards are typically made at the annual meeting of directors, unless the meeting occurs during a black-out period for trading in the Company’s securities as specified in the Company’s Insider Trading Policy.  As set forth under the Stock Option Grant Policy, under those circumstances, the Board will either (a) schedule a special meeting after the expiration of the black-out period, (b) make awards pursuant to a unanimous written consent executed after the expiration of the black-out period, or (c) pre-approve the equity awards with an effective date after the expiration of the black-out period.  The date of the awards is the date on which the Board approves the awards, unless (i) the approval date is a non-trading day, in which case the date is the immediately preceding trading date or (ii) in the case of pre-approval during a black-out period, in which case the grant date is the first trading date after the expiration of the black-out period.  The exercise price of the stock option is equal to the closing price of the common stock on the New York Stock Exchange, or NYSE, on the date of the grant.   The PEP prohibits option re-pricing.

(2)In recognition of the significant time needed to fulfill the duties and responsibilities of being Audit Committee Chair, on December 5, 2006, the GPPC proposed and the Board approved an increase in the Audit Committee Chair fee to $10,000, paid in quarterly installments (in addition to attendance fees), effective January 1, 2007.  Except for the increase to the annual Audit Committee Chair fee from $4,000 to $10,000, the annual retainer for 2007 is the same as the 2006 annual retainer for non-employee directors as set forth above.

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In addition, directors are also reimbursed for any board-related expenses, such as travel expenses incurred to attend Board and Committee meetings and director education programs sponsored by educational and other institutions.

SUMMARY OF NON-EMPLOYEE DIRECTOR COMPENSATION IN 2006

The following table summarizes the total compensation paid or earned by each of the non-employee directors for the year ended December 31, 2006.

Director Compensation

Name (1)		Fees Earned Or Paid in Cash ($)		Stock Awards ($)(2),(4)		Option Awards ($)(3),(4)		Non-Equity Incentive Plan Compensation ($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings		All Other Compensation ($)		Total ($)
(a)		(b)		(c)		(d)		(e)		(f)		(g)		(h)
A.E. Archuleta		52,250		14,525		3,002		0		0		0		69,777
J.A. Dobson		54,250		14,525		3,002		0		0		0		71,777
W.L. Hunt		50,250		4,902		870		0		0		0		56,022
C.E. McMahen		57,750		14,525		3,002		0		0		0		75,277
M.T. Pacheco		53,400		14,525		3,002		0		0		0		70,927
R.M. Price		54,250		14,525		3,002		0		0		0		71,777
B.S. Reitz		52,750		14,525		3,002		0		0		0		70,277
J.B. Woodard		45,900		14,525		3,002		0		0		0		63,427

(1)Jeffry E. Sterba, Chairman, President and Chief Executive Officer, is not included in this table, as he is an employee of PNM Resources and receives no compensation for serving on the Board.

(2)Reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006 in accordance with FAS 123R and thus includes amounts from awards granted in and prior to 2006.  See Note 13 of the consolidated financial statements in PNMR’s Annual Report on Form 10-K for the year ended December 31, 2006 regarding assumptions underlying the value of equity awards.  As of December 31, 2006, each non-employee director has the following number of restricted stock rights outstanding:  A. E. Archuleta — 1,750; J. A. Dobson — 1,750; W. L. Hunt — 1,050; C. E. McMahen — 1,750; M. T. Pacheco — 1,750; R. M. Price — 1,750; B. S. Reitz — 1,750; J. B. Woodard — 1,750.  The grant date fair value calculated in accordance with FAS 123R of the 1,050 restricted stock rights awarded under the PEP to each director in May 2006 is $4,902.

(3)Reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006 in accordance with FAS 123R and thus includes amounts from awards granted in and prior to 2006.  See Note 13 of the consolidated financial statements in PNMR’s Annual Report on Form 10-K for the year ended December 31, 2006 regarding assumptions underlying the value of equity awards.  As of December 31, 2006, each non-employee director has the following number of options outstanding: A. E. Archuleta — 17,100; J. A. Dobson — 19,350; W. L. Hunt — 1,050; C. E. McMahen — 2,100; M. T. Pacheco — 17,100; R. M. Price — 20,100; B. S. Reitz — 23,100; J. B. Woodard — 17,100.  The grant date fair value calculated in accordance with FAS 123R of the 1,050 stock options awarded under the PEP to each director in May 2006 is $870.

(4)The options and restricted stock rights granted under the PEP vest in three equal annual installments beginning on the first anniversary of the grant.  The exercise price of the stock option is equal to the closing price of the common stock on the NYSE on the date of grant or immediately preceding trading day if the stock was not traded on the grant date.  The Stock Option Grant Policy provides that for awards made on and after 2007, the grant date for awards approved on a non-trading date will be the immediately preceding trading day.  As discussed below, directors will hold seventy-five percent of the annual restricted stock award until the required multiple of annual cash retainer is achieved.  This amount of restricted stock is held until six months after termination of board service.

STOCK OWNERSHIP GUIDELINES

The GPPC is responsible for recommending Board compensation levels and stock ownership guidelines.  The Stock Ownership Guidelines were adopted in December 2005 and amended in February 2006.

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The Board believes that directors should be shareholders and have a financial stake in the Company. The Board requires that newly elected directors, before commencing board service, become shareholders in the Company.

The GPPC establishes and recommends to the full Board minimum stock ownership guidelines for directors.  According to the guidelines, within three years, directors should hold stock equal to two times the annual retainer.  Within five years, the amount of ownership should be five times the annual retainer.  Directors will hold seventy-five percent of the annual restricted stock award until the required multiple of the annual cash retainer is achieved.  This amount of restricted stock is held until six months after termination of board service.

The Stock Ownership Guidelines will be reviewed periodically for any appropriate changes.  The Guidelines can be found on page A-7 of the Corporate Governance Principles document, attached as Appendix A, and can also be found on PNM Resources’ website at www.pnmresources.com/ge/cg.

AUDIT AND ETHICS COMMITTEE REPORT

The following Audit Committee Report does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this report by reference therein.

The Committee.  The Audit and Ethics Committee (the “Audit Committee”) of the Board of Directors consists of four non-employee directors: Adelmo E. Archuleta, Julie A. Dobson, Charles E. McMahen and Woody L. Hunt.  Mr. McMahen chaired the Audit Committee through 2006.  Each member of the Audit Committee is an independent director as defined by the current NYSE listing standards and the Company’s independence guidelines.  In addition, the Board has unanimously determined that all Audit Committee members are financially literate under current NYSE listing standards and that Ms. Dobson, Mr. Hunt and Mr. McMahen, qualify as “audit committee financial experts” within the meaning of the SEC regulations. The Audit Committee’s responsibilities are specifically noted below in the Audit Committee Charter section.  No members of the Audit Committee received any compensation from the Company during the last fiscal year other than directors’ fees.

Audit Committee Charter.  The Audit Committee Charter, revised December 2003, in Appendix D to this proxy statement, sets forth the Audit Committee’s principal accountabilities, including monitoring:

·                  The integrity of the Company’s financial statements, system of disclosure and internal controls regarding finance, accounting, legal, compliance and ethics principles that management and the Board have established;

·                  Compliance with legal and regulatory requirements by the Company;

·                  The independent accountant’s qualifications and independence;

·                  The performance of the Company’s internal audit function and independent accountants;

·                  Approval of independent accountant services and fees for audit and non-audit services to be provided.

The Charter also may be found on the Company’s website located at www.pnmresources.com/ge/cg.

Audit Committee Report.  The Audit Committee Report is included in this proxy statement to comply with Item 407(d)(3) of the SEC Regulation S-K governing disclosures related to Audit Committee members and auditor services.  The Audit Committee has prepared the following report for inclusion in this proxy statement.  The Audit Committee met ten times during 2006.  The Audit Committee schedules its meetings to ensure appropriate time is provided to complete the required tasks.  The Audit Committee’s meetings include, whenever appropriate, executive sessions with the Company’s independent registered public accountants (independent accountant), the Company’s internal auditors and the Company’s internal General Counsel, in each case without the presence of the Company’s management.

The Audit Committee reviews and discusses with both management and the Company’s independent accountant all consolidated annual and quarterly financial statements prior to their issuance.  During 2006, management represented to the Audit Committee that all PNM Resources’ consolidated financial statements presented to the Audit Committee were prepared in accordance with generally accepted accounting principles and fairly represent the Company’s financial position.  Management reviewed significant accounting and disclosure issues with the Audit Committee.  The Audit Committee discussed with the independent accountants, matters required by Statement on

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Auditing Standards No. 61 (Communication with Audit Committees) including the quality of the Company’s accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.  The independent accountants also provided to the Audit Committee the written disclosures and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees).  The Audit Committee also discussed with the independent accountants the firm’s independence, including a review of audit and non-audit fees.

Management is responsible for PNM Resources’ internal controls and financial reporting process.  The independent accountants are responsible for performing an independent audit of PNM Resources’ consolidated financial statements in accordance with generally accepted auditing standards and issuing a report.  The Audit Committee’s responsibility is to monitor and oversee these processes.

The Audit Committee continues to monitor the performance of the Company’s internal auditing function, reviewing staffing levels and steps taken to implement recommended improvements in internal controls and procedures.

The Board, upon recommendation of the Audit Committee, engaged Deloitte & Touche LLP (“Deloitte & Touche”) to serve as independent accountants for fiscal year 2007, subject to shareholder approval.  No relationship exists between PNM Resources and Deloitte & Touche, other than the usual relationship between independent accountant and client.

In 1992, the Board adopted an Independent Accountant Evaluation and Selection Policy (“Policy”).  The Policy was adopted because the Board considers it desirable to periodically change independent accountants in a manner that maintains the appearance and reality of independence and to obtain new perspectives, but not so frequently as to be disruptive or hinder the development of company and operational in-depth knowledge.  According to that Policy, each year the Audit Committee evaluates the quality and cost of services provided by the independent accountants.  A major review is conducted every five years, including the issuance of a request for proposals from independent accountants, unless special circumstances make such a review unadvisable at the time.  After fifteen years of continued service, PNM Resources will consider changing independent accountants.

The Audit Committee adopted a policy governing audit, audit-related and non-audit fees and services in compliance with the Sarbanes-Oxley Act.  This policy requires pre-approval by the Audit Committee of all audit and non-audit services to be provided by the independent accountants and allows use of a budget pre-approved by the Audit Committee for identified services.  This policy delegates to the Audit Committee chair authority to pre-approve services not covered by the budget between Audit Committee meetings with reports to be made at the following Audit Committee meeting.  This policy identifies services that the independent accountants are prohibited from performing, consistent with legal requirements.  A copy of this policy is available at www.pnmresources.com/ge/cg. The types of services approved by the Committee are for non-audit fees as follows:  employee benefit plans; consultations related to adoption of new accounting or auditing pronouncements, disclosure requirements, or other regulations; and SEC and regulatory compliance.

The Audit Committee adopted a process to handle complaints in compliance with the Sarbanes-Oxley Act.  This process includes procedures for the submission of complaints or concerns regarding financial statement disclosures, accounting, internal accounting controls or auditing matters and other matters involving violations of law.  A copy of these procedures is available at www.pnmresources.com/ge/cg.

Based on the Audit Committee’s discussions with management and the independent accountants, the Audit Committee’s review of the representations of management, and the report of the independent accountants to the Audit Committee, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in PNM Resources’ Annual Report on Form 10-K for the year ended December 31, 2006, filed with the SEC.

Respectfully Submitted,

Audit and Ethics Committee

Charles E. McMahen, Chair

Adelmo E. Archuleta

Julie A. Dobson

Woody L. Hunt

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INDEPENDENT AUDITOR FEES

Audit Fees for 2006 and 2005

The following table represents aggregate fees billed to the Company for fiscal year ended December 31, 2006 and 2005 by Deloitte & Touche LLP, the Company’s principal accounting firm.

(a)          Audit fees in 2006 include additional fees incurred due to increased financing activities and additional Sarbanes-Oxley compliance services related to TNMP and First Choice Power.

(b)         Primarily financial accounting and reporting consultations.  Audit-related fees in 2006 include fees for activities associated with the formation of a joint venture.

(c)          Tax fees in 2006 are primarily for income tax and property tax support.

(d)         All fees have been approved by the Audit Committee.

The Audit and Ethics Committee reviewed and approved in advance all audit related and tax services and concluded that the provision of these services by Deloitte & Touche LLP was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions.  The Audit and Ethics Committee preapproves all auditing services and all permitted non-audit services.  The Audit Committee also determined that, beginning March 31, 2002, the auditor of PNM Resources’ books and records would not be eligible to provide consulting services for PNM Resources without prior approval of the Audit Committee, nor certain services prohibited by law.

PROPOSAL 2:  APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS (PROPOSAL 2 ON YOUR PROXY CARD)

The Board is recommending that the shareholders approve the selection of Deloitte & Touche as independent public accountants for 2007.

The Audit Committee has performed its annual evaluation of the quality and cost of services provided by Deloitte & Touche and an assessment of auditor independence.  The Audit Committee reported to the Board complete satisfaction with the services provided by Deloitte & Touche and recommended that Deloitte & Touche be selected as independent public accountants for 2007.  The Board agrees with the Audit Committee’s recommendations, as described in the Audit Committee report contained in this proxy statement.

A representative of Deloitte & Touche will be available at the Annual Meeting to respond to questions and to make any statement the representative may desire.

The Board of Directors unanimously recommends a vote FOR the appointment of Deloitte & Touche LLP as independent public accountants for fiscal year 2007.

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EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

The following discussion and analysis contains statements regarding future individual and company performance targets and goals. These targets and goals are disclosed in the limited context of PNM Resources’ compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. PNM Resources specifically cautions investors not to apply these statements to other contexts.

Overview of the Committee’s Authority

The Human Resources and Compensation Committee (the “Committee”) of the Board considers and recommends equity compensation plans for eligible participants to the full Board for Board approval and compensation for the Chief Executive Officer (“CEO”) to the independent directors for their approval.  In addition, the Committee oversees and approves the annual compensation levels and compensation procedures and programs for all officers and other highly compensated employees.  The Committee also oversees and approves guidelines for all other employee compensation programs.  The Committee does not delegate any of this authority.

Under its Charter, the Committee has the authority to retain directly a compensation consultant on its own terms and receives sufficient Company funds for doing so.  Accordingly, since 2003, the Committee has engaged its own outside compensation consultant (the “Consultant”).  Initially, the Committee retained Aon Employee Benefits and Compensation Consulting, but when its primary contact at Aon, Mr. Peter Kennedy, formed his own firm in 2005, the Committee then retained Kennedy & Rand Consulting, Inc. to advise the Committee on all matters related to CEO and other executive compensation.  The Consultant provides the Committee with relevant market data and alternatives to consider when making executive compensation decisions.  The Consultant attended all Committee meetings held in 2006 at which executive compensation was determined.  The Consultant’s services are subject to the Committee’s Policy Governing Fees and Services for Executive Compensation Consultants.  The Committee annually reviews the performance of its Consultant to ensure compliance with this policy.

Throughout this proxy statement, the individuals who served as the Company’s CEO and Chief Financial Officer (“CFO”) during 2006, as well as the three other highest paid executive officers of the Company who are all listed in the Summary Compensation Table on page 32, are referred to as the “named executive officers” or “NEO(s)”.  Executive officers of the Company in 2006 were the CEO, all Senior Vice Presidents and the Vice President and Corporate Controller.  Currently, there are six Senior Vice Presidents (including the CFO) and no Executive Vice Presidents.

Objectives of the Company’s Executive Compensation Programs

PNM Resources seeks to attract, motivate and retain highly qualified executives responsible for achieving the Company’s financial and non-financial objectives and creating shareholder value.  The Committee’s compensation philosophy is that total direct compensation will vary with performance in achieving Company financial and non-financial objectives, and that any long-term incentive compensation will be closely aligned with the shareholders’ interests.  This philosophy applies to all of the Company’s employees, with a more significant level of variability and compensation at risk as an employee’s level of responsibility increases.  As an amount and as a percentage of compensation, executive officers, including NEOs, have the most at risk compensation under this philosophy.

The Committee reviews its compensation philosophy each year, including compensation program design that emphasizes pay-for-performance, retention of key employees, cost management, alignment with shareholders’ interests and continued focus on proper corporate governance.  After reviewing each element of total direct and indirect compensation payable to executives, the Committee establishes short-term and long-term compensation guidelines and compensation targets for executives consistent with the Company’s compensation philosophy and business objectives.

In 2006, the Committee reviewed PNM Resources’ executive compensation program objectives and reaffirmed the following principles:

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·                  Compensation will be related to performance.  The proportion of an individual’s total compensation that varies with individual and Company objectives increases as the individual’s business responsibilities increase.  Thus, a significant portion of executive compensation will be directly linked to achieving specific financial and non-financial objectives.

·                  Compensation will be both competitive and cost effective.  The Company must attract and retain talented, high performing executives.  Total cash compensation (base salary plus performance-based cash incentives) will approximate the median of compensation within the Tower Perrin Energy Services Industry Executive Compensation Survey Database (“Towers Perrin Compensation Database”), with the potential for higher than average total compensation when the Company performs better than the median performance of the utility and energy companies within the Towers Perrin Compensation Database. The Committee reviews and approves changes to individual components of compensation (e.g., salary, cash and equity performance incentives, equity awards, and retirement benefits) and the resulting effect on total compensation in making changes to any compensation component.  The compensation paid for each position will also be of fair value relative to other positions in the Company.

·                  Compensation will align executives’ interests with shareholders’ interests.  A portion of executive compensation will be equity based (stock options and restricted stock vesting over a 3-year period) and related to the actual financial performance of the Company over a 3-year period (performance cash) to align executives’ interests with those of the Company’s shareholders.  This principle is reinforced by stock ownership guidelines for executives established in 2006 and which are discussed later in this analysis.

·                  Compensation is subject to independent review and evaluation.  As discussed above, a committee composed entirely of independent directors, with the assistance of outside compensation consultants retained by the committee, is responsible for reviewing and establishing compensation for all executives, including the NEOs.

Role of Executive Officers in Determining Executive Compensation

The Committee considers and recommends, and the Board approves, all elements of CEO compensation without any input from any executive officer, other than reviewing the CEO’s self-evaluation of his performance. The Committee approves all compensation decisions for executives and other officers.  The CEO evaluates the performance of all Senior Vice Presidents and provides recommendations for base salaries of all Senior Vice Presidents that are duly considered by the Committee.    The CFO evaluates the performance of and provides recommendations for the base salary of Thomas G. Sategna, the Vice President and Corporate Controller.  The CEO uses the input of the CFO in making recommendations to the Committee regarding Mr. Sategna’s base salary.  Employees of the Company’s people services department (who are managed by the Senior Vice President and Chief Administrative Officer (“CAO”)) provide information and make recommendations, from time-to-time, to the Committee on the implementation and design of compensation and benefit programs, regardless of whether the CAO or CEO has any recommendation or a conflicting recommendation.  The Consultant also provides the Committee with recommendations and analyses for executive compensation that are duly considered by the Committee in making its executive compensation decisions.

Elements of Compensation

The basic elements of total executive (including NEO) compensation are total direct compensation for continuing employment and total indirect compensation following termination of employment.  Total direct compensation consists of the following three basic elements:

·                  Base Salary;

·                  Short-Term Annual Incentive Compensation; and

·                  Long-Term Incentive Compensation.

The basic elements of indirect, post-termination compensation for executives are as follows:

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·                  Retirement Benefits;

·                  Severance Benefits; and

·                  Benefits triggered from loss of employment due to a Change in Control.

Each element of executive compensation is selected and weighted to provide a targeted total compensation value that approximates the fiftieth percentile of executives in comparable positions with approximately 97 utility and energy companies within the Towers Perrin Compensation Database.

The Consultant provides the Committee with an annual compensation benchmark analysis based on the Towers Perrin Compensation Database and the proxy statement filings for the Company’s compensation peer group (“Peer Group”).  The utility and energy companies comprising this compensation Peer Group must meet the following criteria:

·                  Publicly traded companies in the utility and energy industries;

·                  Between half and three times the size of PNM Resources in terms of revenue, employees, growth, profitability, etc.; and

·                  Logical competitors for executive talent.

List of Peer Group Companies: AGL Resources, Alliant Energy Corporation, Ameren Corporation, Black Hills Corporation, Constellation Energy Group Inc., El Paso Electric Company, Energy East Corporation, Great Plains Energy Inc., Idacorp Inc., Nicor Inc, OGE Energy Corporation, Peoples Energy Corporation, Pinnacle West Capital Corporation, Puget Energy Inc., Questar Corporation, SCANA Corporation, Sierra Pacific Resources, Southwest Gas Corporation, TECO Energy Corporation, Unisource Energy Corporation, Westar Energy Inc., Wisconsin Energy Corporation, and WPS Resources Corporation.

Base Salary.  The Committee approved the 2006 base salaries for all non-CEO executives in February 2006 that became effective on April 8, 2006 for the next following 12 months, and the Committee recommended, and the independent directors approved, the 2006 base salary for the CEO in February 2006 that became effective on April 8, 2006.  Each year, the base salaries for executives are determined as follows.  The Committee asks its Consultant to conduct a survey of annual salaries of executives in comparable positions within the Peer Group and to provide recommendations for base salaries of executives that would be at a level tied to the median of this competitive range.  The Consultant provides the Committee with a compensation benchmark analysis based on proxy statement filings for the Peer Group and the Towers Perrin Compensation Database.

The Committee also solicits and considers the recommendations of the CEO for all non-CEO executive compensation based upon the individual executive’s performance and Company and business unit performance.  The Committee considers the compensation benchmark surveys, recommendations of the Consultant and CEO and considers the results achieved by the executive, his or her future potential, scope of responsibilities and experience, and competitive salary practices.

In February 2006, the independent directors of the Board approved an annual base salary effective April 8, 2006 for the Chairman, President and CEO, Jeffry E. Sterba, of $750,000 per year, a 3.45 % increase over his base salary of $725,000 for 2005.  In February 2007, the independent directors approved an annual salary for Mr. Sterba of $785,000 per year, effective April 7, 2007, a 4.66% increase over his base salary of $750,000 per year for 2006.

Charles N. Eldred, the Senior Vice President and CFO, joined the Company on January 16, 2006.  The Committee approved his starting base salary of $315,000 per year in December 2005 and did not change this amount in February 2006.  The Committee adjusted the 2006 base salaries for the remaining named executive officers as follows:

Ms. Cobb:                $279,000, an increase of 3.33% over her 2005 base salary of $270,000.

Mr. Ortiz:                      $257,000, an increase of 3.63 % over his 2005 base salary of $248,000.

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Mr. Real:                        $284,000, no increase over his 2005 base salary.  In lieu of a salary increase, Mr. Real received a discretionary lump sum payment of $10,000.

Mr. Horn:                    $168,000, an increase of 3.70 % over his 2005 base salary of $162,000.  Mr. Horn was paid a base salary of $282,009 from August 10, 2005 through January 17, 2006 for his temporary assignment of Acting CFO.

In February 2007, the Committee approved the following adjustments to the 2007 base salaries of the remaining NEOs effective April 7, 2007:

Mr. Eldred:             $330,000, an increase of 4.76% over his 2006 base salary of $315,000.

Ms. Cobb:                $292,000, an increase of 4.65% over her 2006 base salary of $279,000.

Mr. Ortiz:                    $268,000, an increase of 4.28% over his 2006 base salary of $257,000.

Mr. Real:                        $284,000, no increase over his 2006 base salary.  In lieu of a salary increase, Mr. Real received a discretionary lump sum payment of $10,000.

Mr. Horn:                    $176,000, an increase of 4.76 % over his 2006 base salary of $168,000.

As discussed above, because executives have the highest level and amount of responsibility, they have the lowest percentage of their total compensation fixed as base salary and the highest percentage of total compensation allowed to vary based on Company, business unit, and individual performance.  As reflected in column (c) of the Summary Compensation Table on page 32 of this proxy statement, in 2006, the base salary for Mr. Sterba represents approximately 21% of his total compensation listed in this table and the base salaries for the remaining NEOs range from approximately 30-46% of their respective total compensation.

Short-Term Annual Incentive Compensation.  In 2006, executives participated in a short-term “at risk” cash compensation plan known as the 2006 Officer Incentive Plan (“OIP”), that was adopted by the Committee in December 2005 and revised in March and August of 2006.  The OIP’s purpose is to motivate and reward executives for their contributions to the Company’s performance by tying a large portion of their cash compensation to the Company’s annual financial performance.  Under this plan, performance targets were established for three levels of achievement:  threshold, stretch, and optimal.  The plan is designed to pay up to 20% of the award opportunity based on achieving performance targets tied to overall individual performance goals.  Eighty percent of the award opportunity is based on achieving corporate earnings per share targets, adjusted for certain items as described below under “Tax and Accounting Implications-Adjustments for Certain Items” and referred to as “Incentive EPS”.  The Incentive EPS targets are established solely for measuring performance under the OIP and have no effect on, and are not necessarily identical to, any earnings guidance that may be announced by the Company.

The individual performance CEO goals for 2006 were related to financial performance, growth, public policy engagement, constituency development and corporate governance.

Cash awards are only made to an officer if the overall individual performance goals (combined business unit, business performance index and leadership effectiveness) achieve the threshold performance level.  Each 2006 OIP award was calculated as a percentage of the respective officer’s salary grade midpoint.  The percentage of the cash award will vary depending on whether the overall individual performance levels achieve the threshold, stretch or optimal targets.  Cash awards may be eligible for award enhancement if certain Incentive EPS amounts are achieved.  For 2006, the Incentive EPS award enhancement opportunities ranged from a multiplier of 1.15 for the threshold Incentive EPS amount of $1.65 to a multiplier of 5 for an optimal Incentive EPS of $1.90.  See columns (b)-(e) of the Grant of Plan-Based Awards Table on page 34 for the potential 2006 award opportunity under the OIP.

After the end of each calendar year performance period, the Committee reviews and approves each executive individual annual incentive payout amount.  Individual performance targets for all executives were met in 2006 and the awards were enhanced by a multiplier of 3.46 because the Incentive EPS for 2006 OIP award purposes was $1.80.  The key feature of the formula is that the multiplier and the resulting payout are closely linked to the Company’s financial and operational performance for the year.  Over the past five years, the multiplier approved by the Committee for incentive payout purposes has ranged from 0 for 2002 to 3.46 for 2006.  The Board approved the payment of the CEO’s 2006 OIP incentive award and the Committee approved the payment of annual incentive awards to all other executives in February 2007.  See column (g) of the Summary Compensation Table and footnote (5) thereto for the actual amount received by each NEO based on 2006 performance.

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In December 2006, the Committee approved the 2007 PNM Resources Officer Incentive Plan, which differs from the 2006 OIP in that the award eligibility ranges for the CEO, CFO and CAO were increased and all officer participant awards are subject to modification based on the actual 2007 debt coverage ratio of cash based earnings to total debt.  A copy of the 2007 Officer Incentive Plan was filed as exhibit 10.6 to the Company’s Current Report on Form 8-K filed February 16, 2007 and a copy of the 2006 Officer Incentive Plan was filed as exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 2, 2006.

Long-Term Incentive Compensation.  In 2006, the Committee continued to support an approach to long-term incentive compensation for executives first implemented in 2004.  Under this approach, grants made to officers fall under three award components:  stock options and restricted stock rights (each awarded under the Company’s Omnibus Performance Equity Plan (“PEP”), and long-term performance cash (awarded outside of the PEP).  The Committee based the overall target value of total long-term compensation for each executive on the market median for such compensation based upon an initial analysis conducted in 2003 by Michael J. Fuchs, Venture Pay Group and jointly-developed by Mr. Fuchs and the Consultant.  Generally, the Committee allocates total long-term compensation as follows: 25% to stock options, 50% to restricted stock rights and 25% to performance cash.  Based upon the ongoing analyses conducted by Kennedy & Rand, the Committee believes this long-term incentive approach delivers competitive levels of incentive compensation, but with less dilutive impact and more retention power than the previous long-term incentive award structure, which included long-term performance shares. These changes also reflect the Committee’s philosophy that long-term incentive compensation serves three purposes:  to align the interests of executives with those of its shareholders (through stock options and restricted stock), to promote the Company’s long-term performance goals (through performance-based cash awards and the previous performance share awards), and to further executive retention (through time-vested option and restricted stock rights).  However, given the evolution of regulatory, tax and accounting treatment of equity incentive programs and because it is important to retain our executive officers and key employees, the Committee continues to evaluate the relative merits of all forms of long-term incentive compensation.

The opportunity to earn performance shares was eliminated in 2005. Thus, the last potential award of performance shares was earned in 2006 for the 2004-2006 performance period and paid in March 2007 as included in column (e) of the Summary Compensation Table and column (d) of the Option Exercises and Stock Vested Table on pages 32 and 36 below.  Under this program, executive participants were entitled to an award of performance shares only if the Company’s total shareholder return (“TSR”) was at the 40th percentile or higher of companies in the S&P Midcap 400 Utilities Index (“Index”) for the 2004-2006 performance period.

Executives could earn from 0% to 200% of their respective target awards, depending on the Company’s TSR.   For the 2004-2006 performance period, the Company’s TSR placed it in the 75th percentile of companies included in the Index.  As a result, executives were entitled to an award of performance shares equal to 166% of their respective target award.  The CEO received 9,960 performance shares and Senior Vice Presidents who were employed for the entire 3-year performance period received 2,988 shares.  The Company’s TSR is calculated by comparing the average stock price including dividends over the first 30 days and the last 30 days of the performance period.

Stock Options and Restricted Stock Rights

In determining the equity awards to be granted annually to all participants, including all executive officers, the Committee considers the amount of stock based equity compensation grants already held by participants, overall dilution, the annual dilution or burn rate commitment to shareholders discussed below, the number of shares of common stock outstanding and the performance of the Company during the preceding year.

Prior to obtaining shareholder approval in 2005 to increase the number of authorized shares under the PEP, PNM Resources committed to its shareholders that it would not make annual awards under the PEP to eligible employees and non-employee directors for the period of 2005-2007 to exceed an average of 2% of the issued and outstanding shares as of each year-end.

In February 2006, the Committee approved awards of 67,500 stock options and 30,000 restricted stock rights to the CEO.  The Committee also approved awards of 14,000 stock options and 5,000 restricted stock rights to each executive officer holding the title of Senior Vice President and awards of 6,000 stock options and 2,000 restricted stock rights to each Vice President.  The Committee based all executive grant amounts on factors such as the relative job scope, expected future contributions to the growth and development of the Company, and competitiveness of

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grants relative to the Company’s Peer Group (based on information provided by the Consultant). The full Board also approved all equity awards.  In February 2007, the Committee approved the same level of awards of stock options and restricted stock rights that were awarded in 2006 to each NEO.

Stock options and restricted stock rights each vest in three equal annual installments beginning on the first anniversary of the grant date.  These awards are typically made at the first regularly scheduled meeting of the Committee in each year, unless the meeting occurs during a black-out period for trading in the Company’s securities as specified in the Company’s Insider Trading Policy.  Under those circumstances, the Committee will either (a) schedule a special meeting after the expiration of the black-out period, (b) make awards pursuant to a unanimous written consent executed after the expiration of the black-out period, or (c) pre-approve the equity awards with an effective date after the expiration of the black-out period.  The date of the awards is the date on which the Committee approves the awards, unless (i) the approval date is a non-trading day, in which case the date is the immediately preceding trading date or (ii) in the case of pre-approval during a black-out period, in which case the grant date is the first trading date after the expiration of the black-out period.  The exercise price of the stock option is equal to the closing price of the common stock on the New York Stock Exchange (“NYSE”) on the date of the grant.   The PEP prohibits option re-pricing.

Effective with the December 4, 2006 meeting, the Board adopted a Stock Option Grant Policy that documents the Company’s process and practices related to the awarding of equity compensation, including stock options.  The policy is available in its entirety on the Company’s website and is included as Appendix B to this proxy statement.

 The Committee also requires equity ownership by executives through share retention and ownership guidelines established by the Committee, discussed below under the heading “Stock Ownership Guidelines”.

Long-Term Performance Cash

The long-term performance cash program became effective on January 1, 2004 and was designed to represent 25% of total long-term incentive compensation.  Cash awards may be issued to officers and other eligible employees selected by the Committee when the Company’s TSR is at or above the 40th percentile of companies in the Index, for each 3-year rolling performance period.  The following target award levels have been in effect since 2004:  $287,000 for the CEO, $88,000 for any Executive Vice Presidents, $50,000 for Senior Vice Presidents and $21,000 for Vice Presidents.

The executive participant may earn 0 to 200% of the target award depending on the Company’s TSR over the performance period: no award if the Company’s TSR is below the 40th percentile of the Index, 50% of the target award if the Company’s TSR is in the 40th percentile of the Index, 100% of the target award if the Company’s TSR performance is in the 55th percentile and 200% of the target award if the Company’s TSR is at or above the 85th percentile.

For the 2004-2006 performance period, the Company’s TSR was in the 75th percentile of the Index peer group and payments of 166% of the target award for each executive were approved by the Committee in February 2007 as reflected in column (g) of the Summary Compensation Table on page 32 below.  The Company’s TSR is calculated by comparing the average stock price including dividends over the first 30 days and the last 30 days of the performance period.

Stock Ownership Guidelines.  Because the Committee believes in linking the interests of management and shareholders, the Committee has set stock ownership guidelines for the Company’s executives and other officers, effective January 1, 2006.  The ownership guidelines specify the value of shares that officers must accumulate and hold within five years of the later of the effective date of the program or the date of appointment as an officer.  The specific share requirements are based on a multiple of annual base salary, with the higher multiples applicable to officers having the highest levels of responsibility as follows:

Chief Executive Officer:               5x annual base salary

Executive Vice President:            4x annual base salary

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Senior Vice President:                 3x annual base salary

Vice President:                                                                                         2x annual base salary

As part of the stock ownership guidelines, each officer will be required to hold 75 percent of each annual restricted stock right grant until such time as the officer achieves the multiple of annual base salary.  This amount of restricted stock will be held until six (6) months after termination of employment.

The Committee will review annually the share ownership levels of each officer to determine compliance with the stock ownership requirements.  Officers may accumulate and hold shares from any source, including the employee stock purchase plan, brokerage accounts and the non-qualified deferred compensation plan, except that shares acquired in the Retirement Savings Plan are excluded.  By December 2008, the CEO and all Senior Vice Presidents will be required to achieve progress towards the share ownership requirements by holding shares equal to or greater than two times their respective annual base salary and all Vice Presidents will have to show progress towards meeting their share ownership requirement.

Perquisites and Other Personal Benefits.   Generally, perquisites and other personal benefits provided to executives are a small component of executive compensation limited to the following items that the Committee believes are reasonable and consistent with its goal of providing competitive and cost-effective compensation to attract and retain talented, high performing executives.

The Committee approves and oversees the executive spending account plan which allows executives to receive reimbursement for income tax preparation, financial management and counseling services, estate planning, medical services such as physicals, premiums for life and other insurance and travel expenses related to medical or financial planning services.  The current annual benefit limits approved by the Committee under this plan are $12,000 for vice presidents, $18,000 for senior vice presidents and $23,000 for the CEO.  The Company also provides and pays the premiums on additional life, long term care and long term disability insurance benefits provided to executives. The executives have no rights to any cash value in any insurance policy.

The Company reimburses relocation expenses for all new employees, including executives. In lieu of reimbursing the CFO, Mr. Eldred, for actual relocation expenses associated with his move in January 2006 from Omaha, Nebraska, the Committee awarded Mr. Eldred a one-time relocation lump-sum payment of $100,000.

Attributed costs of the personal benefits described above as received by each named executive officer in 2006 are identified in column (i) of the Summary Compensation Table on page 32.

Retirement Benefits.  The Company offers retirement benefits to all of its employees through tax-qualified plans including an employee and employer funded 401(k) Plan, and employer-funded frozen pension plans.  In addition, the Company provides non-tax qualified supplemental deferred compensation plans for certain officers, including NEOs.

Tax Qualified Retirement Plans Available to all Eligible Employees.  The retirement benefits under the tax-qualified plans for executives are the same as those available for other eligible employees. The PNM Resources, Inc. Retirement Savings Plan (“RSP”) is a 401(k) plan that allows for before-tax and after-tax contributions by employees, for company matching and age-based contributions and tax-deferred savings.  Employees may generally contribute up to 100% of eligible annual pay to the RSP, not to exceed the annual IRS maximum limit ($15,000 for 2006 and $15,500 for 2007).  Employees at least 50 years of age by the end of the plan year are eligible to make 401(k) catch-up contributions (up to a maximum of $5,000 for both 2006 and 2007).  Employees direct their own investments in the RSP.  Upon completion of three months of service, the RSP provides a Company matching contribution equal to 75% of the first 6% of eligible compensation the employee defers into the plan.  Additional Company contributions are made based on the employee’s age as follows:

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The Company age-based contributions are made regardless of whether or not the employee defers compensation into the plan.  All Company contributions made to the RSP are cash contributions, not Company stock.  Participants may invest in Company stock by allocating no more than 20% of their respective RSP account balances in a Company stock fund, one of seventeen investment options under the RSP.  All contributions made under the plan vest immediately.

The RSP results in individual participant balances that reflect a combination of:  (1) the employee deferring a portion of his or her cash compensation; (2) annual matching contributions made by the Company on behalf of the employee; (3) the age-based contributions made by the Company on behalf of the employee in an amount ranging from 3% to 10% of eligible compensation; (4) the annual contributions and deferred amounts being invested at the direction of the employee (the same investment choices are available to all participants); and (5), as in (4), the continuing reinvestment of the investment returns until the accounts are paid out.  This means that similarly situated employees, including NEOs, may have materially different account balances because of a combination of factors, including the number of years that a person has participated in the plan, the amount of money contributed, or compensation deferred, at the election of the participant from year to year, and the investments chosen by the participant.  The RSP does not guarantee minimum returns or above-market returns; the investment returns are dependent upon actual investment results.

The PNMR Employees’ Retirement Plan (“ERP”) is a non-contributory defined benefit pension plan.  Effective January 1, 1998, the ERP was closed to new participants.  The ERP provides retirement income based on the highest three-year average pay as of 1997, social security covered compensation, and length of service upon separation.  The present value of accumulated benefits payable to each of the named executive officer participants under the ERP is set forth in the Pension Benefits table on page 37 below.

W. Douglas Hobbs, Senior Vice President, Customer and Delivery Services, is the only executive officer who currently participates in the Texas-New Mexico Power Company Pension Plan which is a cash balance pension plan that was frozen as of December 31, 2005.

Supplemental Employee Retirement Agreements.  The Company has entered into a supplemental employee retirement agreement (“SERP”) with Mr. Sterba, its Chairman, CEO and President and Patrick Ortiz, its Senior Vice President and General Counsel.

Mr. Sterba’s SERP will be amended in 2007 if necessary to comply with the American Jobs Creation Act.  Mr. Sterba’s SERP provides him with a supplemental retirement benefit calculated, generally, using the ERP benefit formula, but disregarding certain limitations imposed by the Tax Code on the amount of compensation that may be considered in calculating an ERP benefit and the maximum benefit that may be provided under the ERP.  The benefit under the SERP is reduced by the benefit actually due under the ERP.  Under this SERP, Mr. Sterba is treated as having 30 years of credited service since he remained employed until February 28, 2005.  Mr. Sterba’s SERP also provides for payment of an enhanced lump sum severance payment equal to 16 months of base salary plus one additional week of base salary for each year of service credited to him under his SERP, in lieu of lump sum severance payment otherwise payable under the Non-Union Severance Plan, discussed below.

Mr. Ortiz’s SERP provides him with a supplemental retirement benefit calculated, generally, using the ERP benefit formula, but disregarding certain limitations imposed by the Tax Code on the amount of compensation that may be considered in calculating an ERP benefit and the maximum benefit that may be provided by the ERP.  The benefit under the SERP is reduced by the benefit actually due under the ERP.  For purposes of determining his benefit under the SERP, the SERP provides that Mr. Ortiz has 10 years of credited service as of January 1, 2000 and earns 2 years of credited service for each year of continuous employment for the years 2000 through 2009.  Accordingly, if Mr.

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Ortiz remains employed by the Company through December 31, 2009, he will have 30 years of credited service.  If Mr. Ortiz is terminated for cause, he will receive no additional service credit for purposes of the SERP.  However, if Mr. Ortiz is terminated by the Company for any other reason, is constructively terminated or his termination is as a result of a change in control, his SERP provides for payment of an enhanced supplemental retirement benefit in lieu of the supplemental retirement benefit otherwise payable under the Officer Retention Plan, discussed below.  Mr. Ortiz’s SERP also provides for payment of an enhanced severance lump sum severance payment equal to 14 months of base salary plus one additional week of base salary for each year of service credited to him under his SERP, in lieu of the lump sum severance payment otherwise payable under the Non-Union Severance Plan.

Non-Tax Qualified Retirement Plans.  The Internal Revenue Code of 1986, as amended (“Tax Code”) imposes a limitation on the amount of compensation that can be considered when determining the amount of the across-the-board and matching contributions to the 401(k) Plan.  The Tax Code also limits the maximum amount that can be contributed by any participant and the maximum amount of participant contributions, employer contributions and other amounts that can be allocated to any participant’s account.

To address these matters, in 1998, the Executive Savings Plan (“ESP”) was adopted.  The ESP is a non-qualified deferred compensation plan that provides executive officers with an opportunity to supplement their retirement savings and to receive the full employer contributions that would be available in the absence of the limitations imposed by the Tax Code.  The ESP was frozen in December 2004 when the Committee recommended and the Board adopted the Executive Savings Plan II (“ESP II”) in response to the American Jobs Creation Act.  Executive officers may elect to defer eligible compensation into the ESP II, a non-qualified supplemental deferred compensation plan.  The ESP II runs concurrently with the 401(k) qualified retirement plan.  The participant may make before-tax deferrals to the ESP II up to 100% of eligible compensation.  The Company makes a matching contribution equal to 75% of the first 6% of eligible compensation deferred.  Additionally, when the participant reaches the annual IRS compensation limit in the RSP ($220,000 in 2006 and $225,000 in 2007), the Company age-based contribution continues to the ESP II.  Executive participants also receive a supplemental target contribution in the ESP II in an amount determined by the plan’s actuary, (not to exceed $70,000 annually).

Participants direct the investment of their deferrals in the ESP and ESP II in the same investment options as are available in the RSP; thus, there is no guaranteed return.  Upon enrollment, participants make a one-time irrevocable distribution election, from among several distribution options, to be effective following separation from employment for any reason and is not tied specifically to the participant’s retirement.  ESP and ESP II amounts are subject to the same vesting and investment provisions as under the RSP, with the exception of the target supplemental contribution, which has a two-year requirement.  All participant balances in the ESP and ESP II are unfunded obligations of the Company, including the increases and decreases based on “investment” of the balances reflected as hypothetical returns equal to the actual returns of investments designated by a participant or the Company.

Retention Agreement with Mr. Sterba

In recognition of the value to the Company of retaining Mr. Sterba, the Company entered into a Retention Agreement with him in 2003. This Retention Agreement provides Mr. Sterba with a bonus if he continuously works for the Company as Chief Executive Officer through the end of the calendar year 2010, or upon his death or disability, if earlier.  The amount of the bonus is equal to $1.6 million plus amounts forfeited pursuant to the ESP and ESP II, if any. Generally, if Mr. Sterba terminates his employment or is terminated for cause prior to any of these events, he will not receive the bonus.  However, if Mr. Sterba’s employment is terminated without cause or if he is constructively terminated, he is eligible to receive the bonus.  Even though the bonus is earned if Mr. Sterba’s employment is terminated before 2011 for certain events, he will not receive payments until 2010 and 2011.

In February 2006, the Board approved an amendment to Mr. Sterba’s Retention Agreement.  Under the modified Retention Agreement, the bonus will be paid in two installments on March 1, 2010 and March 1, 2011.

Severance Benefits.  The Committee believes in providing reasonable severance benefits to executives in the event that an executive’s position is eliminated through no fault of the employee.  Severance benefits for named executive officers should reflect the fact that it may be difficult for executives to find comparable employment within a short period to time.

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Non-Union Severance Pay Plan

PNM Resources has a Non-Union Severance Pay Plan that covers non-union employees, including the current executive officers, who are terminated.  Members of the senior management group (which currently includes all vice presidents and senior vice presidents) are eligible, upon signing a release agreement, for a lump sum payment equal to fourteen months of base salary plus one additional week of base salary for each year of service.  Members of the senior management group are also eligible to receive reimbursement for placement assistance expenses (up to five percent of base salary), continuation of certain insurance coverages, and health care benefits for up to 12 months.  Severance benefits may not exceed the equivalent of twice the participant’s annual compensation.  If an individual receives benefits under the Officer Retention Plan discussed below, severance benefits are not available under the Non-Union Severance Pay Plan.

Benefits triggered from a loss of employment due to change in control.  The Company’s senior management and key employees have built PNM Resources into the successful enterprise that it is today and should receive reasonable protection in the event of a change in control and potential loss of employment.  In addition, the Committee believes that providing reasonable change in control benefits aligns senior management and shareholder interests because providing such benefits should offset any reluctance by senior management to pursue potential change in control transactions that may be in the best interests of shareholders.  In the context of the relative overall value of any potential change in control transaction, the Committee believes that the following change in control benefits are reasonable.

Officer Retention Plan

The PNM Resources, Inc. Officer Retention Plan (“Retention Plan”) covers the current officers of PNM Resources and its affiliates who have adopted the plan.  The Retention Plan provides special severance benefits if an officer is terminated as a result of a change in control.  Benefits are only payable if the officer is not retained or immediately re-employed by the successor company and if the termination is (a) for reasons other than cause, death or disability or (b) by the officer due to constructive termination.  In addition, the officer must sign a release agreement to receive benefits.  The benefits include (i) lump sum severance benefits (equal to 3.0 times current base compensation for the CEO and Senior Vice Presidents); (ii) reimbursement of reasonable legal fees and expenses incurred as a result of termination of employment; (iii) equivalent health insurance benefits that are substantially similar to those received by the officer immediately prior to termination of employment for a period of 30 months for the CEO and Senior Vice Presidents; (iv) supplemental retirement benefits equal to 3 years of Company contributions to the officer’s account under the Executive Savings Plan II, the cash equivalent of the present value of the incremental benefit the participant would receive under the ERP if his or service and age were increased by the number of years equal to the multiplier used to calculate severance pay under the plan, the cash equivalent of the present value of the early retirement reduction based on the number of years equal to the multiplier used to calculate severance pay under the plan; and (v) a lump sum tax gross-up payment for excise taxes.  If an officer receives any payment due to a change in control that is subject to the excise tax provided in Section 4999 of the Tax Code, then the officer will be reimbursed in an amount equal to that which places the officer in the same after-tax position as if no excise tax had been imposed.

A summary of the material provisions of the definition of  “Change in Control” contained in the Retention Plan and related plans is as follows:

(1)   subject to certain exceptions, any person becomes the beneficial owner of 20% or more of PNM Resources common stock;

(2)  during any consecutive two year period, the following individuals cease, for any reason, to constitute a majority of the Board (i) directors who were directors at the beginning of the 2 year period and (ii) any new directors whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least 2/3 of the directors then still in office who either were elected at the beginning of the 2 year period or whose election or nomination for election was previously so approved, but not including any such new directors designated by a person who entered into an agreement with the Company to effect a transaction described in parts (1), (3) or (4) of this definition summary;

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(3)  the shareholders approve a merger or consolidation with another company, corporation or subsidiary that is not affiliated with PNM Resources immediately before the Change In Control, unless the merger or consolidation results in the voting securities of PNM Resources outstanding immediately before the merger or consolidation continuing to represent at least 60% of the combined voting power of PNM Resources or such surviving entity outstanding immediately after such merger or consolidation; or

(4)  the adoption of a plan of complete liquidation of PNM Resources or any agreement for the sale or disposition of all or substantially all of the assets of PNM Resources;

provided that no Change In Control will be deemed to have occurred until any required regulatory approvals are obtained and the transaction that would otherwise be considered to be a Change in Control closes.

The complete definition of “Change in Control” is contained in Section 2.1(f) of the Retention Plan, as amended to date that was filed as exhibit 10.51 to the Company’s Annual Report in Form 10-K for the fiscal year ended December 31, 2003 and exhibit 10.46 to the Company’s Annual Report in Form 10-K for the fiscal year ended December 31, 2004.

Executive Savings Plan II

Under the ESP II, if a change in control occurs and any officer is entitled to receive retention benefits under the Officer Retention Plan, the officer also is entitled to receive additional credits under the ESP II.  Under the ESP II, participants are entitled to a matching contribution from the Company in an amount equal to 75% of the first six percent of compensation deferred by the officer under the ESP II.  In addition, participants are entitled to a standard credit in an amount equal to the contributions the Company would have been able to make on behalf of the participant for the plan year if the contributions were not limited by the Tax Code less the amount of the Company’s actual contribution to the Retirement Savings Plan on behalf of the participant.  In the event of a change in control, the participant is entitled to additional matching and standard credits under the ESP II based upon the participant’s position with the Company.  Class I Officers (which includes the CEO and all Senior Vice Presidents) receive matching credits and standard credits equal to three times the matching credits and standard credits that were allocated to the participant in the prior plan year. In addition, Class I Officers are entitled to receive an additional supplemental credit that is equal to three times the supplemental credits that were allocated to their account in the prior plan year.  These amounts are credited to the participant’s account as of the date of their termination of employment.

Other Plans

Certain other plans sponsored by the Company in which the named executive officers participate contain provisions that are triggered by a change in control.  These include, for example, the Performance Equity Plan, which provides for immediate vesting of outstanding equity awards upon eligible termination due to a change in control.  In addition, the Officer Incentive Plan provides that the participant may be entitled to a pro-rata award equal to 50% of the maximum award available under the plan.  The Long-Term Performance Cash Program also provides that the executive shall receive a pro-rata award for the number of months of service during the performance period prior to the change in control event. The terms of the change in control provisions are similar among the plans but do have some variations.

 Tax and Accounting Implications

Deductibility of Executive Compensation

The Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Tax Code, which provides that the Company may not deduct annual compensation of more than $1 million paid to certain key executives, except to the extent compensation qualifies as “performance-based compensation” under the applicable rules.  The Company believes that certain types of equity compensation (for example stock options) paid under the Performance Equity Plan in which the named executive officers participate qualify for the performance-based compensation exception under the guidance issued under 162(m) of the Tax Code and is generally fully deductible for federal income tax purposes.  Certain other types of equity compensation (such as service-based restricted stock) paid under the PEP will not qualify as performance-based compensation.  In certain circumstances,

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the Committee may approve compensation that will not qualify for the performance-based exception and therefore may not be deductible (in part or in full) to ensure competitive levels of total compensation for its executive officers.

Nonqualified Deferred Compensation

On October 22, 2004, the American Jobs Creation Act of 2004 was signed into law, changing the tax rules applicable to nonqualified deferred compensation arrangements.  While the final regulations under Section 409A of the Tax Code have not become effective yet, the Company believes it has operated its nonqualified deferred compensation plans in good faith compliance with the statutory provisions that were effective January 1, 2005 and applicable guidance issued thereafter.  A more detailed discussion of the Company’s nonqualified deferred compensation arrangements is provided above under the heading “Retirement Benefits- Non-Tax Qualified Retirement Plans”.

Accounting for Stock-Based Compensation

Beginning on January 1, 2006, the Company began accounting for stock-based payments, including its stock option, restricted stock rights and performance share awards issued under the PEP, in accordance with the requirements of FAS 123R.

Adjustments for Certain Items

Consistent with past practice and based on criteria established at the beginning of the performance period, the Committee adjusted the earnings measures on which the awards made under the 2006 Officer Incentive Plan were determined to eliminate the effect of certain items.  The adjustments are intended to ensure that award payments are based on the underlying growth of the core business and are not artificially inflated or deflated due to such eliminated items in the award year.  For the 2006 OIP awards calculation, the Committee calculated the Incentive EPS by adjusting the earnings results to eliminate the effect in 2006 of acquisition integration costs and costs related to the formation of a joint venture.

Compensation Committee Interlocks and Insider Participation

The Committee is comprised entirely of independent directors. No member of the Committee had a relationship during 2006 that requires disclosure as a compensation committee interlock or as insider participation.

COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with the Company’s management, and based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

Human Resources and Compensation Committee

Bonnie S. Reitz, Chair

Adelmo E. Archuleta

Charles E. McMahen

Manuel T. Pacheco

Robert M. Price

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SUMMARY OF EXECUTIVE COMPENSATION IN 2006

The table below summarizes the total compensation paid or earned by the Company’s named executive officers for the year ended December 31, 2006.  PNM Resources has not entered into any employment agreements with any of the named executive officers, except for a retention agreement with Mr. Sterba and supplemental employee retirement agreements with Mr. Sterba and Mr. Ortiz that are discussed on pages 27 and 28 of this proxy statement.

In general, because executives have the highest level and amount of responsibility, they have the lowest percentage of their total compensation fixed as base salary and the highest percentage of total compensation allowed to vary based on Company, business unit, and individual performance.  As reflected in column (c) below, the base salary for Mr. Sterba represents approximately 21% of his total compensation listed in this table and the base salaries for the remaining NEOs range from approximately 30-46% of their respective total compensation.  The at risk short and long-term compensation (sum of columns (e), (f) and (g)) accounts for approximately 68% of Mr. Sterba’s total compensation, 32% for Mr. Eldred, 43% for Mr. Horn, 52% for Ms. Cobb, 51% for Mr. Ortiz and 48% for Mr. Real. Mr. Eldred has a lower percentage of at risk compensation because he received a one-time lump sum relocation payment of $100,000 and because the value of his stock and option awards only includes the compensation expense for the 2006 awards, whereas the amounts listed for the other NEOs include the compensation expense for awards granted in and prior to 2006.

2006 SUMMARY COMPENSATION TABLE

(a)				(b)				(c)				(d)				(e)				(f)				(g)				(h)				(i)				(j)
Name and Principal								Salary ($)				Bonus ($)				Stock Awards ($)				Option Awards ($)				Non-Equity Incentive Plan Compensation ($)				Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)				All Other Compensation ($)				Total
Position				Year				(1)				(2)				(3)				(4)				(5)				(6)				(7)				($)
Jeffry E. Sterba, Chairman, President & Chief Executive Officer				2006				742,308				0				1,190,245				456,529				812,852				28,846				368,949				3,599,729
Charles N. Eldred, Senior Vice President and Chief Financial Officer				2006				290,769				0				44,326				15,868				187,104				0				233,276				771,343
Terry R. Horn*, Vice President, Customer Service				2006				175,386				0				69,528				41,710				50,442				111				40,813				377,990
Alice A. Cobb, Senior Vice President and Chief Administrative Officer				2006				276,231				0				195,703				88,169				181,214				0				157,179				898,496
Patrick T. Ortiz, Senior Vice President and General Counsel				2006				257,970				0				208,855				94,700				133,383				31,745				130,999				857,652
William J. Real, Senior Vice President, Public Policy				2006				284,000				10,000				208,855				96,848				133,383				9,761				181,323				924,170

*Mr. Horn is a NEO due to his temporary assignment as Acting Chief Financial Officer from August 10, 2005 to January 15, 2006.

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(1) Includes compensation that is deferred under the Executive Savings Plan II (“ESP II”) and reflected as an executive contribution in column (b) of the Nonqualified Deferred Compensation Table below and compensation that the executive contributes to the Retirement Savings Plan, a 401(k) plan (“RSP”).  For Mr. Ortiz, the amount indicated includes $1,870 received for the sale of vacation hours.

(2) Mr. Real received a discretionary bonus of $10,000 in lieu of a raise to his base salary.

(3) Reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006 in accordance with FAS 123R and thus includes amounts from awards granted pursuant to the Performance Equity Plan in and prior to 2006 (including performance shares earned for the 2004-2006 performance period and paid in 2007 and awards of restricted stock granted in and prior to 2006).  See Note 13 of the consolidated financial statements in PNMR’s Annual Report on Form 10-K for the year ended December 31, 2006 regarding assumptions underlying the value of equity awards.  These amounts reflect the Company’s accounting expense for these awards, and do not correspond to the actual value that will be recognized by the named executive officer.

(4) Reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006 in accordance with FAS 123R and thus includes amounts from awards of stock options granted in and prior to 2006 under the PEP.  See Note 13 of the consolidated financial statements in PNMR’s Annual Report on Form 10-K for the year ended December 31, 2006 regarding assumptions underlying the value of equity awards.   These amounts reflect the Company’s accounting expense for these awards, and do not correspond to the actual value that will be recognized by the named executive officer.

(5) Reflects the amount of short-term incentive cash awards earned in 2006 and paid in March 2007 under the 2006 Officer Incentive Plan (“OIP”) and long-term incentive cash awards earned in 2006 for the 2004-2006 performance period and paid in March 2007 under the Long-Term Performance Cash Program (“LT$”).  Partial LT$ awards were made in 2005 and 2006 for the  2004-2006 performance period and so the 2006 LT$ award below paid in 2007 represents a true-up for the remainder payable for the 2004-2006 performance period.

 

 

(6) Reflects the change in the present value of accumulated benefits under the Employees’ Retirement Plan at end of 2006 (as shown in column (d) of the Pension Benefits table below) compared to the 2005 year-end present value for all NEOs except Mr. Eldred and Ms. Cobb who do not participate in this plan.  There are no above-market or preferential rate earnings to report for the Executive Savings Plan or ESP II.

(7) The total amount indicated consists of the following amounts received by the named executive officer:

 

NEO		Payment of Officer Life Premium $		Payment of Long-Term Care Premium $		Payment of Long-Term Disability Premium $		Change in Post- Retirement Medical Value $		ESA Amounts ($) (b)		RSP Company Contributions $		ESP II Company Contributions $ (c)
Mr. Sterba		18,928		1,446		1,350		10,884		23,000		27,243		286,098
Mr. Eldred(a)		11,445		—		571		N/A		18,000		17,785		85,475
Mr. Horn		5,801		1,560		872		3,436		12,000		7,759		9,385
Ms. Cobb		11,797		1,836		1,350		N/A		18,000		29,000		95,196
Mr. Ortiz		14,919		1,693		1,271		3,111		17,534		29,130		63,341
Mr. Real		29,533		1,786		1,350		5,178		18,000		29,000		96,476

(a)              Mr. Eldred also received a one-time relocation sum payment of $100,000.

(b)             Reflects the amounts received by the NEOs under the Executive Spending Account Plan (“ESA”) described on page 26 above.

(c)              Amounts are reflected in column (C) of the Nonqualified Deferred Compensation table on page 39.

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Grants of Plan-Based Awards

The following table discloses the actual numbers of stock options, shown below as OPT, and restricted stock rights awards, shown below as RSA, granted to the named executive officers in 2006 under the Performance Equity Plan and the grant date fair value of these awards.   All stock options and restricted stock rights vest in three equal annual installments beginning on the first anniversary of the grant.  The exercise price of all stock options is equal to the closing market price on the NYSE on the date of the grant, or on the immediately preceding trading day if the grant date is not a trading day.  The table also captures (a) the potential incentive cash payouts under the 2006 Officer Incentive Plan, shown below as OIP, that were earned in 2006 as determined in 2007 and included in column (g) of the Summary Compensation Table above and (b) the potential future cash payouts of long-term cash compensation awards under the Long-Term Performance Cash Program for the 2006-2008 performance period, shown below as LT$.  The OIP is discussed above under “Compensation Discussion and Analysis-Short-Term Annual Incentive Compensation” on page 23 and the PEP and LT$ programs are discussed above under “Compensation Discussion and Analysis- Long-Term Annual Incentive Compensation- Stock Options and Restricted Stock Rights and —Long-Term Performance Cash” on pages 24 and 25.  No grants of equity incentive plan awards were made in 2006 because the opportunity to earn performance shares under the PEP was eliminated in 2005.

GRANTS OF PLAN-BASED AWARDS IN 2006

				Estimated Future Payouts Under Non-Equity Incentive Plan Awards						Estimated Future Payouts Under Equity Incentive Plan Awards						All Other Stock Awards: Number of Shares of Stock		All Other Option Awards: Number of Securities Underlying		Exercise or Base Price of Option		Grant Date Fair Value of Stock and
Name		Grant Date		Threshold ($)		Target ($)		Maximum ($)		Threshold (#)		Target (#)		Maximum (#)		or Units (#)		Options (#)		Awards ($/Sh)		Option Awards
Jeffry E. Sterba		OIP 2/13/06		79,520		497,000		994,000
		LT$ 2/13/06		143,500		287,000		574,000
		RSA 2/13/06														30,000						654,600
		OPT 2/13/06																67,500		24.06		261,225
Charles N. Eldred		OIP 2/13/06		18,432		115,200		230,400
		LT$ 2/13/06		25,000		50,000		100,000
		RSA 2/13/06														5,000						109,100
		OPT 2/13/06																14,000		24.06		54,180
Terry R. Horn		OIP 2/13/06		6,820		42,625		85,250
		LT$ 2/13/06		10,500		21,000		42,000
		RSA 2/13/06														2,000						43,640
		OPT 2/13/06																6,000		24.06		23,220
Alice A. Cobb		OIP 2/13/06		18,432		115,200		230,400
		LT$ 2/13/06		25,000		50,000		100,000
		RSA 2/13/06														5,000						109,100
		OPT 2/13/06																14,000		24.06		54,180
Patrick T. Ortiz		OIP 2/13/06		18,432		115,200		230,400
		LT$ 2/13/06		25,000		50,000		100,000
		RSA 2/13/06														5,000						109,100
		OPT 2/13/06																14,000		24.06		54,180
William J. Real		OIP 2/13/06		18,432		115,200		230,400
		LT$ 2/13/06		25,000		50,000		100,000
		RSA 2/13/06														5,000						109,100
		OPT 2/13/06																14,000		24.06		54,180

 

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Outstanding Equity Awards

The following table includes certain information with respect to the value at December 31, 2006 of all unexercised options previously awarded to named executive officers from 2002 to 2006 under the Performance Equity Plan and granted prior to 2001 under the Performance Stock Plan, or PSP, which expired in 2000.  All options granted under the PSP have vested.  The exercise price of stock options granted under both the PEP and the PSP is the closing market price on the NYSE on the date of the grant.  In addition, the table includes information with respect to unvested restricted stock rights granted under the PEP.  All stock options and restricted stock rights granted under the PEP vest in three equal annual installments beginning on the first anniversary of the grant.  Stock options expire if not exercised within 10 years of the grant date.

OUTSTANDING EQUITY AWARDS AT 2006 FISCAL YEAR-END

(a)		(b)		(c)		(d)		(e)		(f)		(g)		(h)		(i)
		Option Awards										Stock Awards
Name		Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (1)		Option Exercise Price ($)		Option Expiration Date		Number of Shares or Units of Stock That Have Not Vested (#)		Market Value of Shares or Units of Stock That Have Not Vested ($) (2)		Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (3)		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That have Not Vested ($)
Jeffry E. Sterba		187,500						16.20		12/10/10		4,710		146,480
		90,000						17.17		02/18/12		2,426		75,449
		145,000						13.03		02/17/13		20,010		622,311
		28,398		14,202				20.84		02/16/14		30,000		933,000
		22,500		45,000				27.52		05/17/15
				67,500				24.06		02/13/16
Charles N. Eldred		0		14,000				24.06		02/13/16		5,000		155,500
Terry R. Horn				1,302				20.84		02/16/14		400		12,440
		1,998		4,002				27.52		05/17/15		1,334		41,487
				6,000				24.06		02/13/16		2,000		62,200
Alice A. Cobb				3,051				20.84		02/16/14		902		28,052
		4,662		9,338				27.52		05/17/15		3,335		103,719
				14,000				24.06		02/13/16		5,000		155,500
Patrick T. Ortiz				3,051				20.84		02/16/14		902		28,052
		4,662		9,338				27.52		05/17/15		3,335		103,719
				14,000				24.06		02/13/16		5,000		155,500
William J. Real		3,050		3,051				20.84		02/16/14		902		28,052
		4,662		9,338				27.52		05/17/15		3,335		103,719
				14,000				24.06		02/13/16		5,000		155,500

(1)          No equity incentive options have been granted to date under the PEP.

(2)          The market value of shares is based on closing price of the NYSE on 12/29/06, the last business day of the year.

(3)          The last award of incentive performance shares under the PEP was for the 2004-2006 performance period and those awards vested in 2006 and are included in column (e) of the Summary Compensation Table above and columns (d) and (e) of the Option Exercises and Stock Vested Table below.

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