SUPPLEMENTAL EMPLOYEE RETIREMENT AGREEMENT

Effective as of March 22, 2000, Public Service Company of New Mexico (“PNM”) and Jeffry E. Sterba (“Employee”) entered into the Supplemental Employee Retirement Agreement for Jeffry E. Sterba (the “Agreement”).  Effective as of approximately December 31, 2001, PNM Resources, Inc. (“PNM Resources” or “Company”) became the corporate parent of PNM.  Employee became employed by PNM Resources on or about December 31, 2001.  Effective January 1, 2005, Employee became employed by PNMR Services Company (“Services”), which also is a subsidiary of PNM Resources.  PNM Resources and Services assumed the obligations to pay any benefits accruing to Employee during periods while Employee was employed by PNM Resources or Services and PNM Resources assumed all of the administrative responsibilities imposed upon the “Company” pursuant to this Agreement.

By the adoption of this Agreement, PNM, PNM Resources, Services and Employee amend and restate the Agreement in its entirety.  The purposes of this amendment and restatement are to clarify certain provisions of the Agreement, coordinate this Agreement with recent changes in various benefit plans sponsored by Company and to comply with the requirements of Section 409A of the Internal Revenue Code of 1986 (the “Code”) or an exception thereto.  Section 409A became applicable to the Agreement as of January 1, 2005.  From January 1, 2005 through the Effective Date, this Agreement has been and shall be operated in good faith compliance with Section 409A or an exception thereto.  This amended and restated Agreement is effective as of January 1, 2009 (the “Effective Date”).

1.      Supplemental Retirement Benefits .  Company agrees to pay Employee the Supplemental Retirement Benefit described in this Section 1.  The Supplemental Retirement Benefit shall be a monthly benefit payable for Employee’s life equal to the difference between (a) the monthly retirement benefit that would be payable to Employee under the PNM Resources, Inc. Employees’ Retirement Plan (the “Retirement Plan”) if Employee were credited with a total of thirty (30) years of Credited Service as of February 28, 2005, calculated in accordance with Section 2, and (b) the monthly benefit deemed payable to Employee under the Retirement Plan without such additional service, calculated in accordance with Section 3.

2.      Calculation of Supplemental Retirement Benefit .  The Supplemental Retirement Benefit provided for in Section 1 of this Agreement shall be calculated based upon the Retirement Plan in effect on February 28, 2000, after taking into account the additional service described in Section 1 above.  The monthly benefit that would be payable to Employee under the Retirement Plan for purposes of clause (a) of Section 1 shall be calculated disregarding limitations imposed by Sections 401(a)(17) and 415 of the Code and similar regulatory limitations.  Employee shall not be credited with more than thirty (30) years of Credited Service (considering Employee’s actual Credited Service under the Retirement Plan and the additional Credited Service granted pursuant to Section 1).

3.      Calculation of Retirement Plan Benefit, No Duplication of Benefits .  For purposes of calculating the amount of the Supplemental Retirement Benefit due pursuant to Section 1, the benefits deemed payable under the Retirement Plan for purposes of clause (b) of Section 1 shall be calculated as follows:

(a)      The commencement date for the payment of such benefits shall be deemed to be the later of:  (1) the earliest date Employee could have begun receiving benefits under the Retirement Plan or (2) the date Employee commences receiving benefits under this Agreement;

(b)      The benefit shall be assumed to be payable in the form of a single life annuity;

(c)      The calculation shall be based upon the Retirement Plan in effect on the date such benefits are deemed to have commenced and Employee’s actual Average Earnings as provided for in the Retirement Plan, using the highest salary for three consecutive years prior to January 1, 1998, the effective date that the Retirement Plan was frozen; and

(d)      The calculation shall be based on Employee’s actual Credited Service, calculated in accordance with the provisions of the Retirement Plan.

4.      Payment due to Disability .  In the event Employee becomes Disabled prior to commencing to receive benefits under this Agreement, he shall be entitled to receive the Supplemental Retirement Benefit provided by Section 1, payable in accordance with Section 8.

5.      Payment upon Death .

(a)      Death Following Commencement of Benefit .  If Employee dies following commencement of benefits under this Agreement, whether any benefits will be paid in the future will be determined in accordance with the benefit option elected by Employee pursuant to Section 8.

(b)      Death Prior to Commencement of Benefits .  If Employee dies prior to commencement of benefits under this Agreement, the benefit payable under this Agreement shall equal the difference between (1) the benefit ( i.e. , the qualified pre-retirement survivor annuity) that would be payable under the Retirement Plan if Employee’s accrued benefit under the Retirement Plan was equal to the benefit calculated in accordance with Section 2 and (2) the benefit actually payable under the Retirement Plan upon Employee’s death ( i.e. , the qualified pre-retirement survivor annuity).  If, at the time of Employee’s death, he is not survived by either a spouse or Dependent Child, no benefit shall be payable pursuant to this paragraph.  Payment to the surviving spouse or Dependent Child shall commence as of the first day of the month following the date of Employee’s death.

6.      Severance Benefits .  In the event Employee is terminated or Constructively Terminated by Company for any reason other than Cause or as a result of a Change in Control, Employee shall receive the following severance pay in lieu of the severance pay provided pursuant to Section 4.3(a) of the PNM Resources, Inc. Non-Union Severance Pay Plan (the “Severance Plan”), as it may be amended from time to time:

One cash lump sum payment equal to sixteen (16) months of Employee’s Base Salary, with no additional cost of living, promotion, merit or other increases, plus one (1) additional week of Base Salary for each Year of Service.

If, due to an amendment of the Severance Plan or otherwise, the amount of the severance pay due pursuant to the Severance Plan, as it may be amended or replaced, is greater than the severance pay provided by this Section 6, Employee shall receive the severance pay due pursuant to the Severance Plan in lieu of the severance pay due pursuant to this Section.  For purposes of this Section 6, the Years of Service taken into account in calculating Employee’s severance pay shall be deemed to include the years of Credited Service granted to Employee under this Agreement.

Payments due pursuant to this Section 6 shall be made at the time specified in the Severance Plan.

This Section 6 is intended to supplement the Severance Plan.  In addition to receiving the severance pay called for by this Section 6 and all of the benefits provided by all of the remaining sections of this Agreement, the Employee also shall be entitled to receive any benefits (other than severance pay) to which he may become entitled under the Severance Plan.  In the event of a termination for any reason other than Cause, Employee is entitled to receive payments either pursuant to this Section 6 or payments and other benefits due under the Retention Plan, whichever is applicable.

7.        Eligibility for Retiree Health Benefits .  The applicable premium amount for benefits under the PNM Resources, Inc. Comprehensive Retiree Health Plan, or its successor, will be determined by including the Credited Service granted under this Agreement.  Notwithstanding the preceding sentence, in the event Employee is terminated by Company for Cause, unless otherwise determined by the Human Resources and Compensation Committee of the Board of Directors of PNM Resources or its successor (the “Committee”), all Credited Service granted under this Agreement shall be disregarded for purposes of calculating the applicable premium amount.  Employee acknowledges that the difference between the standard applicable premium under the Retiree Health Plan and the reduced premiums called for by this Section will be treated as taxable compensation to Employee.

8.       Form, Timing and Amount of Benefit .  All payments shall be made in accordance with this Section.

(a)      Payment of Supplemental Retirement Benefit .  Prior to the amendment and restatement of this Agreement, payments of the Supplemental Retirement Benefit provided by Section 1 to Employee were to be made “upon his retirement eligibility and election.”  Effective as of January 1, 2009, that provision is no longer permissible under the final regulations issued pursuant to Section 409A of the Code.  By the adoption of this amended and restated Agreement, Employee and Company agree and Employee elects to have payments of the Supplemental Retirement Benefit made in accordance with this Section 8(a), unless Employee elects otherwise as described in Section 8(a)(1) or (2).  The provisions of this Section 8(a) are

intended to be a new payment election in accordance with the transition relief provided by Notice 2006-79 and Notice 2007-86.

As a general rule, Employee will commence receiving the Supplemental Retirement Benefit provided by Section 1 within thirty (30) days following Employee’s Separation from Service.  If Employee is a “Specified Employee” at the time of his Separation from Service, however, payments will commence on the first day of the seventh month following Employee’s Separation from Service.  Any payments that would have been paid during the first six months following Employee’s Separation from Service shall be paid on the first day of the seventh month with interest at the Citibank prime rate