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

___________
     

FORM 10-K
     

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 

(X)   COMBINED ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
       For the fiscal year ended DECEMBER 31, 2001

OR

(  )   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
        For the transition period from          to         

____________________________________________________________________________________________________________
     
 

TNP ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)

  

      Texas      
(State of Incorporation)

4100 International Plaza, P. O. Box 2943, Fort Worth, Texas 76113
(Address and zip code of principal executive offices)

Commission File
Number: 1-8847
 

Telephone number, including area code: 817-731-0099

75-1907501
   

(IRS employer
identification no.)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

  
     

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes \X\  No \  \

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. \X\
     

          TNP Enterprises, Inc. has no publicly traded shares of common stock outstanding.

______________________________________________________________________________________________________________
     
 

TEXAS-NEW MEXICO POWER COMPANY
(Exact name of registrant as specified in its charter)

  

      Texas      
(State of Incorporation)

4100 International Plaza, P. O. Box 2943, Fort Worth, Texas 76113
(Address and zip code of principal executive offices)

Commission File
Number: 2-97230
 

Telephone number, including area code: 817-731-0099

75-0204070
   

(IRS employer
identification no.)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

  
     

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes \X\  No \  \

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. \X\
     

          TNP Enterprises, Inc. holds all 10,705 outstanding common shares of Texas-New Mexico Power Company.
     

__________________________________________________________________________________________________

TNP ENTERPRISES INC. AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Combined Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2001

        This combined annual report on Form 10-K is filed separately by TNP Enterprises, Inc. and Texas-New Mexico Power Company. Information contained in this report relating to Texas-New Mexico Power Company is filed by TNP Enterprises, Inc. and separately by Texas-New Mexico Power Company on its own behalf. Texas-New Mexico Power Company makes no representation as to information relating to TNP Enterprises, Inc. or to any other affiliate or subsidiary of TNP Enterprises, Inc., except as it may relate to Texas-New Mexico Power Company.

TABLE OF CONTENTS

Glossary of Terms

  4
     

Part I

Item 1.

BUSINESS

  6
 

Introduction

  6
 

Acquisition

  6
 

TNMP's Service Areas

  6
 

Seasonality of Business

  7
 

Sources and Cost of Energy

  7
 

Government Regulation

  8
 

Employees and Executive Officers

  8

Item 2.

PROPERTIES

10
 

Generating Facilities

10
 

Transmission and Distribution Facilities

10
 

Administrative and Service Facilities

10

Item 3.

LEGAL PROCEEDINGS

10

Item 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

11
     
 

Part II

  

Item 5.

MARKET FOR REGISTRANTS' COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS


11

Item 6.

SELECTED FINANCIAL DATA

12

Item 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS


14
 

Competitive Conditions

14
 

Results of Operations

15
 

Liquidity and Capital Resources

19
 

Other Matters

21

Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

22

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

23
 

TNP Enterprises, Inc. and Subsidiaries

27
 

Texas-New Mexico Power Company and Subsidiaries

32
 

Notes to Consolidated Financial Statements

37
 

Selected Quarterly Consolidated Financial Data

49

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE


49
     
 

Part III

Item 10.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

50
 

Directors

50
 

Committees and Meetings

50
 

Director Compensation

51
 

Compensation Committee Interlocks and Insider Participation

51
 

Executive Officers

51

Item 11.

EXECUTIVE COMPENSATION

52
 

Pension Plan

53
 

Employment Contracts and Termination, Severance and Change of Control Arrangements

54
 

Joint Report on Executive Compensation of TNP and TNMP Compensation Committees

56

-2-

____________________________________________________________________________________________________

Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

59

Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

59
     
 

Part IV

  

Item 14.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

60

-3-

____________________________________________________________________________________________________

TNP ENTERPRISES INC. AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Combined Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2001

Glossary of Terms

      As used in this combined report, the following abbreviations, acronyms, or capitalized terms have the meanings set forth below:

Abbreviation, Acronym,
or Capitalized Term


Meaning

AFUDC

Allowance for funds used during construction

Constellation

Constellation Power Source, Inc.

ERCOT

Electric Reliability Council of Texas

FERC

Federal Energy Regulatory Commission

FASB

Financial Accounting Standards Board

First Choice

First Choice Power, Inc.

GWh

Gigawatt-Hours

ITC

Investment Tax Credits

kWh

Kilowatt-Hour

Laurel Hill

Laurel Hill Capital Partners, LLC

LILCO

Long Island Lighting Company

Merger

Merger of ST Corp. with and into TNP with TNP as surviving corporation

New Mexico Restructuring Act

Electric Utility Industry Restructuring Act of 1999, legislation that established retail competition in New Mexico

NMPRC

New Mexico Public Regulation Commission

PNM

Public Service Company of New Mexico

PR Group

Power Resource Group, Inc.

PUCT

Public Utility Commission of Texas

SEC

Securities and Exchange Commission

Senate Bill 7

The legislation that established retail competition in Texas

SFAS

Statement of Financial Accounting Standards

ST Corp

ST Acquisition Corp., a Texas corporation wholly owned by SW Acquisition

SW Acquisition

SW Acquisition, L.P, a limited partnership organized and existing under the laws of Texas

TGC

Texas Generating Company, a wholly owned subsidiary of TNMP

TGC II

Texas Generating Company II, a wholly owned subsidiary of TNMP

TNP One

A two-unit, lignite-fueled, circulating fluidized-bed generating plant located in Robertson County, Texas

TNMP

Texas-New Mexico Power Company, a wholly owned subsidiary of TNP

TNP

TNP Enterprises, Inc.

TXU

TXU Electric Company

-4-

__________________________________________________________________________________________________

Statement Regarding Forward Looking Information

      The discussions in this document that are not historical facts, including, but not limited to, future cash flows and the potential recovery of stranded costs are based upon current expectations. Actual results may differ materially. Among the facts that could cause the results to differ materially from expectations are the following: our ability to adapt to open market competition; resolution of problems with ERCOT computer systems that support the competitive market in Texas; the ability of First Choice to attract and retain customers as competition moves forward; the effects of accounting pronouncements that may be issued periodically; changes in regulations affecting TNP's and TNMP's businesses; decisions in connection with current regulatory proceedings; the sale of TNP One; insurance coverage available for claims made in litigation; general business and economic conditions, and price fluctuations in the electric power market; and other factors des cribed from time to time in TNP's and TNMP's reports filed with the SEC. TNP and TNMP wish to caution readers not to place undue reliance on any such forward looking statements, which are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made.

-5-

__________________________________________________________________________________________________

PART I

Item 1. BUSINESS.

Introduction

      TNP was organized as a holding company in 1983 and transacts business through its subsidiaries. TNMP is a public utility operating in two electricity markets. In New Mexico, TNMP provides integrated electricity services under traditional cost-of-service rate regulation. Those services include transmitting, distributing, purchasing and selling electricity to its New Mexico customers. In Texas, TNMP provides regulated transmission and distribution services under the provisions of Senate Bill 7, the 1999 legislation establishing the framework for retail competition in Texas' electric utility industry. TNMP's predecessor was organized in 1925. First Choice's predecessor, which was incorporated in 1997, is a wholly owned subsidiary of TNP. First Choice was organized in 2000 to act as TNMP's affiliated retail electric provider, as required by Senate Bill 7.

      TNMP has two subsidiaries, TGC and TGC II. These subsidiaries were formed in 1988 and 1991, respectively, to facilitate the financing of the construction of the two units of TNP One, TNMP's sole generating plant. In June 2001, TNMP began implementing a plan to restructure the ownership of TNP One to comply with provisions of Senate Bill 7. As a result, TGC was converted from a corporation to a limited partnership, TGC II was converted from a corporation to a limited liability company, and the ownership of TNP One was transferred to TGC.

      TNP, TNMP, and First Choice are all Texas corporations. TGC is a Texas limited partnership and TGC II is a Texas limited liability company. The executive offices of TNP, TNMP, TGC, TGC II and First Choice are located at 4100 International Plaza, P.O. Box 2943, Fort Worth, Texas 76113 and the telephone number is (817) 731-0099. TNP also has executive offices located at 2 Robbins Lane, Suite 201, Jericho, NY 11753 and the telephone number is (516) 933-3100. Unless otherwise indicated, all financial information in this report is presented on a consolidated basis.

Acquisition

      On April 7, 2000, pursuant to an Agreement and Plan of Merger dated May 24, 1999, between TNP, ST Corp. and SW Acquisition, the parent of ST Corp., ST Corp. merged with and into TNP, the parent of TNMP. TNP is the surviving corporation in the Merger. Additional information regarding the Merger can be found in Note 2.

TNMP's Service Areas

      TNMP provides electric service to more than 240,000 customers in 85 Texas and New Mexico municipalities and adjacent rural areas. The company serves a market niche of smaller- to medium-sized communities. Only two of the 85 communities in TNMP's service territory have populations exceeding 50,000. TNMP's service territory is organized into two operating areas: Texas and New Mexico.

   Texas

      TNMP's Texas territory consists of three non-contiguous areas. One portion of this territory extends from Lewisville, which is approximately 10 miles north of DFW International Airport, eastward to municipalities near the Red River, and to communities south and west of Fort Worth. A second portion of its territory includes the area along the Texas Gulf Coast between Houston and Galveston, and a third includes areas of far west Texas between Midland and El Paso. In Texas, TNMP provides electric service to a variety of entities, including customers engaged in the agricultural, food processing, oil and gas, petrochemical, and tourism industries.

   New Mexico

      This region includes areas in southwest and south central New Mexico. The economy depends primarily upon mining and agriculture, with copper mines as the major industrial customer.

   Franchises and Certificates of Public Convenience and Necessity

      Texas law does not require an electric utility to execute a franchise agreement with a Texas municipality to be entitled to provide or continue to provide electrical service within the municipality. A franchise agreement does, however, document the mutually agreeable terms under which the service will be provided within a municipality. TNMP holds 82 franchises with terms ranging from 20 to 50 years, one franchise with a five-year term, and two franchises with indefinite terms from the 85 municipalities to which it provides electric service. These franchises will expire on various dates from 2002 to 2039. Three Texas franchises, comprising 7 percent of total company revenues from sales, are scheduled to expire in 2002. TNMP intends to negotiate and execute new or amended franchise agreements to be effective before existing franchises expire.

-6-

__________________________________________________________________________________________________

 

      TNMP also holds PUCT certificates of public convenience and necessity covering all Texas areas that TNMP serves. These certificates include terms that are customary in the public utility industry. TNMP generally has not been required to have certificates of public convenience and necessity to provide electric service in New Mexico.

Seasonality of Business

      TNMP experiences increased sales and operating revenues during the summer months as a result of increased air conditioner usage in hot weather. In 2001, approximately 38 percent of annual revenues were recorded in June, July, August, and September.

Sources and Cost of Energy

      TGC owns one 300-megawatt lignite-fueled generating facility, TNP One. During 2001, TNP One provided approximately 25 percent of TNMP's system-wide energy requirements. Power generated at TNP One is transmitted over TNMP's own transmission lines to other utilities' transmission systems for delivery to TNMP's Texas service area systems. To maintain a reliable power supply for its customers and to coordinate interconnected operations, TNMP is a member of the ERCOT and the Western Systems Coordinating Council. See Note 4 for a discussion of TNMP's plans to sell TNP One.

      During 2001, TNMP changed its strategy for procuring the remainder of its energy supply. Previously, TNMP had purchased the electricity from various suppliers. In June 2001, Constellation Power Source, Inc. assumed management of the energy supply portfolio of TNMP and First Choice. During the final seven months of 2001, Constellation, acting as TNMP's agent, managed TNMP's generation resources and purchased power contracts, with the exception of one full requirements contract between TNMP and another party, and provided energy requirements for TNMP's existing load in Texas. During January 2002, TNMP's power contracts were assigned to First Choice, and Constellation began managing those contracts on behalf of First Choice to serve the Texas load obligation for the majority of First Choice's customers.

      Also in June 2001, TNMP signed a long-term wholesale power contract with Public Service Company of New Mexico. The contract calls for PNM to supply power to complement TNMP's existing New Mexico supply contracts during 2002 and become the sole supplier of power to serve TNMP's New Mexico load beginning January 1, 2003.

      The Constellation and PNM contracts are structured to respond to the unique characteristics of the markets they serve. In the competitive Texas market, the Constellation contract gives First Choice the flexibility to allow its power costs to vary with market rates, or it may convert the contract pricing to fixed rates to take advantage of favorable market conditions. This flexibility allows First Choice to tailor pricing proposals to its customers' specific requirements. In the regulated New Mexico market, the PNM contract provides price stability through use of fixed pricing, helping to mitigate against the volatile nature of the electricity market in the Western United States.

      During 2001, TNMP's cost per kWh of purchased power increased 14 percent, from an average of 4.01 cents per kWh in 2000, to an average of 4.58 cents per kWh in 2001. The cost increases were caused by higher natural gas prices in Texas and New Mexico and by effects of the volatility in the Western United States electricity market on purchased power prices in New Mexico.

      The following table illustrates the composition of TNMP's sources of electric energy in 2001.

Year Contract

   Percent of

Expires

   Energy Provided

Generation

TNP One

-

25%       

Purchased Power

Firm contracts expiring in 2001-2002

-

20%       

Firm contracts expiring in 2003-2006

PNM

2006

1%       

Constellation

2004

16%       

Buy-sell agreements

-

26%       

Spot market purchases

-

12%       

Total

100%       

-7-

__________________________________________________________________________________________________

      As discussed in Note 4, TNMP intends to sell TNP One. The output of TNP is available to First Choice through the end of the first quarter of 2002. After that time, First Choice will replace the generation from TNP One with power purchased under the Constellation contract.

   Recovering Purchased Power and Fuel Costs

      Through December 31, 2001, in Texas, fuel costs, and the energy-related portion of purchased power costs, were recovered from TNMP customers through the fuel adjustment clause authorized by the PUCT. The demand-related portion of purchased power costs was recovered through base rates. TNMP had an over-recovered balance of fuel and energy-related purchased power costs in Texas of $10.7 million as of December 31, 2001. As discussed in Notes 1 and 3, the over-recovered balance is subject to reconciliation by the PUCT in 2003. Pending the results of that reconciliation, the over-recovered balance would reduce the amount of stranded costs TNMP would be entitled to recover from its transmission and distribution customers.

      In New Mexico, TNMP recovers all purchased power costs through the fuel and purchased power adjustment clause authorized by the NMPRC. The purchased power recovery factor changes monthly to reflect over-collections or under-collections of purchased power costs.

Government Regulation

      TNMP is subject to PUCT and NMPRC regulation. Some of its activities, such as issuing securities, are also subject to FERC regulation. Utility industry regulation continues to change both in reaction to, and as a primary force behind, a more competitive industry. These changes are discussed in Item 7, "Competitive Conditions" and Notes 1 and 3.

      In addition to regulation as a utility, TNMP's facilities are regulated by the Environmental Protection Agency and Texas and New Mexico environmental agencies. TNP One uses proven environmental technology from a circulating fluidized bed boiler for sulfur dioxide removal that eliminates the need for expensive scrubbers. TNP One is regulated by Phase II of the Clean Air Act that became effective January 1, 2000. Phase II compliance requires a 30 percent reduction in sulfur dioxide emissions. TNP One is able to comply with this requirement without capital additions or a significant increase in operating costs. During 2001, 2000, and 1999, TNMP incurred expenses related to air, water, and solid waste pollution abatement (including ash removal) of approximately $3.8 million, $4.7 million, and $4.2 million, respectively.

Employees and Executive Officers

      At December 31, 2001, TNP, First Choice and TNMP had 786 employees. The employees are not represented by a union or covered by a collective bargaining agreement. Management believes relations with its employees are excellent.

      Executive officers of TNP and TNMP, who are elected annually by the respective boards of directors and serve at the discretion of the boards, are as follows:

Name

Age

Position with TNP

William J. Catacosinos

71

Chairman, President & Chief Executive Officer

Theodore A. Babcock

47

Chief Financial Officer

Manjit S. Cheema

47

Treasurer

Kathleen A. Marion

47

Secretary

Name

Age

Position with TNMP

Jack V. Chambers, Jr.

52

Chairman, President, & Chief Executive Officer

Manjit S. Cheema

47

Senior Vice President & Chief Financial Officer

Robert Castillo

48

Vice President - New Mexico Operations

W. Douglas Hobbs

58

Vice President - Texas Transmission and Distribution Operations

Melissa D. Davis

44

Vice President - Human Resources

Larry W. Dillon

47

Vice President - Power Resources

Michael D. Blanchard

51

Vice President & General Counsel

Patrick L. Bridges

43

Vice President & Treasurer

Scott Forbes

44

Vice President - Chief Accounting & Information Officer

Paul W. Talbot

45

Secretary

Michael J. Ricketts

43

Assistant Controller

B. Jan Adkins

58

Assistant Secretary

-8-

__________________________________________________________________________________________________

      William J. Catacosinos joined TNP upon the closing of the Merger as Chairman, President & Chief Executive Officer. He also serves on TNMP's board of directors. Since 1998, Dr. Catacosinos has served as Managing Partner of Laurel Hill. Dr. Catacosinos served as Chairman and Chief Executive Officer of LILCO from 1984 to 1998.

      Jack V. Chambers was named Chairman, President & Chief Executive Officer of TNMP in April 2001. Prior to that time, Mr. Chambers had served as Senior Vice President & Chief Operations Officer of TNMP since October 2000. Mr. Chambers was Senior Vice President and Chief Customer Officer of TNMP from 1994 until October 2000, and Senior Vice President of TNP from April 1996 until the closing of the Merger.

      Theodore A. Babcock joined TNP upon the closing of the Merger as Chief Financial Officer. Since 1999, Mr. Babcock has been a Managing Director of Laurel Hill. From 1996 to 1998, Mr. Babcock served as Vice President and Treasurer of LILCO.

      Manjit S. Cheema has served as Senior Vice President & Chief Financial Officer of TNMP since July 1996 and was elected Treasurer of TNP in May 2000. Mr. Cheema was Senior Vice President & Chief Financial Officer of TNP from May 1997 until the closing of the Merger. Prior to that, Mr. Cheema was Vice President & Chief Financial Officer of TNP and TNMP since December 1994.

      Robert Castillo became Vice President - New Mexico Operations in October 2000. Prior to that, he had served as Vice President and Regional Customer Officer of TNMP since September 1999. He served as TNMP Assistant Vice President - New Mexico from January 1998 until September 1999. From 1991 until he joined TNMP, he was executive vice president and general manager for the New Mexico Rural Electric Cooperative Association.

      W. Douglas Hobbs was appointed Vice President - Texas Transmission and Distribution Operations effective October 2000. He was Vice President and Regional Customer Officer of TNMP from March 1999 to October 2000. He served as Vice President - Business Development of TNP from May 1997 until May 1999. He was Vice President - Business Development of TNMP from February 1997 to May 1997. He was TNMP Vice President and Regional Customer Officer from 1994 to February 1997.

      Melissa D. Davis was appointed Vice President - Human Resources of TNMP effective March 1999. She served as TNMP Vice President and Regional Customer Officer from February 1997 until March 1999. From September 1995 to February 1997 she was TNMP's Controller.

      Larry W. Dillon became Vice President - Power Resources effective March 1999. He had served as TNMP Vice President and Regional Customer Officer from 1994 until March 1999.

      Michael D. Blanchard became Vice President & General Counsel of TNMP in February 1998. He also served as Vice President & General Counsel of TNP from February 1998 until the closing of the Merger. He was Corporate Secretary and General Counsel of TNMP and TNP from 1987 to February 1998.

      Patrick L. Bridges has served as Vice President & Treasurer of TNMP since November 1999. He also served as Vice President & Treasurer of TNP from November 1999 until the closing of the Merger. He served as Treasurer of TNMP and TNP from September 1995 until November 1999.

      Scott Forbes became Vice President - Chief Accounting & Information Officer of TNMP in January 2001. Prior to that, he had served as Chief Accounting & Information Officer of TNMP since April 2000. He was elected Chief Information Officer of TNMP in June 1998. He was Controller of TNMP from February 1997 to June 1998 and was Controller of TNP from May 1997 to June 1998. From September 1996 to February 1997, he was Manager-Financial Systems and Reporting.

      Kathleen A. Marion joined TNP upon the closing of the Merger as Secretary. Since 1999, Ms. Marion has been Executive Administrator of Laurel Hill. From 1994 to 1998, she served as Vice President of Corporate Services and Corporate Secretary of LILCO.

      Paul W. Talbot was elected Corporate Secretary of TNMP in February 1998. He served as Corporate Secretary of TNP from February 1998 until the closing of the Merger. He has been Senior Counsel of TNMP since August 1996.

      Michael J. Ricketts was named Assistant Controller of TNMP in April 2000. He served as Controller of TNMP and TNP from June 1998 to April 2000. From November 1996 to June 1998, he was Manager - Accounting Projects.

      B. Jan Adkins became Assistant Corporate Secretary of TNMP in August 1987. She also served as Assistant Corporate Secretary of TNP from August 1987 until the closing of the Merger.

-9-

__________________________________________________________________________________________________

Item 2. PROPERTIES.

Generating Facilities

      TNP One is a two-unit, lignite-fueled generating plant, located in Robertson County, Texas. During 2001, TNP One generated power for TNMP's Texas service areas and operates as a base load facility. See Note 4 for a discussion of TNMP's plans to sell TNP One.

Transmission and Distribution Facilities

      Management believes that TNMP's transmission and distribution facilities have sufficient capacity to serve existing customers adequately and that those facilities can be extended and expanded to serve customer growth for the foreseeable future. These facilities primarily consist of overhead and underground lines, substations, transformers, and meters. TNMP generally constructs its transmission and distribution facilities on easements or public rights of way and not on real property held in fee simple.

Administrative and Service Facilities

      TNP's and TNMP's corporate headquarters are located in an office building in Fort Worth, Texas. Space in this building is leased through 2003. TNP also has offices in Jericho, New York.

      TNMP owns or leases 26 construction centers or other office facilities in Texas and New Mexico. First Choice owns or leases local offices in 20 of the Texas municipalities that it serves. In addition to these facilities, TNMP owns or leases offices in 12 Texas communities that are shared with First Choice. This sharing of facilities is allowed through a waiver granted by the PUCT.

Item 3. LEGAL PROCEEDINGS.

      Phillips Petroleum Company. In September 2001, TNMP and Phillips Petroleum Company settled the suit styled Phillips Petroleum Company vs. Texas-New Mexico Power Company, which was pending in the 149th State District Court of Brazoria County, Texas. Under the settlement, Phillips received $1.4 million. Of that amount, TNMP paid $0.5 million, the deductible amount of its insurance coverage, which TNMP had previously charged to earnings. TNMP's insurance carriers and other parties were expected to fund the remainder of the settlement; however, TNMP recognized additional expense of $0.5 million in the fourth quarter of 2001 due to the liquidation of its insurance carrier, as described in Note 9.

      Power Resource Group. On January 16, 2001, TNMP obtained a summary judgment in its favor in the suit styled Power Resource Group, Inc. vs. Public Utility Commission of Texas and Texas-New Mexico Power Company, pending in the 345th District Court of Travis County, Texas. The court also dismissed this lawsuit on that date. This lawsuit, which was originally filed on May 21, 1999, challenged the PUCT's dismissal of a regulatory case that PR Group had filed against TNMP. PR Group is a developer of electric generating plants that are intended to be qualifying cogeneration facilities. PR Group appealed the summary judgment in April 2001 and the Texas Court of Appeals upheld TNMP's summary judgment in January 2002.

      Information regarding additional regulatory and legal matters is provided in Notes 3 and 9.

-10-

__________________________________________________________________________________________________

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      No matters were submitted to a vote of security holders in the fourth quarter of 2001.

PART II

Item 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

      TNP has no publicly traded shares of common stock outstanding.

      TNP holds all 10,705 outstanding common shares of TNMP. During 2001 and 2000, TNMP declared common dividends to TNP as follows (in thousands):

Quarter

2001

2000

First

$12,000   

$       -       

Second

3,000   

7,500   

Third

16,000   

17,000   

Fourth

5,000   

7,000   

Total

$36,000   

$31,500   

      The $325 Million Credit Facility restricts the payment of cash dividends by TNMP. Details regarding the restrictions are discussed in Note 8.

-11-

         
Item 6. SELECTED FINANCIAL DATA.  
         
The following table sets forth selected financial data of TNP and TNMP for 1997 through 2001.  
                          Predecessor
 
            2001
     2000
       1999
     1998
     1997
  
TNP ENTERPRISES, INC.     (Dollars in thousands)
For the years ended December 31,      
  Consolidated results                                  
    Operating revenues   $   658,914   $   644,035 (1)   $     576,150   $     585,941   $     578,534  
    Income from continuing operations before                                  
      cumulative effect of change in accounting   $     10,160   $       5,061 (1)   $       30,167   $       32,134   $       42,561  
    Net income   $       8,990   $       5,061 (1)   $       30,167   $       19,424   $       29,678  
At December 31,                                  
  Total assets   $1,264,557   $1,325,300     $  1,001,199   $     993,765   $    991,926  
  Capitalization                                  
    Common shareholders' equity   $     78,811   $     86,620     $    327,110   $    308,294   $   298,241  
    Preferred stock     121,191     104,393       1,664     3,060     3,240  
    Long-term debt, including current maturities     780,611
     860,127
       440,244
     459,000
     478,141
  
      Total capitalization   $    980,613
  $ 1,051,140
     $    769,018
   $    770,354
   $    779,622
  
  Capitalization ratios                                  
    Common shareholders' equity     8.0 %   8.3 %     42.5 %   40.0 %   38.3 %
    Preferred stock     12.4     9.9       0.2     0.4     0.4  
    Long-term debt, including current maturities     79.6
    81.8
       57.3
     59.6
     61.3
  
      Total capitalization     100.0
 %   100.0
 %     100.0
 %   100.0
 %   100.0
 %
                                         
TEXAS-NEW MEXICO POWER COMPANY      
For the years ended December 31,      
  Consolidated results