Table of Contents

Table of Contents

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

Tuesday, May 15, 2012

9:00 a.m. Mountain Daylight Time

PNM Resources, Inc. – Alvarado Square, AS-2 Conference Center

415 Silver Avenue SW

Albuquerque, New Mexico

April 5, 2012

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 15, 2012, at 9:00 a.m. (Mountain Daylight Time), at PNM Resources, Inc., Alvarado Square, AS-2 Conference Center (Alvarado Square, Second Floor), 415 Silver Avenue SW, Albuquerque, New Mexico. A map to the meeting location is included on the back page of this proxy statement for your reference. You are entitled to vote all shares of our common stock held by you as of the record date of March 26, 2012.

At the meeting, shareholders are being asked to:

·                  Elect ten (10) directors.

·                  Ratify appointment of Deloitte & Touche LLP as independent public accountants for 2012.

·                  Approve the Third Amendment to our Performance Equity Plan.

·                  Approve, on an advisory basis, the compensation of our named executive officers (“Say-on-Pay”).

·                  Transact any other business properly presented at the meeting.

The proxy statement and form of proxy were first made available to our shareholders on or about April 5, 2012. We are pleased to take advantage of the Securities and Exchange Commission rules that allow us to furnish proxy materials to our shareholders on the Internet. We believe these rules allow us to provide you with the information you need while lowering the delivery costs and reducing the environmental impact of our Annual Meeting.

Your vote is extremely important. If you hold shares in “street name” and do not provide specific instructions to your broker, your broker cannot vote on any matter, except the ratification of Deloitte & Touche as our independent accountants. After reading the proxy statement, please vote 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 continued interest in the business of PNM Resources, Inc. is appreciated, and we hope you will be able to attend the Annual Meeting.

Table of Contents

TABLE OF CONTENTS

i

Table of Contents

GLOSSARY OF TERMS USED IN THIS PROXY

ii

Table of Contents

iii

Table of Contents

iv

Table of Contents

PNM Resources, Inc.

Proxy Statement for 2012 Annual Meeting of Shareholders

Tuesday, May 15, 2012

SOME QUESTIONS YOU MAY HAVE REGARDING THIS PROXY STATEMENT

Why am I being asked to review these materials?

You are receiving these materials because you hold shares in PNM Resources, Inc. and are entitled to vote at the Annual Meeting. This proxy statement summarizes the information you need to know to vote at the Annual Meeting. You do not need to attend the Annual Meeting to vote your shares. Our Board has made these materials available to you on the Internet or, upon your request, has delivered printed versions of these materials to you by mail. We made these materials available to shareholders on or about April 5, 2012. Our shareholders are invited to attend the Annual Meeting and are requested to vote on the proposals described in this proxy statement. For a complete listing of terms defined and used in this proxy statement, see the Glossary on page ii.

What is included in these materials?

These materials include:

·                  Our proxy statement for the Annual Meeting;

·                  Our 2011 Annual Report on Form 10-K, which includes our consolidated financial statements;

·                  A shareholder letter from Patricia K. Collawn, our Chairman, President and CEO, and Stock performance graph.

If you requested printed versions of these materials by mail, these materials also include the proxy card for the Annual Meeting. Proxy materials are available at:

www.proxyvote.com and http://www.pnmresources.com/asm/annual-proxy.cfm.

Why did I receive a one-page notice in the mail regarding Internet availability of proxy materials this year instead of a full set of proxy materials?

Pursuant to rules adopted by the Securities and Exchange Commission (“SEC”), we have elected to provide access to our proxy materials over the Internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials (the “Notice”) to our shareholders of record and beneficial owners. All shareholders will have the ability to access the proxy materials on the website referred to in the Notice or request to receive a printed set of the proxy materials. The Notice includes instructions on how to access the proxy materials over the Internet or how to request a printed copy. The Notice is not a ballot proxy card and cannot be used to vote your shares. Pursuant to applicable law, beneficial owners of shares held in the RSP (our 401(k) plan for employees) will automatically receive paper copies of the proxy materials by mail instead of the Notice.

Who may vote at the Annual Meeting?

You may vote all of the shares of our common stock that you own at the close of business on March 26, 2012, the record date. On the record date, PNM Resources had 79,653,624 shares of common stock outstanding that are entitled to be voted at the Annual Meeting. You may cast one vote for each share of common stock held by you on all matters presented at the Annual Meeting.

What proposals will be voted on at the Annual Meeting?

The following four proposals will be considered and voted on at the Annual Meeting:

1

Table of Contents

Proposal 1 – Elect Ten Directors

All directors are elected on an annual basis. Jeffry E. Sterba retired from the Board effective December 31, 2011. Effective March 1, 2012, the Board filled the vacancy created by Mr. Sterba’s retirement by electing Alan J. Fohrer to serve until the 2012 Annual Meeting. Thus, ten current members of 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 11.

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 elects another nominee.

Proposal 2 – Ratify Appointment of Independent Public Accountants

The Audit Committee, which is comprised entirely of independent non-employee directors, selects and hires the independent registered public accountant to audit the Company’s financial records. The Audit Committee has selected Deloitte & Touche to audit the Company’s consolidated financial statements for the fiscal year beginning January 1, 2012.

Representatives of Deloitte & Touche will attend the Annual Meeting, where they will have the opportunity to answer questions. If shareholders fail to ratify the appointment of Deloitte & Touche, the Audit Committee will consider other auditors for 2013. However, because of the difficulty in making any substitution of auditors so long after the beginning of the current year, the appointment of Deloitte & Touche will stand unless the Audit Committee determines there is a compelling reason for a change.

Proposal 3 – Approve the Third Amendment to our Performance Equity Plan

The Board is asking shareholders to approve the Third Amendment to the PNM Resources, Inc. Second Amended and Restated Omnibus Performance Equity Plan, effective May 19, 2009, as amended by the First Amendment thereto effective May 17, 2011 and the Second Amendment thereto executed March 28, 2012 (the “PEP” or “Performance Equity Plan”) to incorporate technical changes to clarify that performance cash awards intended to qualify for the “performance-based compensation” exception to Section 162(m) of the Tax Code so qualify. The full text of the Third Amendment and the current PEP are attached hereto as Appendix B.

Proposal 4 - Advisory Vote on Compensation of Named Executive Officers

Shareholders will be given the opportunity to vote on the following advisory resolution (commonly referred to as “Say-on-Pay”):

RESOLVED, that the shareholders of PNM Resources, Inc. approve, on an advisory basis, the compensation of the Company’s named executive officers, as disclosed in the PNM Resources, Inc. 2012 proxy statement pursuant to the compensation disclosure rules of the SEC (which disclosure includes the Compensation Discussion and Analysis section, the compensation tables and the accompanying footnotes and narratives within the Executive Compensation section of the proxy statement).

The Compensation Committee will consider the outcome of this advisory vote when making future executive compensation decisions.

2

Table of Contents

What are our Board of Directors’ Voting Recommendations?

Our Board unanimously recommends that you vote your shares “For” each of the nominees to the Board, “For” the ratification of the appointment of Deloitte & Touche, “For” the Third Amendment to the PEP, and “For” the resolution approving, on an advisory basis, the compensation of our named executive officers as disclosed in this proxy statement.

How do I vote my shares?

For your convenience, we have established four easy methods for voting shares held in your name:

Your shares will be voted in the manner you indicate. The telephone and Internet voting systems are available 24 hours a day. They will close at 11:59 PM Eastern Time on May 14, 2012. Please note that the voting deadline is earlier for voting shares held in our RSP, as described below.

What is a proxy?

A proxy is your legal designation of another person (the “proxy”) to vote on your behalf. By voting by telephone or the Internet, or by completing and mailing a printed proxy card, you are giving the proxy committee, M.T. Pacheco, B.S. Reitz, and D.K. Schwanz, appointed by the Board the authority to vote your shares in the manner you indicate. If you are a shareholder of record and sign and return your proxy card without indicating how you want your shares to be voted, or if you vote by telephone or Internet in accordance with the Board of Directors’ voting recommendations, the proxy committee will vote your shares as follows:

·     FOR the election of the directors nominated;

·     FOR ratification of the appointment of Deloitte & Touche as independent public accountants for 2012;

·     FOR the approval of the Third Amendment to our PEP; and

·     FOR the resolution approving the compensation of our NEOs, on an advisory basis, as disclosed in this proxy statement.

If you hold your shares in “street name” and do not provide specific voting instructions to your broker, a “broker non-vote” will result with respect to Proposals 1, 3 and 4. More information about the implications of holding your shares in street name and broker non-votes is set forth below.

3

Table of Contents

What is the difference between a “shareholder of record” and a “street name” holder?

These terms describe how your shares are held. If your shares are registered directly in your name with BNY Mellon Shareowner Services, the Company’s transfer agent, you are a “shareholder of record” with respect to those shares and the Notice was sent directly to you by PNM Resources.

If your shares are held in the name of a brokerage, bank, trust or other nominee as a custodian, you are a “street name” holder, and the Notice was forwarded to you by that organization. As a beneficial owner, you have the right to direct that organization on how to vote the shares held in your account. If you wish to attend the Annual Meeting and vote in person, you must obtain a legal proxy from the organization that holds your shares. Please contact that organization for instructions regarding obtaining a legal proxy.

Can I change my vote or revoke my proxy?

Yes. 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.

What happens if additional matters are presented at the Annual Meeting?

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.

Why did I receive more than one proxy card or Notice?

You will receive multiple proxy cards or Notices if you hold your shares in different ways (e.g., joint tenancy, trusts, custodial accounts) or in multiple accounts. Each Notice and proxy card that you receive will contain a specific “control number” with the relevant information to vote the specific shares at issue. Note that the proxy card or Notice for shares registered in your name will include any shares you may hold in the PNMR Direct Plan, a dividend reinvestment and stock purchase plan. If your shares are held by a broker (i.e., in “street name”), you will receive a Notice on how to obtain your proxy materials and vote from your broker. You should vote according to the instructions on each Notice you receive and vote on, sign and return each proxy card you receive.

How do I vote my RSP shares?

If you participate in the RSP, our 401(k) plan for our employees, and shares have been allocated to your account under the PNMR Stock Fund investment option, then you will receive a separate vote authorization form and supplemental materials on voting instructions for these shares from the PNMR Corporate Investment Committee. Thus, if you have shares allocated to your RSP account, you will need to vote your RSP shares with the RSP vote authorization form. If you participate in the RSP, you will receive the proxy statement and RSP voting materials by mail. To allow sufficient time for the record holder of the RSP shares, The Vanguard Fiduciary Trust Company, to vote these shares, your voting instructions must be received by 11:59 PM Eastern Time on May 11, 2012.

What constitutes a quorum and why is a quorum required?

A quorum of shareholders is necessary to conduct business at the Annual Meeting. If at least a majority of all of the PNM Resources common stock outstanding on the record date is represented at the Annual Meeting, in person or by proxy (by voting by telephone or on the Internet or by properly submitting a proxy card or voting instruction form by mail), a quorum will exist. Abstentions, withheld votes, and broker non-votes will be counted as present for quorum purposes.

4

Table of Contents

What vote is required to approve each proposal?

Proposal 1 – Elect 10  Directors.  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 on this matter are required to elect directors.  Abstentions and withheld votes will have the effect of a vote against this matter, while broker non-votes will not be counted in calculating voting results.

Proposal 2 – Ratify Appointment of Independent Public Accountants.   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 on this matter are required to ratify the appointment of Deloitte & Touche LLP as the Company’s independent public accounting firm for 2012.  Abstentions will have the effect of a vote against this matter.

Proposal 3 – Approve the Third Amendment to our Performance Equity Plan.  We are seeking shareholder approval of our Third Amendment to the PEP because such amendment affects provisions that have implications under Section 162(m) of the Tax Code.  Shareholder approval of the amendment is required by the Tax Code, but is not required under the terms of the PEP, nor is it required under NYSE rules.  For purposes of Section 162(m), taking into account the requirements of applicable state law (including as they relate to the treatment of abstentions), a quorum and the affirmative vote of a majority of the shares of PNM common stock present, in person or by proxy, and entitled to vote on this matter are required to approve the Third Amendment to the PEP.  Abstentions will have the effect of a vote against this matter, while broker non-votes will not be counted in calculating voting results.

Further, in order to satisfy the requirements of New Mexico law relating to director conflict of interest transactions, shares owned by or voted under the control of our directors are not entitled to be counted in the vote to approve the Third Amendment to the PEP.

Proposal 4 – Advisory Vote on Compensation of Named Executive Officers.  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 on this matter are required to approve, on an advisory basis, the compensation of our named executive officers.  Abstentions will have the effect of a vote against this matter, while broker non-votes will not be counted in calculating voting results.

What happens if I don’t give my broker voting instructions for my “street name” shares?

You will receive proxy materials directly from your broker if your shares are not registered in your name, but are held by your broker as your “street name” shares. If you do not give your broker voting instructions, your brokerage firm may only vote your “street name” 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. Ratification of the appointment of Deloitte & Touche as independent public accountants for 2012 is considered the only routine matter for which brokerage firms may vote your shares without your voting instructions.

What is a broker non-vote?

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. “Non-routine” matters include the election of directors, actions relating to equity compensation plans and actions relating to executive compensation (including Say-on-Pay shareholder advisory votes). Thus, your “street name” shares cannot be voted on Proposals 1, 3 and 4 without receipt of your voting instructions.

We encourage you to provide instructions to your broker by giving your proxy. This ensures that your shares will be voted in accordance with your wishes on all matters at the Annual Meeting.

5

Table of Contents

How are votes withheld, abstentions and broker non-votes treated?

As discussed above, votes withheld and abstentions are deemed as “present” at the Annual Meeting, are counted for quorum purposes, and will have the same effect as a vote against matters requiring a majority of shares “present” and entitled to vote on the matter.  Broker non-votes, if any, while counted for general quorum purposes, are not deemed to be “present” with respect to any matter for which a broker does not have authority to vote and so do not have any effect on proposals which require a majority of shares “present” and entitled to vote on the matter (but will have the same effect as a vote against the matter for any proposals requiring the approval of a majority of outstanding shares rather than a majority of shares “present” and entitled to vote on the matter).

Who may attend the Annual Meeting?

Admission tickets will be distributed at the registration tables in the lobby area of the second floor, Alvarado Square, PNM Resources, Inc. prior to the Annual Meeting. Attendance is limited to shareholders of record on March 26, 2012. 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.

May I listen to the Annual Meeting by Webcast?

Yes. This year we are offering the opportunity for shareholders to listen to the Annual Meeting by webcast at www.virtualshareholdermeeting.com/pnm2012. While any member of the public may listen to the Annual Meeting by webcast, only verified shareholders will be able to submit questions via the webcast to a moderator during the meeting. New Mexico law does not allow shareholders who do not attend the meeting in person to vote during the Annual Meeting. Thus, shareholders who listen to the Annual Meeting by webcast will be unable to vote during the Annual Meeting, so please vote before the Annual Meeting if you are unable to attend the meeting in person.

Can I vote my shares in person at the Annual Meeting?

If you are a “shareholder of record,” you may vote your shares in person at the Annual Meeting. If you hold your shares in “street name,” you must obtain a proxy from your broker, banker, trustee or nominee, giving you the right to vote the shares at the Annual Meeting.

Who pays the cost of this proxy solicitation?

The enclosed proxy is being solicited on behalf of PNM Resources’ Board of Directors. This solicitation is being made by mail, but also may be made in person, by telephone or via the Internet. The Company has hired Georgeson, Inc. (“Georgeson”), to assist in the solicitation for an estimated fee of $8,000.00 plus any out-of-pocket expenses. PNM Resources will pay all costs related to solicitation. Broadridge Investor Communication Solutions, Inc. (“Broadridge”) is tabulating the vote and providing the webcast hosting services for listening to the Annual Meeting.

Is this proxy statement the only way that proxies are being solicited?

No. As stated above, the Company has retained Georgeson to aid in the solicitation of proxies. In addition to mailing these proxy materials, certain directors, officers or employees of the Company may solicit proxies by telephone, facsimile, e-mail or personal contact. They will not be specifically compensated for doing so.

Where can I find voting results of the Annual Meeting?

Preliminary voting results will be announced at the Annual Meeting. The final voting results will be tallied by the inspectors of election and published in the Company’s Current Report on Form 8-K within four business

6

Table of Contents

days after the date of the Annual Meeting. Such results will also be published on our website at www.pnmresources.com (under Governance and Ethics).

What are the deadlines and procedures to propose actions for consideration or to nominate individuals to serve as directors at the 2013 Annual Meeting?

Shareholder Proposals for the Year 2013 Annual Meeting:

If you want PNM Resources to consider including a proposal in our 2013 proxy statement and form of proxy next year, you must submit the proposal to us in accordance with applicable rules of the SEC and Article I, Section 4(d) of our bylaws, and your proposal must be received at our principal executive offices no later than the close of business (5:00 p.m. Mountain Standard Time) on December 6, 2012.

We strongly encourage any shareholder interested in submitting a proposal to contact our Corporate Secretary in advance of this deadline to discuss the proposal, and shareholders may want to consult knowledgeable counsel regarding the detailed requirements of applicable securities laws. Submitting a shareholder proposal does not guarantee that we will include it in our proxy statement.

In addition, even if you do not want the proposal to be included in our next year’s proxy statement and form of proxy, under our bylaws, any shareholder intending to nominate a candidate for election to the Board or to propose any business at our 2013 annual meeting must give notice to our Corporate Secretary no later than the close of business (5:00 p.m. Mountain Standard Time) on December 6, 2012. The notice must include information specified in Article I, Section 4(d) of our bylaws, including information concerning the nominee or proposal, as the case may be, and information about the shareholder’s ownership of and agreements related to our stock. For information on recommending individuals for consideration as nominees, see page 19 of this proxy statement. We will not entertain any proposals or nominations at the annual meeting that do not meet the requirements set forth in our bylaws.

Shareholder proposals should be delivered to or mailed and received by us on or before the above dates addressed to:     Corporate Secretary, PNM Resources, Inc., Alvarado Square, MS-2822, Albuquerque, NM 87158.

If you would like a copy of the procedures for submitting shareholder proposals contained in our bylaws, please contact: Assistant Corporate Secretary, PNM Resources, Inc., Alvarado Square, MS-2850, Albuquerque, NM 87158, 505-241-2205.

For next year’s Annual Meeting of Shareholders, the persons appointed by the proxy to vote shareholders’ shares will vote those shares according to their judgment on any shareholder proposal that PNM Resources receives after December 6, 2012. If the shareholder does not also comply with the requirements of Rule 14a-4(c)(2) under the Securities Exchange Act of 1934, as amended, we may exercise discretionary voting authority under proxies that we solicit to vote in accordance with our judgment on any such shareholder proposal or nomination.

Whom should I call with other questions?

If you have any further questions about voting your shares or attending the Annual Meeting, please call our Shareholder Services at 1-505-241-2868.

7

Table of Contents

INTRODUCTION

PNM Resources is an investor-owned holding company of electric utility businesses. Our headquarters are in Albuquerque, New Mexico, and we trade on the NYSE under the symbol “PNM.”

INFORMATION ABOUT OUR CORPORATE GOVERNANCE

CORPORATE GOVERNANCE PRINCIPLES

In recognition of the importance of governance to the proper management of the Company, 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. With the goal of incorporating evolving best corporate governance principles, the Board requires the Nominating Committee to review the principles at least annually and recommend changes from time to time for consideration and adoption by the full Board.

The Corporate Governance Principles document can be found on PNM Resources’ website at www.pnmresources.com (under Governance and Ethics). The principles document sets forth key practices and addresses the following:

CODE OF ETHICS

The Company has adopted a code of ethics, Do the Right Thing-Principles of Business Conduct, which 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 Governance Department, PNM Resources, Inc., Alvarado Square, MS-2850, Albuquerque New Mexico 87158. Do the Right Thing is also available on our website at www.pnmresources.com (under Governance and Ethics). 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 Committee, that are posted on the Company’s website at www.pnmresources.com (under Governance and Ethics). 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

Leadership Structure

We believe the Company and its shareholders are best served by a Board that has the flexibility to establish a leadership structure that fits the needs of the Company at a particular point in time. Under the Company’s Corporate Governance Principles and bylaws, the Board has the authority to combine or separate the positions of Chairman and Chief Executive Officer (“CEO”), as well as to determine whether, if the positions are separated, the Chairman should be an employee, non-employee, or an independent director.

The Board has addressed the question of whether to separate the offices of Chairman and CEO on several occasions and has reached different determinations, based on its conclusions of what was in the best interests of the Company

8

Table of Contents

and its shareholders at the time. The Board has separated the two offices on four different occasions since the late 1980s. The Board believes that it should continue to retain the flexibility to determine the most appropriate leadership structure at any point in time. When Jeffry E. Sterba retired as CEO in March 2010, the Board separated the two offices after concluding that retaining Mr. Sterba as Chairman would allow the Board to retain the expertise of Mr. Sterba on certain strategic and public policy issues for a transition period that would permit Patricia K. Collawn to complete the transition to the new CEO role and focus on pending business. Upon Mr. Sterba’s retirement as Chairman on December 31, 2011, the Board considered whether to appoint an independent director as Chairman or combine the two offices again by appointing Ms. Collawn as Chairman. After carefully considering the role of the Chairman to ensure that the Board functions well, the policies and procedures in place to provide independent oversight of management, including the ongoing role of the lead independent director in executive sessions, the Board concluded that Ms. Collawn was the best qualified person to serve as Chairman. Further, the Board believes that while the lead independent director position provides for efficient and necessary leadership of the independent directors, having the CEO serve as Chairman is the most efficient way for the Board to conduct its business at this time.

Although Ms. Collawn, as our President and CEO, is not an independent chair, as mentioned above, the Company has policies and practices in place to provide independent oversight of management and the Company’s strategy. The Board currently consists of nine non-management directors among its ten members, all nine of whom qualify as independent under applicable NYSE listing standards. As discussed below on page 16, the Board routinely holds executive sessions at which only independent directors are present, and, each year, the independent directors select a lead independent director responsible for facilitating and chairing the independent directors meetings scheduled for that year.

Furthermore, Board committees provide additional oversight of management and each committee is presently composed entirely of independent directors.

Board’s Role in Risk Oversight

PNM Resources’ management is responsible for managing risk and bringing the most material risks facing the Company to the Board’s attention. The Board has oversight responsibility for the processes established to identify, assess, mitigate, and monitor material risks applicable to the Company. Throughout the year, the Board reviews briefing materials developed through the Company’s enterprise risk management program regarding the potential significant risks facing the Company. Each significant strategic risk is overseen by the full Board, with all its experience and expertise, in order to facilitate more effective integrated risk and strategy oversight.

In addition to oversight of strategic risks, the Board oversees the appropriate allocation of responsibility for oversight of specific risks among the committees of the Board. Over the past several years, Board committees have played an important role in risk oversight. For example, the Finance Committee reviews and recommends to the full Board the Company’s capital structure and oversees the Company’s management of risks associated with capital availability, liquidity and costs thereof. In addition, the Finance Committee monitors the execution of the Company’s supply, sales, and hedging programs. The Audit Committee plays a central role in overseeing the integrity of the Company’s financial statements and reviewing and approving the performance of the Company’s internal audit function and independent accountants. The Nominating Committee oversees risks related to succession planning for the Board and the Compensation Committee oversees risks related to succession planning for Company officers. In addition, the Compensation Committee considers risks related to the attraction and retention of talent, risks related to the design of compensation programs and arrangements, and monitors the design and administration of the Company’s overall incentive programs to ensure that they incentivize strong individual and group performance and include appropriate safeguards to avoid unintended or excessive risk-taking by Company employees.

The Board does not believe that its leadership structure (i.e. combining the Chairman and CEO roles as of December 31, 2011) affects its ability to effectively oversee risk management because a majority of the Board is comprised of independent directors and each committee is comprised entirely of non-management independent directors.

9

Table of Contents

Equity Compensation Awards Policy

The Board adopted the Equity Compensation Awards Policy (formerly named the Stock Option Grant Policy) on December 4, 2006, to govern 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 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 Equity Compensation Awards Policy is available on our website at www.pnmresources.com (under Governance and Ethics).

The Company conducts an annual review of equity compensation awards to ensure compliance with the requirements of the Equity Compensation Awards Policy.

Related Person Transactions Policy

On February 13, 2007, the Board approved the “Policy and Procedures Governing Related Party Transactions,” which is posted on our website at www.pnmresources.com (under Governance and Ethics). 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 Nominating Committee, 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 Nominating Committee 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 the Company; and the aggregate value of the transaction at issue. For a discussion of 2011 related person transactions approved under this policy, please see pages 22-23 of this proxy statement under the caption “Related Person Transactions.”

PROPOSAL 1:  ELECT TEN DIRECTORS (PROPOSAL 1 ON YOUR PROXY CARD)

GENERAL INFORMATION

Ten director nominees are seeking election to the board for one-year terms at this year’s annual meeting:  nine members who ran for election at last year’s annual meeting and Alan J. Fohrer. Mr. Fohrer was elected by the Board effective March 1, 2012 to serve until the 2012 Annual Meeting and thereby fill the vacancy created by the retirement of Jeffry E. Sterba on December 31, 2011. Currently, there are no vacancies as the Board fixed the number of directors at ten, effective March 1, 2010.

The Nominating Committee retained SpencerStuart to provide assistance in identifying candidates for consideration as new directors. SpencerStuart recommended Alan J. Fohrer for Board consideration as a director candidate. The Nominating Committee interviewed Mr. Fohrer and, upon their recommendation, the full Board approved his nomination for election to the Board to fill the vacancy created by Mr. Sterba’s retirement.  The Board acknowledges Mr. Sterba’s leadership and contribution to the Board and Company during his tenure.

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 Nominating Committee. Alternatively, the seat will remain vacant if a substitute nominee is not selected prior to the Annual Meeting.

As discussed below on page 15, under the “Director Independence” section, nine of the ten director nominees are independent directors. Biographical information including a brief description of the specific relevant qualifications and attributes regarding each nominee is noted below. The age of each director is as of April 5, 2012.

10

Table of Contents

DIRECTORS NOMINATED THIS YEAR – TERM EXPIRING IN 2012

Adelmo E. Archuleta

Director since July 15, 2003

President and Owner, Molzen-Corbin & Associates, Inc., a New Mexico consulting engineering and architecture firm, since 1982

Mr. Archuleta, age 61, is a resident of Albuquerque, New Mexico, and holds a Masters degree in Civil Engineering from New Mexico State University. He was awarded an Honorary Doctorate by his alma mater, NMSU, in 2010. He joined Molzen-Corbin & Associates in 1975, and has led the firm as its President and Chief Executive Officer since 1982. Other directorships include:  Bank of Albuquerque, Presbyterian Healthcare Services, New Mexico Mutual Casualty, and the Greater Albuquerque Chamber of Commerce. Mr. Archuleta currently serves as Chair of the Nominating Committee and is a member of the Finance Committee of the Board.

Specific Qualifications / Attributes:

·      CEO and board experience

·      Engineering background and experience

·      Public policy experience and knowledge of political environment

·      Community engagement

·      Business background and experience

Patricia K. Collawn

Director since March 1, 2010

Chairman, President and CEO, PNM Resources, Inc., since January 1, 2012

President and CEO, PNM Resources, Inc., March 1, 2010-December 31, 2011

President and Chief Operating Officer, PNM Resources, Inc., August 11, 2008-February 28, 2010

Utilities President, PNM Resources, Inc., June 25, 2007-August 10, 2008

President and CEO, Public Service Company of Colorado, October 2005-June 5, 2007

Ms. Collawn, age 53, is a resident of Albuquerque, New Mexico, and is Chairman, President and CEO of PNM Resources and PNM, and Chairman and CEO of TNMP. She holds an MBA from Harvard University. Ms. Collawn has more than 20 years of utility experience. Other directorships in addition to various Company subsidiaries include: CTS Corporation, for which she serves on the nominating and governance committee, and is the chair of the compensation committee. She is also the former Chair of the Greater Albuquerque Chamber of Commerce and Chair-Elect of United Way of Central New Mexico.

Specific Qualifications / Attributes:

·      CEO and COO experience

·      Business background and experience

·      Extensive utility and energy industry expertise and leadership

·      Federal electric, natural gas and environmental regulatory experience

Julie A. Dobson

Director since July 16, 2002

Chairman, TeleBright Corp., a telecommunications decision-support technology company, since 2002

Chief Operating Officer, TeleCorp PCS, 1998-2002

Ms. Dobson, age 55, 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

11

Table of Contents

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). Through her present and past service on boards of other public companies, Ms. Dobson adds to our Board’s experience and knowledge base relating to governance best practices. Other directorships include:  American Water Works Company, Voorhees, New Jersey, where she serves on the compensation committee and on the nominating committee; Safeguard Scientifics, Inc., Wayne, Pennsylvania, for which she serves as chair of the compensation committee and is a member of the nominating and governance committee; and Radio Shack Corporation, Fort Worth, Texas, where she is a member of the management development and compensation committee. Prior committee memberships at Safeguard Scientifics, Inc. include the audit committee. She previously served as non-executive chairman and director of LCCI, McLean, Virginia. Ms. Dobson currently serves as a member of the Audit Committee and the Compensation Committee of the Board and is the lead director of the independent directors’ meetings. The Board has determined that Ms. Dobson qualifies as an “audit committee financial expert” as defined by the SEC regulations.

Specific Qualifications / Attributes:

·      CFO, COO and Board experience

·      “Financial expert” under SEC regulations

·      Finance educational background

·      Technology background

·      Business background and experience in regulated and non-regulated corporations

Alan J. Fohrer

Director since March 1, 2012

·      Retired: Chairman and CEO, Southern California Edison, June 27, 2007-December 31, 2010

·      CEO, Southern California Edison, January 1, 2002-June 26, 2007

Mr. Fohrer, age 61, is a resident of Arcadia, California, and retired on December 31, 2010, as Chairman and CEO of Southern California Edison (“SCE”), one of the largest electric utilities in the United States. During his 37-year career at SCE, Mr. Fohrer gained extensive knowledge and experience in every aspect of the utility business. As CEO, Mr. Fohrer helped lead SCE back to financial health through a regulatory strategy resulting in three successful rate cases and the establishment of a credible framework for energy markets.

Over the past ten years, Mr. Fohrer represented the electric utility industry in significant regulatory and legislative proceedings. He co-chaired the Edison Electric Institute’s Energy Delivery and Reliability Committees and also served on the Boards of Directors of the Institute of Nuclear Power Operations and the California Chamber of Commerce.

Mr. Fohrer earned his BSc and MSc degrees in Civil Engineering from the University of Southern California and received an MBA from California State University Los Angeles.

Mr. Fohrer has extensive experience with both corporate and non-profit boards. Currently, he is the lead director and Compensation Committee Chair for MWH, Inc., a global engineering and construction company focused on water and waste water projects. He also chairs the finance committee on Blue Shield of California’s board. He served on the board of Duratek, a publicly held nuclear services company, prior to its acquisition by Energy Solutions. Mr. Fohrer is a member of the Viterbi School of Engineering Board of Councilors for the University of Southern California. He serves on the boards of the San Gabriel Valley Council of the Boy Scouts of America, the California Science Center Foundation and the Huntington Library Overseers. He served two years as president and two years as chairman of the San Gabriel Valley Council of the Boy Scouts of America.

Mr. Fohrer currently serves as a member of the Audit Committee and the Compensation Committee of the Board.

12

Table of Contents

Specific Qualifications / Attributes:

·      Extensive Board experience, including Board Chairman

·      Former CEO of one of the largest U.S. electric utilities

·      Extensive utility and energy industry expertise and leadership

·      Extensive electric utility regulatory experience

Robert R. Nordhaus

Director since September 18, 2007

Member, Van Ness, Feldman, P.C., Attorneys at Law, since 1997

Mr. Nordhaus, age 75, is a resident of Washington, DC, and is a member of the law firm of Van Ness, Feldman, P.C. Mr. Nordhaus served as General Counsel of the Federal Energy Regulatory Commission from 1977 to 1980, and practiced with the law firm from 1981 to 1993, when he was appointed General Counsel of the Department of Energy by President Clinton. He rejoined the firm in 1997. Mr. Nordhaus is a 1960 graduate of Stanford University and a 1963 graduate of Yale Law School. Mr. Nordhaus currently serves as a member of the Audit Committee and the Nominating Committee of the Board.

Specific Qualifications / Attributes:

·      Extensive utility and energy industry legal expertise and leadership

·      Federal electric, natural gas and environmental regulatory experience

Manuel T. Pacheco, Ph.D.

Director since November 20, 2001

Interim President, New Mexico State University, June 2009-January 2010

Interim President, Highlands University, July 2006-January 2007

President Emeritus, University of Missouri System, 1997-2003

Dr. Pacheco, age 70, is a resident of Phoenix, Arizona, and served as Interim President of New Mexico State University, Las Cruces, New Mexico, from June 2009 to January 2010; and 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 a member of the Audit Committee and the Compensation Committee of the Board.

Specific Qualifications / Attributes:

·      Board experience

·      Public policy experience

·      Leadership background and experience

·      Academic background

Bonnie S. Reitz

Director since July 16, 2002

Owner, InsideOut...Culture to Customer, since March 2003

President, EOS Airlines, April-August 2005

Senior Vice President, Sales and Distribution, Continental Airlines, Inc., 1994-2003

Ms. Reitz, age 59, 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.

13

Table of Contents

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: Former Express Jet Holdings of Houston, Texas, which was sold to Atlantic Southeast Airlines on November 12, 2010, for which she served on the compensation committee and the corporate governance committee; the local and national organizations of Dress for Success; Farelogix, a provider of low-cost, multi-source distribution and independent faring technology to the global travel industry; and Airline Reporting Corporation, a technology solutions company providing transaction settlement and data information services to multiple sectors of the travel and transportation industry, of which she is Chairman of the Board. Ms. Reitz currently serves as a member of the Finance Committee and the Nominating Committee of the Board.

Specific Qualifications / Attributes:

·      Customer service and delivery systems expertise

·      Marketing background and experience

·      Airline distribution expertise

·      Business consulting background

·      Regulated industry (travel industry) experience

·      Customer relationship and database expertise

Donald K. Schwanz

Director since July 29, 2008

Chairman and CEO, CTS Corporation, 2002-2007

CEO, CTS Corporation, 2001-2007

COO, CTS Corporation, January-September 2001

Honeywell, 1979-2000

Mr. Schwanz, age 67, is a resident of Scottsdale, Arizona, and is retired Chairman and CEO of CTS Corporation, a global manufacturer of electronic components and sensors and a provider of electronic manufacturing services. Mr. Schwanz held various management and senior executive roles at Honeywell from 1979 to 2000, where he last served as President of the Industrial Controls Business. He graduated from Massachusetts Institute of Technology with a Bachelor’s degree in Mechanical Engineering, and he earned an MBA in General Management from Harvard Graduate School of Business in 1968. Other directorships include: Multi-Fineline Electronix, Inc. (MFLEX), where he currently serves as chair, compensation committee, and is a member of the audit committee. Mr. Schwanz currently serves as Chair of the Finance Committee and is a member of the Compensation Committee of the Board.

Specific Qualifications / Attributes:

·      CEO experience

·      Board and Board Chairman experience

·      Regulatory environment experience

·      Technology and innovation experience

Bruce W. Wilkinson

Director since May 18, 2010

Retired: Chairman and Chief Executive Officer McDermott International, Inc., 2000-2008

Mr. Wilkinson, age 67, is a resident of Houston, Texas, and served as President and Chief Operating Officer from May 2000 to July 2000, and as Chairman and Chief Executive Officer of McDermott International, Inc., an energy services company, from August 2000 until his retirement in September 2008. Mr. Wilkinson has a BA and JD from the University of Oklahoma and an LLM from the University of London. Other directorships include:  Director of Cameron International Corporation (formerly, Cooper Cameron Corp.), since 2002; Trustee of the University of St. Thomas in Houston, Texas; and Trustee of Duchesne Academy of the Sacred Heart in Houston. Mr. Wilkinson currently serves as Chair of the Audit Committee and as a member of the Finance Committee of the Board. The

14

Table of Contents

Board has determined that Mr. Wilkinson qualifies as an “audit committee financial expert” as defined by the SEC regulations.

Specific Qualifications /Attributes:

·      Board Chairman and CEO experience

·      “Financial expert” under SEC regulations

·      Extensive business background and experience

·      Energy and power industry experience

·      Engineering and construction experience

Joan B. Woodard, Ph.D.

Director since July 15, 2003

Owner, EDT Consulting, LLC, 2011-present

Sandia National Laboratories

Executive Vice President & Deputy Director of National Security Programs, 2005-2010

Executive Vice President & Chief Operating Officer, 1999-2005

Dr. Woodard, age 59, is a resident of Albuquerque, New Mexico, and owner of EDT Consulting, LLC, an energy and national security consulting company. Dr. Woodard retired in 2010 from Sandia National Laboratories as Executive Vice President and Deputy Director. She served as the Chief Operating Officer from 1999 to 2005. During her 36-year career at Sandia National Laboratories, she led the energy technology development programs as well as the national security programs and was the executive with oversight for human resources and compensation as well as budget and finance. She holds a Doctorate degree in Mechanical Engineering from the University of California Berkeley and Master’s in Engineering Economics from Stanford. Other directorships include:  Missouri University of Science & Technology Board of Trustees, (President); Bosque School Board of Trustees; and the New Mexico Women’s Forum, treasurer. Dr. Woodard currently serves as the Chair of the Compensation Committee and is a member of the Nominating Committee of the Board.

Specific Qualifications/Attributes:

·      COO experience

·      Board governance experience

·      Engineering background and experience

·      Energy technology and industry experience

·      Public policy experience and awareness of political environment

·      Community engagement

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

ADDITIONAL INFORMATION ABOUT OUR BOARD AND BOARD COMMITTEES

DIRECTOR INDEPENDENCE

In accordance with the Company’s Corporate Governance Principles, the Board has affirmatively determined that all of the current directors, except Patricia K. Collawn, are independent of PNM Resources and its management. Ms. Collawn is considered an inside director because of her employment as the President and CEO of the Company. In addition, Jeffry E. Sterba, who served as Chairman until his retirement from the Board on December 31, 2011, was not an independent director because he was employed as our CEO until March 1, 2010.

Prior to electing Mr. Fohrer to the Board on March 1, 2012, the Board determined that he would qualify as an independent director. In determining the independence of Mr. Fohrer and the remaining eight non-employee members of the Board, the Board examined all direct and indirect relationships of these non-employee directors with the Company and determined that all such relationships complied with the specific independence criteria under

15

Table of Contents

applicable law, including the NYSE listing standards. The Board also determined that there were no direct or indirect relationships between PNM Resources and each current non-employee director nominee (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 lead independent director. A lead independent director is nominated and approved by the independent directors annually. The director selected is responsible for facilitating and chairing the independent directors’ meetings scheduled for that year. The independent directors meet at least four times a year without management present, and will meet more often as the need arises.  Dr. Joan B. Woodard served as the lead independent director during 2011.  Julie A. Dobson is the lead independent director for 2012.

In 2011, the full Board met eight times. The independent directors held four regularly scheduled meetings in 2011. Attendance in 2011 at full Board and committee meetings was 99%.

Directors are expected to attend the Annual Meeting, and as stated in the Corporate Governance Principles, 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 2011 Annual Meeting held on May 17, 2011, except Dr. Pacheco who did not attend due to illness (and Mr. Fohrer who was not a director until March 1, 2012).

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-2822, 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 (under Governance and Ethics) for any changes in this process.

Shareholders and other interested parties wishing to communicate directly with the lead independent director or with the non-management or independent directors as a group may do so by writing to Lead Independent Director, c/o Corporate Secretary, PNM Resources, Inc., Alvarado Square, MS-2822, 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 found on the Company’s website at www.pnmresources.com (under Governance and Ethics).

BOARD COMMITTEES AND THEIR FUNCTIONS

The Board has four current standing committees: the Audit and Ethics Committee (or Audit Committee), the Compensation and Human Resources Committee (or Compensation Committee), the Finance Committee, and the Nominating and Governance Committee (or Nominating Committee). All committee members are independent directors.

Each committee has a written charter that addresses the committee’s purpose and responsibilities. All current committee charters can be found at www.pnmresources.com (under Governance and Ethics), and are available in

16

Table of Contents

print without charge to any shareholder who requests it. The charters comply with applicable NYSE Listing Standards.

The table below provides 2011 membership and meeting information for each of the four Board Committees.

Effective March 1, 2012, Mr. Fohrer joined the Board and he currently serves on the Audit Committee and the Compensation Committee.  In addition, Mr. Wilkinson now serves as Chair of the Audit Committee and Ms. Dobson serves as lead independent director for 2012.

A summary of each standing committee’s responsibilities is included below:

Audit and Ethics Committee

17

Table of Contents

18

Table of Contents

19

Table of Contents

PNM RESOURCES COMMON STOCK OWNED BY EXECUTIVE OFFICERS AND DIRECTORS

The following table shows the amount of PNM Resources common stock owned by the Company’s directors, the named executive officers, and our directors and executive officers as a group as of March 27, 2012.

20

Table of Contents

OWNERSHIP OF MORE THAN FIVE PERCENT OF PNM RESOURCES’ COMMON STOCK

The following table shows the amount of PNM Resources common stock owned by those persons who beneficially own more than 5% of our common stock based on reports filed by such persons with the SEC as of March 27, 2012. 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 5% of PNM Resources common stock as of March 27, 2012.

21

Table of Contents

RELATED PERSON TRANSACTIONS

Since January 1, 2011, 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 Investment, L.L.C. (“Cascade”), a shareholder which owned more than 5% of our common stock through November 10, 2011.

Cascade Registration Rights. As previously reported, on October 7, 2007, PNM Resources issued 4,000,000 equity-linked units to Cascade which were settled on November 17, 2008, upon the issuance by PNM Resources of 477,800 shares of its Convertible Preferred Stock, Series A to Cascade. The 477,800 preferred shares were convertible into 4,778,000 shares of common stock, subject to certain anti-dilution adjustments. The Convertible Preferred Stock, Series A was entitled to receive dividends equivalent to any dividends paid on PNM Resources common stock as if the preferred stock had been converted into common stock. The Convertible Preferred Stock, Series A was entitled to vote on all matters voted upon by common stockholders, except for the election of the Board.

In connection with the equity-linked units transaction, PNM Resources entered into a registration rights agreement which required PNM Resources, under certain circumstances, to register for resale certain securities held by Cascade. In March 2011, pursuant to the terms of a letter agreement between PNM Resources and Cascade amending the registration rights agreement, PNM Resources agreed to file a registration statement covering its securities and to file an applicable prospectus supplement, if requested by Cascade at a later date, covering shares of common stock held by Cascade or issued upon conversion of shares of the Convertible Preferred Stock, Series A. On March 17, 2011, PNM Resources filed a universal automatic shelf registration statement with the SEC that permits PNM Resources, from time to time, in one or more public offerings, to offer for sale certain securities. The registration statement also permits sales of PNM Resources securities by selling security holders who may be named in a prospectus supplement. The filing of this universal shelf registration statement satisfied PNM Resources’ obligation under the registration rights agreement, as amended, to register Cascade’s shares. The dollar value of the amount involved in such a transaction was not determinable. Cascade could have, pursuant to a prospectus and an applicable prospectus supplement, elected to sell some or all of such common stock, from time to time, subject to market conditions and any applicable legal requirements. However, Cascade had no obligation to sell all or any portion of such securities. Cascade delivered to PNM Resources a sales notice pursuant to the registration rights agreement on August 19, 2011.

The registration rights agreement terminated by its own terms upon the purchase by PNM Resources of the Convertible Preferred Shares and common stock held by Cascade, which is described below.

Purchase of Convertible Preferred Shares and Common Stock held by Cascade. PNM Resources and Cascade entered a Sale and Purchase Agreement, dated September 23, 2011, which obligated PNMR to repurchase of all of PNM Resource’s outstanding Convertible Preferred Stock, Series A held by Cascade. The Sale and Purchase Agreement obligated PNMR to purchase the Convertible Preferred Stock at a 2% discount from a price determined by the daily volume weighted average price per share of PNM Resource’s common stock for the ten trading days ending on September 30, 2011, times the number of shares of PNM Resource’s common stock into which the Convertible Preferred Stock was convertible. On October 5, 2011, in accordance with the Sale and Purchase Agreement, PNM Resources closed on the purchase of the Convertible Preferred Stock for an aggregate purchase price of $73,474,507.

On November 4, 2011, PNM Resources entered into a Sale and Purchase Agreement with Cascade which obligated PNMR to purchase from Cascade the lesser of (i) 7,019,550 shares of its common stock, no par value and (ii) the number of shares of common stock equal to $156,525,490 divided by the purchase price per share (rounded down to the nearest whole share). The Sale and Purchase Agreement also provided that the common stock be purchased at a price per share equal to the product of (a) 0.98 and (b) the arithmetic mean of the volume weighted average price on each trading day in the period beginning October 27, 2011 and ending November 9, 2011. On November 10, 2011, in accordance with the Sale and Purchase Agreement, PNM Resources closed on the purchase of 7,019,550 shares of common stock for an aggregate purchase price of $125,683,473. Upon closing of the transaction, the shares of common stock repurchased became authorized but unissued shares, as determined by the PNM Resources Board.

22

Table of Contents

Optim Energy, LLC. In January 2007, PNM Resources and ECJV, a wholly owned subsidiary of Cascade, created EnergyCo, LLC to serve expanding U.S. markets, principally in certain areas of Texas covered by the ERCOT. EnergyCo’s name was changed to Optim Energy, LLC (“Optim Energy”) on February 2, 2009. References to Optim Energy in this discussion encompass periods prior to the name change. PNM Resources and ECJV each had a 50 percent ownership interest in Optim Energy, a limited liability company. PNMR Services Company provided corporate services to PNM Resources, its subsidiaries, and Optim Energy in accordance with shared services agreements. Services provided to Optim Energy were billed at cost plus a profit element. There was also a service agreement for Optim Energy to provide services to PNM Resources.

On June 1, 2007, Optim Energy entered into a bank financing arrangement with a term of five years, which included a revolving line of credit. This facility also provided for bank letters of credit to be issued as credit support for certain contractual arrangements entered into by Optim Energy. Cascade and ECJV guaranteed Optim Energy’s obligations on this facility and, to secure Optim Energy’s obligation to reimburse Cascade and ECJV for any payments made under the guaranty, had a first lien on all assets of Optim Energy and its subsidiaries.

On September 23, 2011, PNM Resources, ECJV and Optim Energy entered into a Contribution and Restructuring Agreement providing for a reduction in PNMR’s ownership in Optim Energy. Upon execution of the Contribution and Restructuring Agreement, the Operating Agreement for Optim Energy was restructured and ECJV made an equity contribution to Optim Energy in exchange for an increased ownership interest, which resulted in PNM Resource’s ownership in Optim Energy being reduced from 50% to 1%. As part of this transaction, PNM Resources did not make any equity contribution to Optim Energy. ECJV was given the option to purchase PNM Resource’s 1% ownership interest in Optim Energy at fair market value beginning as of January 1, 2012. On January 4, 2012, PNM Resources received a notice from ECJV whereby ECJV exercised its option to purchase PNM Resource’s 1% ownership interest in Optim Energy at fair market value, which ECJV determined was less than zero. PNM Resources did not object to ECJV’s fair market value determination.

Approvals. PNM Resources’ transactions with Cascade were pre-approved by the full Board or Nominating and Governance Committee of the Board pursuant to the Policy and Procedures Governing Related Party Transactions discussed on page 10. The terms of the arrangements with Cascade were arrived at in arms’ length negotiations between the two entities. PNM Resources and Cascade were each represented in the arms’ length negotiations between themselves by competent counsel who represented their respective clients zealously. As a result, PNM Resources believes that the terms were at least as good as those that could have been obtained in transactions with unaffiliated third parties.

DIRECTOR COMPENSATION

The Nominating Committee recommends non-employee director compensation levels and stock ownership guidelines for review and approval by the full Board. Salaried employees receive no compensation for board service. Thus, Ms. Collawn, our current CEO, receives no additional compensation for board service.

The Board desires to achieve a reasonable compensation package for non-employee directors that will attract and retain highly qualified non-employee directors. Accordingly, the Nominating Committee selects, weighs and reviews each element of director compensation on an annual basis to recommend a total compensation amount that approximates the 50th percentile of non-employee director compensation in similarly situated utility and energy companies. The Board believes the median of director compensation awarded by the companies in the PNMR Peer Group represents a reasonable comparative compensation level.

In 2010, prior to the reorganization and renaming of the Board’s four standing committees effective January 1, 2011, the Board Governance and Human Resources Committee (“BGHRC”) was responsible for recommending director compensation levels to the full Board. In 2010, PNMR management engaged Towers Watson and Pay Governance, LLC to prepare an analysis, including alternatives and recommendations, to the BGHRC on the amount and form of 2011 non-employee director compensation. The analysis prepared by Towers Watson in August 2010 and updated by Pay Governance in November 2010 compared PNMR’s 2010 director compensation levels with the PNMR Peer Group and also provided “general industry” information about director compensation in companies of similar size to PNMR (i.e., the S&P Midcap Index (median revenue approximately $2 billion)). In addition, PRM, the

23

Table of Contents

compensation consultant retained directly by the BGHRC, confirmed the benchmark analysis, provided additional NACD Survey information to review trends in director compensation, and provided recommendations.

In December 2010, following review of the comparative data, benchmark analysis, alternatives and recommendations prepared by Towers Watson, Pay Governance and PRM, the BGHRC recommended and the Board approved increasing the 2011 annual retainer by (1) increasing the annual cash retainer from $35,000 to $52,500 (and eliminating attendance fees for Board meetings, while retaining fees for committee meetings); (2) providing an additional annual cash retainer of $15,000 for the lead independent director; and (3) providing restricted stock rights with a market value of $55,000 on the grant date in lieu of granting 1,000 stock options and 4,000 restricted stock rights. Based on the analysis provided by Pay Governance and PRM, the Board concluded that the 2011 retainer amounts better reflected the median of the PNMR Peer Group. Thus, the 2011 annual retainer for non-employee directors consisted of the following cash and stock based compensation:

* In lieu of the $52,500 annual cash retainer, Mr. Sterba received an annual cash retainer of $175,000 for continuing to serve as Chairman in 2011 following his retirement as CEO on March 1, 2010. This retainer was designed to be a reasonable and competitive amount of compensation to a retiring CEO who continued to serve as Chairman. Mr. Sterba retired from the Board on December 31, 2011.

In addition, all directors were 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. Further, directors are indemnified by PNMR to the fullest extent permitted by law pursuant to PNMR’s bylaws and indemnification agreements between the Company and each director.

(1)       Restricted stock rights granted under the PEP each vest in three equal annual installments beginning on the first anniversary of the grant date, subject to vesting acceleration upon retirement from the Board. 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 Equity Compensation Awards 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)       The amount of restricted stock rights is determined by dividing $55,000 by the closing price of our stock on the NYSE on the day of the grant. Thus, 3,468 restricted stock rights were granted on May 17, 2011, based on the closing price on that date of $15.86 per share.

24

Table of Contents

The PNMR Peer Group used for the 2011 director compensation benchmark analysis consists of the following publicly-traded energy and utility companies:

* DPL, Inc. was acquired by AES Corporation on November 28, 2011.

In December 2011, Meridian, the compensation consultant retained directly by the Nominating Committee effective July 2011, reviewed the above described director compensation analysis prepared in 2010 by Towers Watson and Pay Governance and recommended that no further analysis was required to support making no changes to director compensation levels in 2012. After considering this recommendation, the Nominating Committee recommended and the Board approved making no changes to the 2012 annual retainer from the amounts set forth above for the 2011 annual retainer.

SUMMARY OF NON-EMPLOYEE DIRECTOR COMPENSATION IN 2011

The following table summarizes the total compensation paid or earned by each of the non-employee directors for the year ended December 31, 2011.

DIRECTOR COMPENSATION

25

Table of Contents

STOCK OWNERSHIP GUIDELINES FOR DIRECTORS

The Board believes that directors should be shareholders and have a financial stake in the Company to help ensure that director financial interests are aligned with the financial interests of the Company’s longer term shareholders. Accordingly, the Board requires that newly elected directors, before commencing board service, become shareholders in the Company, and that over time, directors attain a significant level of Company stock ownership.

The Nominating Committee is responsible for recommending Board compensation levels and stock ownership and retention guidelines to the Board for approval. The current Stock Ownership Guidelines were adopted by the Board in December 2005 and amended in February 2006.

According to the guidelines, within three years, directors should hold stock equal to two times the annual cash retainer. Within five years, the amount of ownership should be five times the annual cash retainer. Directors will hold 75% 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. We believe these holding requirements are appropriate because they approximate the median of holding requirements found in the NACD Survey and would require a reasonable amount of share acquisition in addition to the annual equity awards received by the directors. All current directors have met their respective holding requirements under the guidelines. Similar stock ownership guidelines have been developed for executives and are discussed further below under “Compensation Discussion and Analysis – Stock Ownership Guidelines.”

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 which can be found on PNM Resources’ website at www.pnmresources.com (under Governance and Ethics).

26

Table of Contents

AUDIT AND ETHICS COMMITTEE REPORT

The primary function of our Audit Committee is oversight of the Company’s financial reporting process, public financial reports, internal accounting and financial controls, and the independent audit of the annual consolidated financial statements. Our Audit Committee acts under a charter which can be found on the PNM Resources website at www.pnmresources.com (under Governance and Ethics). We review the adequacy of the charter at least annually. All of our members are independent, and two of our members are audit committee financial experts under Securities and Exchange Commission rules. We held eight meetings in 2011 and two meetings to date in 2012 at which (as discussed in more detail below) we had extensive reports and discussions with the independent auditors, internal auditors, and other members of management.

In carrying out our responsibilities, we look to management and the independent auditors. The Company’s management is responsible for the preparation and fair presentation of the Company’s financial statements and for maintaining effective internal control. Management is also responsible for assessing and maintaining the effectiveness of internal control over the financial reporting process in compliance with Sarbanes-Oxley Section 404 requirements. The independent auditors are responsible for auditing the Company’s annual financial statements and expressing an opinion as to whether the statements are fairly stated in conformity with generally accepted accounting principles. In addition, the independent auditors are responsible for auditing the Company’s internal control over financial reporting and for expressing an opinion on the effectiveness of internal control over financial reporting. The independent auditors perform their responsibilities in accordance with the standards of the Public Company Accounting Oversight Board (“PCAOB”).

In performing our oversight function, we reviewed and discussed the consolidated financial statements with management and Deloitte & Touche LLP (“Deloitte”), the independent auditors. Management and Deloitte informed us that the Company’s consolidated financial statements were fairly stated in accordance with generally accepted accounting principles. We discussed significant accounting policies applied by the Company in its financial statements, as well as alternative treatments. We discussed with Deloitte the matters required to be discussed by the Statement on Auditing Standards No. 61 (Communication with Audit Committees), as amended (AICPA Professional Standards, Vol. 1, AV Section 380), as adopted by the PCAOB in Rule 3200T. In addition, we reviewed and discussed management’s report on internal control over financial reporting and the related audit performed by Deloitte which confirmed the effectiveness of the Company’s internal control over financial reporting.

We received the written disclosures and the letter from Deloitte required by the PCAOB regarding the independent accountant’s communications with us concerning independence, and we discussed the firm’s independence with Deloitte.

We discussed with the Company’s internal auditors and Deloitte the overall scope and plans for their respective audits. We met with the internal auditors and Deloitte at each regularly scheduled meeting, both with and without management present. Discussions included the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting.

We have also assessed the performance of the independent auditors and have appointed Deloitte to audit the Company’s financial statements for 2012, subject to shareholder ratification of that appointment.

Based on the reviews and discussions referred to above, reliance on management and Deloitte, and subject to the limitations of our role described above, we recommended to the Board, and the Board has approved, the inclusion of the audited financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, for filing with the SEC.

* Alan J. Fohrer joined this Committee effective March 1, 2012, following preparation of this report.

27

Table of Contents

INDEPENDENT AUDITOR FEES

Audit Fees for 2011 and 2010

The following table represents aggregate fees billed to the Company for fiscal year ended December 31, 2011 and 2010 by Deloitte & Touche, the Company’s principal accounting firm.

The Audit Committee requires the independent accountant firm selected to audit the Company’s financial statements to obtain the approval of the Audit Committee before performing any non-audit services permitted by applicable law so that the Audit Committee may determine whether the provision of such services is compatible with the maintenance of that firm’s independence in the conduct of its auditing functions. Thus, the Audit Committee preapproves all audit services and all permitted non-audit services performed by Deloitte & Touche.

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

The Board is recommending that the shareholders ratify the selection of Deloitte & Touche as independent public accountants for 2012.

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 2012. The Board agrees with the Audit Committee’s recommendations, as described in the Audit Committee report contained in this proxy statement.

Representatives of Deloitte & Touche will be available at 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, the Audit Committee will consider other auditors for 2013. However, because of the difficulty in making any substitution of auditors so long after the beginning of the current year, the appointment of Deloitte & Touche as independent public accountants for 2012 will stand unless the Audit Committee determines there is a compelling reason for a change.

The Board of Directors unanimously recommends a vote FOR the ratification of Deloitte & Touche LLP as independent public accountants for 2012.

28

Table of Contents

PROPOSAL 3:  APPROVE THE THIRD AMENDMENT TO OUR PERFORMANCE EQUITY PLAN
(PROPOSAL 3 ON YOUR PROXY CARD)

General Information

The Board adopted the PNM Resources, Inc. Second Amended and Restated Omnibus Performance Equity Plan on February 17, 2009. The PEP was subsequently approved by the Company’s shareholders at the Company’s 2009 annual meeting.  The PEP allows the Company to grant options, restricted stock, restricted stock rights, performance shares, performance units, stock appreciation rights, and performance cash awards to employees of the Company and any affiliate of the Company that has adopted the PEP, and to non-employee members of the Board. The term of the PEP expires on May 18, 2019.

Since its adoption, the PEP has been amended on two separate occasions.  The First Amendment, which was approved by the Company’s shareholders at the Company’s 2011 annual meeting, increased the full-value equity award sublimit, defined repricing, and prohibited the transfers of awards for value or consideration.  The Second Amendment, which was approved by the Board on March 21, 2012, incorporated a “double trigger” vesting rule in connection with a change in control.  However, as discussed below under “Certain Change in Control Transactions”, special “single trigger” vesting rules will apply if the Board reasonably concludes, in good faith, that the value of awards, or a participant’s opportunity to share in the future appreciation of awards, will be materially impaired following the closing of a transaction that results in a change in control. “Double trigger” vesting means that awards will become fully vested if, within 24 months following change in control, a participant’s employment is terminated by the Company without cause or the participant’s employment is constructively terminated.  The Second Amendment also added a “clawback” provision subjecting awards granted under the PEP to potential “clawback” or forfeiture to the fullest extent called for by applicable law or Company policy.  The Second Amendment is effective with respect to awards made under the 2012 LTIP and all other awards made after March 21, 2012.  Under the terms of the PEP and applicable NYSE rules, shareholder approval was not required in connection with the Second Amendment.

On March 21, 2012, the Board adopted, subject to shareholder approval, the Third Amendment to the PEP.  The Third Amendment clarifies the definition of the term “performance period” and modifies the limit placed on performance cash awards.  With this modified limit, the maximum performance cash award payable to any one participant during any fiscal year is 500,000 times the fair market value of one share of Company stock on the first day of that fiscal year.  The PEP currently provides that the maximum performance cash award payable to any one participant during any performance period is 500,000 times the fair market value of one share of Company stock on the first day of that performance period.  The Third Amendment does not modify the existing limit placed on performance-based awards other than performance cash awards.  The limit for performance-based awards other than performance cash awards is described below under the “Performance-Based Awards” section of this proposal.

Set forth below is a summary of the principal provisions of the PEP, as amended by the First Amendment, the Second Amendment and the Third Amendment.  The summary is qualified by reference to the full text of the Third Amendment, and the PEP, as amended by the First and Second Amendments, all of which are attached to this proxy statement as Appendix B.

SUMMARY OF PLAN FEATURES

Administration

The PEP is administered by the Compensation Committee or such other committee as may be designated by the Board.   The Compensation Committee must be comprised of at least two (2) independent members of the Board.  Each Compensation Committee member must be a “non-employee director” as defined in Rule 16b-3 of the Securities Exchange Act and an “outside director” as defined in Section 162(m) of the Tax Code.  The Compensation Committee, by majority action, is authorized to interpret the PEP, to prescribe, amend, and rescind rules and regulations relating to the PEP, to provide for conditions and assurances deemed necessary or advisable to protect the interests of the Company, and to make all other determinations necessary or advisable for the administration of the PEP, to the extent they are not inconsistent with the PEP.

29

Table of Contents

The Compensation Committee has the authority, in its sole discretion, to determine the participants who are entitled to receive awards under the PEP, the types of awards granted under the PEP, the times at which awards will be granted, the number of awards, the purchase price or exercise price, if any, for any award, the period(s) during which the awards shall be exercisable (whether in whole or in part), the restrictions applicable to awards, the form of each award agreement (“award agreement” is a term used in the PEP to describe any written agreement, contract or other instrument or document evidencing an award) and the other terms and provisions of any award.  Neither the award agreement nor the other terms and provisions of any award must be identical for each participant.  The Compensation Committee also has the authority to modify existing awards, subject to specified provisions of the PEP and the listing requirements of the NYSE.  The Compensation Committee, however, does not have the authority to (i) accelerate the vesting or waive the forfeiture of any performance-based awards (as defined below), or (ii) amend or adjust the terms of any outstanding award to reduce the exercise price or purchase price of any outstanding award, including any option or stock appreciation right (“SAR”) or cancel any outstanding option or SAR in exchange for cash or any other award or in exchange for any other option or SAR with an exercise price that is less than the exercise price of the original option or SAR without the approval of the Company’s shareholders, other than an adjustment upon the occurrence of any of the events specified in the PEP.

Eligibility

Awards may be made only to those individuals who are (i) employees of the Company or an affiliate of the Company that has adopted the PEP on the grant date of the award, or (ii) non-employee members of the Company’s Board who are Board members on the grant date of the award.

Limitation on Awards and Shares Available for Awards

The total number of shares of common stock subject to awards under the PEP may not exceed 12,343,000, subject to adjustment upon the occurrence of any of the events specified in the PEP.  The total number of shares of common stock that may be subject to restricted stock, restricted stock right, performance share and performance unit awards may not exceed 3,240,000 shares, subject to adjustment upon the occurrence of any of the events specified in the PEP.  The shares of common stock to be delivered under the PEP may consist, in whole or in part, of authorized, but unissued, shares of Company common stock or shares purchased on the open market or treasury stock not reserved for any other purpose.

Subject to the express provisions of the PEP, if any award granted under the PEP terminates, expires, lapses for any reason, or is paid in cash, any common stock subject to or surrendered for such award will again be common stock available for the grant of an award pursuant to the PEP.  The exercise of a stock-settled SAR or broker-assisted “cashless” exercise of an option (or a portion thereof) will reduce the number of shares of stock available for issuance under the PEP by the entire number of shares of stock subject to the SAR or option (or applicable portion thereof), even though a smaller number of shares of stock will be issued upon such exercise.  Shares of stock tendered to pay the exercise price of an option or tendered or withheld to satisfy a tax withholding obligation arising in connection with an award granted under the PEP will not become available for grant or sale under the PEP.

No participant in the PEP may be granted an award for more than 500,000 shares of common stock during any fiscal year.  As of March 27, 2012, the closing price of the Company’s stock on the NYSE was $18.71 per share.

Awards Available Under the PEP

The following types of awards may be granted pursuant to the PEP:  options, restricted stock, restricted stock rights, performance shares, performance units, performance cash, SARs, and non-employee director retainer grants.

Stock Options.  The Compensation Committee may grant incentive stock options and nonqualified stock options under the PEP.  Incentive stock options will be granted only to participants who are employees.  The exercise price of all options granted under the PEP will be at least 100% of the fair market value of Company stock on the date on which the option is granted.  No option may be exercised more than ten (10) years from the date of grant.  Upon exercise of any option, payment must be made in full (1) in cash, (2) in shares of stock held for more than 6 months, valued at fair market value on the date of exercise, or (3) by a combination thereof as determined by the Compensation Committee.  The Compensation Committee, in its sole discretion, may permit a participant to make

30

Table of Contents

payment of the purchase price upon exercise of any option through a broker-assisted “cashless” exercise or through a “net issuance” in accordance with any policy adopted by the Compensation Committee.  A participant will have none of the rights of a shareholder with respect to options until the record date of the stock purchase.

Restricted Stock.  The Compensation Committee may grant restricted stock under the PEP.  A restricted stock award gives the participant the right to receive a specified number of shares of common stock at a purchase price determined by the Compensation Committee (including and typically zero).  Restrictions limit the participant’s ability to transfer the stock and subject the stock to a substantial risk of forfeiture until specific conditions or goals are met.  During the restriction period, participants holding restricted stock may, if permitted by the Compensation Committee, have full voting and dividend rights with respect to such shares.  The restrictions will lapse in accordance with a schedule or other conditions as determined by the Compensation Committee.  As a general rule, if a participant terminates employment when the restricted stock is subject to restrictions, the participant forfeits the unvested restricted stock.  The Compensation Committee may, in its discretion, waive the restrictions in whole or in part, unless the restricted stock award is a performance-based award as described below.

Restricted Stock Rights.  The Compensation Committee also may grant restricted stock rights awards under the PEP.  A restricted stock rights award gives the participant the right to acquire common stock in the future at no monetary cost to the participant.  Shares of common stock are not issued under the award until specified restrictions lapse.  The restrictions typically involve the achievement of specified performance targets and/or the continued employment of the participant until a specified date.  Participants holding restricted stock rights have no voting rights with respect to the shares of stock subject to their restricted stock rights award.  During the restriction period, participants holding restricted stock rights may, if permitted by the Compensation Committee, have the right to receive dividend equivalents or other distributions with respect to the shares payable under the restricted stock rights award.

Performance Shares.  The Compensation Committee also may grant performance share awards under the PEP.  A performance share award gives the participant the right to receive common stock of the Company if the participant achieves the performance goals specified by the Compensation Committee during a performance period specified by the Compensation Committee.

Performance Units.  The Compensation Committee also may grant performance unit awards under the PEP.  A performance unit award gives the participant the right to receive common stock of the Company, a cash payment or a combination of stock and cash, if the participant achieves the performance goals specified by the Compensation Committee during a performance period specified by the Compensation Committee.

Performance Cash Awards.  The Compensation Committee also may grant performance cash awards under the PEP.  A performance cash award gives the participant the right to receive a cash payment if certain performance goals are satisfied during a performance period specified by the Compensation Committee.

Stock Appreciation Rights.  The Compensation Committee also may grant SARs under the PEP.  A SAR gives the participant the right to share in the appreciation in value of one share of common stock of the Company.  Appreciation is calculated as the excess of (i) the fair market value of a share of common stock on the date of exercise over (ii) the price fixed by the Compensation Committee on the grant date, which may not be less than the fair market value of a share of common stock on the grant date.  SARs may be granted in connection with the grant of an option, in which case the exercise of the SARs will result in the surrender of the right to purchase the shares under the option as to which the SARs were exercised.  Alternatively, SARs may be granted independently of options.  Payment for SARs shall be made in Company stock.  SARs are exercisable at the time and subject to the restrictions and conditions as the Compensation Committee approves, provided that no SAR may be exercised more than ten (10) years following the grant date.

Non-Employee Director Retainer Grant.  A portion of the annual retainer for the non-employee members of the Company’s Board may be paid through the grant of any type of award available under the PEP.  The Board has the authority to determine the amount of any award granted to non-employee directors.  Unless the Board determines otherwise, the grant date for awards to non-employee directors shall be each annual meeting date.  The terms and conditions of awards granted to non-employee directors under the PEP shall be set forth in an award agreement.

31

Table of Contents

Performance-Based Awards.  When the Compensation Committee grants a restricted stock, restricted stock rights, performance share, performance unit or performance cash award, it may designate the award as a performance-based award.  Options and SARs granted pursuant to the PEP should, by their terms, qualify as performance-based awards.  Performance-based awards are designed to qualify for the “performance-based compensation” exception to the limitations on the deduction of compensation imposed by Section 162(m) of the Tax Code.  Section 162(m) of the Tax Code only applies to “covered employees” as that term is defined in Section 162(m) of the Tax Code (as described above).  Therefore, only covered employees (or those employees who the Compensation Committee reasonably believes could be covered employees in the near future) are eligible to receive awards that are designated as performance-based awards.  The Compensation Committee has complete discretion regarding whether to grant awards to covered employees that qualify for the “performance-based compensation” exception.  The Compensation Committee may, in its discretion, grant awards under the PEP to covered employees that do not qualify for the exception.

The payment of restricted stock, restricted stock rights, performance share, performance unit or performance cash awards that are designated as performance-based awards is contingent upon a covered employee’s achievement of pre-established performance goals during a specified performance period.  Performance goals are based on any one or more pre-established performance criteria.  The pre-established performance criteria are limited to the following: revenue; revenue growth; earnings (including earnings before interest, taxes, depreciation and amortization); operating income; pre- and after-tax income; cash flow earnings (before and after dividends); cash flow per share (before and after dividends); net earnings; earnings per share; adjusted cash earnings; return on equity; return on capital (including return on total capital or return on invested capital); cash flow return on investment; return on assets or net assets; economic value added (or an equivalent metric); share price performance; total shareholder return; improvement in or attainment of expense levels; improvement in or attainment of working capital levels; total operating cost or operating cost per unit of output (megawatt hours); the ratio of funds from operations to debt; and improvements in, attainment of, or compliance with, various environmental standards.

Performance goals may be expressed in terms of overall Company performance, the performance of a division, affiliate or subsidiary or the performance of an individual.  Performance goals may be stated in terms of absolute levels or relative to another company or companies or to an index or indices.

With respect to any performance-based award granted to a covered employee that qualifies for the “performance-based compensation” exception to the Section 162(m) limitation, the Compensation Committee has the discretion to: select the length of the performance period, the type of performance-based awards to be issued, the kind and/or level of performance goal or goals and whether the performance goal or goals apply to the Company, an affiliate or subsidiary or any division or business unit of any of them, or to the individual participant or any group of participants.  The Compensation Committee has the discretion to decrease the amount of compensation payable pursuant to any performance-based award but may not increase the compensation payable pursuant to any performance-based award.

The performance criteria and other related aspects of the PEP will be subject to shareholder approval again in 2014 if (as is currently the case) shareholder approval is then required to maintain the tax-deductible nature of performance-based compensation under the PEP.

The maximum amount of any performance-based award (other than performance cash) that may be granted to a covered employee during any fiscal year is 500,000 shares of common stock or the equivalent cash value.

The maximum performance cash award payable to any covered employee for any fiscal year is 500,000 times the fair market value of a share of common stock on the first day of such fiscal year.

Both the performance cash awards granted to covered employees under the OIP and the performance share awards granted to covered employees under the LTIP are designated as performance-based awards and, as a result, are intended to qualify for the “performance based compensation” exception to Section 162(m) of the Tax Code.

32

Table of Contents

Restrictions

The Compensation Committee may impose such restrictions on any awards under the PEP as it may deem advisable, including restrictions under applicable federal securities law, under the requirements of any stock exchange upon which the Company’s common stock is then listed and under any blue sky or state securities law applicable to the awards.

Termination of Employment or Service

Awards granted under the PEP may be subject to special vesting and payment rules in the event of a participant’s termination of employment or service due to death, disability, retirement, impaction or due to voluntary or involuntary termination of employment for reasons other than impaction or cause.  The PEP also prescribes special vesting and payment rules in the event of a participant’s termination of employment or service due to a qualifying change in control termination.  These special rules are specified in the PEP for options, SARs, restricted stock rights, performance share and performance unit awards or in the award agreement for restricted stock and performance cash awards.

Certain Change in Control Transactions

While the PEP generally provides for “double trigger” vesting upon a change in control (i.e., a qualifying change in control termination), special “single trigger” vesting rules apply if the Board reasonably concludes, in good faith, that the value of awards, or a participant’s opportunity to share in the future appreciation of awards, will be materially impaired following the closing of a transaction that results in a change in control.  These special rules are specified in the PEP for options, SARs, restricted stock rights, performance share and performance unit awards or in the award agreement for restricted stock and performance cash awards.

Clawback of Awards

Every award issued under the PEP is subject to potential forfeiture or “clawback” to the fullest extent called for by applicable federal or state law or Company policy.  By accepting an award, a participant agrees to return to the Company the full amount required by applicable law or Company policy.

Non-transferability

The Compensation Committee may, in its sole discretion, determine the right of a participant to transfer any award granted under the PEP, provided that in no event may an award be transferred for value or consideration.  Unless otherwise determined by the Compensation Committee, no award granted under the PEP may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution or pursuant to a domestic relations order (that would otherwise qualify as a qualified domestic relations order as defined in the Tax Code or Title I of the Employee Retirement Income Security Act of 1974, but for the fact that it relates to an award granted under the PEP), or, if applicable, until the termination of any restricted or performance period as determined by the Compensation Committee.

Amendment, Modification and Termination of PEP

Subject to the Board’s right to amend or terminate the PEP at any time, the PEP will remain in effect until all awards issued under the PEP expire, terminate, are exercised or are paid in full in accordance with the PEP provisions and any award agreement.  However, no award may be granted under the PEP after May 18, 2019.

The Board has discretion to terminate, amend or modify the PEP.  Any such action of the Board is subject to the approval of the shareholders to the extent required by law, regulation or the rules of any exchange on which Company stock is listed.  To the extent permitted by law, regulation or the rules of any exchange on which Company stock is listed, the Board may delegate to the Compensation Committee or the Chief Executive Officer the authority to approve non-substantive amendments to the PEP.  Except as otherwise provided in the PEP, neither the Board, the Chief Executive Officer nor the Compensation Committee may do any of the following without

33

Table of Contents

shareholder approval:  reduce the purchase price or exercise price of any outstanding award, including any option or SAR; increase the number of shares available under the PEP; grant options with an exercise price that is below fair market value of a share of Company stock on the grant date; reprice previously granted options or SARs; or cancel any option or SAR in exchange for cash or any other award or in exchange for any option or SAR with an exercise price that is less than the exercise price for the original option or SAR.

Tax Withholding

The Company and its affiliates have the power to withhold, or require a participant to remit to the Company, an amount sufficient to satisfy federal, state, and local withholding tax requirements on any award under the PEP.  To the extent that alternative methods of withholding are available under applicable laws, the Company and its affiliates will have the power to choose among such methods.

Federal Income Tax Consequences of the PEP

The following is a brief summary of certain of the Federal income tax consequences of certain transactions under the PEP based on Federal income tax laws in effect on January 1, 2012.  This summary is not intended to be exhaustive and does not describe state or local tax consequences.

As a general rule, a participant will not recognize taxable income with respect to any award at the time of grant.  If the participant receives a stock grant that is not subject to a substantial risk of forfeiture or if a participant who receives a restricted stock grant makes the election permitted by Section 83(b) of the Tax Code, the participant will recognize income on the award at the time of grant.

Upon exercise of a nonqualified stock option, the lapse of restrictions on restricted stock, or upon the payment of stock appreciation rights, restricted stock rights, stock grants that are not subject to a substantial risk of forfeiture, performance shares, performance units or performance cash, the participant will recognize ordinary taxable income in an amount equal to the difference between the amount paid for the award, if any, and the fair market value of the stock or amount received on the date of exercise, lapse of restriction or payment.  The Company will be entitled to a concurrent income tax deduction equal to the ordinary income recognized by the participant.

A participant who is granted an incentive stock option will not recognize taxable income at the time of exercise.  However, the excess of the stock’s fair market value over the option price could be subject to the alternative minimum tax in the year of exercise (assuming the stock received is not subject to a substantial risk of forfeiture or is transferable).  If stock acquired upon exercise of an incentive stock option is held for a minimum of two years from the date of grant and one year from the date of exercise, the gain or loss (in an amount equal to the difference between the sales price and the exercise price) upon disposition of the stock will be treated as a long-term capital gain or loss, and the Company will not be entitled to any income tax deduction.  If the holding period requirements are not met, the incentive stock option will not meet the requirements of the Tax Code and the tax consequences described for nonqualified stock options will apply.

Section 409A of the Tax Code became effective as of January 1, 2005.  If certain awards fail to comply with Section 409A, a participant must include in ordinary income all deferred compensation conferred by the award, pay interest from the date of the deferral and pay an additional 20% tax.  The award agreement for any award that is subject to Section 409A may include provisions necessary for compliance as determined by the Compensation Committee.  The Company intends (but cannot and does not guarantee) that awards granted under the PEP will comply with the requirements of Section 409A or an exception thereto and intends to administer and interpret the PEP in such a manner.

Special Rules Applicable to Officers

In limited circumstances where the sale of stock that is received as the result of a grant of an award could subject an officer to suit under Section 16(b) of the Securities Exchange Act, the tax consequences to the officer may differ from the tax consequences described above.  In these circumstances, unless a special election has been made, the principal difference usually will be to postpone valuation and taxation of the stock received so long as the sale of the

34

Table of Contents

stock received could subject the officer or director to suit under Section 16(b) of the Securities Exchange Act, but not longer than six months.

Tax Consequences to the Company or Its Subsidiaries

To the extent that an employee recognizes ordinary income in the circumstances described above, the Company or the subsidiary for which the employee performs services will be entitled to a corresponding deduction provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of Section 280G of the Tax Code and is not subject to the $1 million deduction limit for certain executive compensation under Section 162(m) of the Tax Code.

Prior Grants Under the PEP

As of March 27, 2012, 9,732,904 shares subject to awards have been granted under the PEP.  The following table provides information with respect to all equity awards granted under the PEP from adoption through March 27, 2012 to the Company’s Named Executive Officers, director nominees, the current executive officer group, the current non-executive director group, and awards made to all current and past employees (other than current executive officers).