Presentation ofSharyland Utilities 150 MW Back-to-Back HVDC Tie in

Mission-ReynosaOpportunities for power transactions on both sides

of the border

May 2008

ASDFG

Miguel, Ca – Tijuana 230 KV 800 MW

Imperial Valley, Ca – La Rosita 230 KV

El Paso, Tx. – Cd. Juárez (2) 115 KV 200 MW total

Current Interconnections betweenMexico-US

Current Interconnections betweenMexico-Texas

Eagle Pass– Piedras Negras 230 KV HVDC 36 MW

Laredo – Nuevo Laredo 230 KV VFT 100 MW

Falcon (Zapata)– Guerrero 138 KV 80 MW

Mission – Reynosa 138 KV HVDC 150 MW

Brownsville – Matamoros (2) 138 KV 120 MW

TEXAS

CFE - CREERCOT

MéxicoTexasGrid Operators

ERCOT = Electric Reliability Council of Texas

CFE = Comisión Federal de Electricidad

CRE = Comisión Reguladora de Energía

Sharyland DC Tie

• Black start capability provides start up capacity to either sidein case of system collapse

• First of its kind to support commercial transactions between Texas and Mexico

• Commissioned in October 2007 – entire project went from concept to operational within five years.

• 150 MW High Voltage Direct Current (HVDC) Interconnection

• Links Electric Reliability Council of Texas (ERCOT) with the Mexican national grid operated by the Comisión Federal de Electricidad (CFE)

• Back to back technology allows two way flow of electricity, while acting as firewall to isolate disturbances

Texas

Tamps.

N.L.

Coah.

Energy Flows(Northeast Mexico Customers)

MéxicoGulf of Mexico

Resource

Electricity Sales

Dispatch and wheeling (virtual)

Energy Service

Cust

Cust

Cust

• Sharyland DC Tie is operational since October 2007. It has already been used for at least one emergency situation along the border

• 7 US-based entities obtained export permits from DOE that included Sharyland DC Tie as a possible cross-over point (refer to Appendix for names)

• FERC has waived its jurisdiction over to ERCOT for this service

• CRE and CFE are modifying the Interconnection Agreement template to accommodate the use of the DC Ties for commercial purposes. It is expected to have a final document ready by Summer 2008

• ERCOT & CFE are finalizing modifications to operating procedures and guidelines. It is expected that this is finished on or before Summer 2008

FERC = Federal Energy Regulatory Commission

ERCOT = Electric Reliability Council of Texas

DOE = Department of Energy

CFE = Comisión Federal de Electricidad

CRE = Comisión Reguladora de Energía

Current status of the Sharyland DC Tie

How is it expected that the bilateral electricity trade will occur?

RecursosResources

Venta de ElectricidadElectricity Sellers

Servicios de Energía

Load Serving Entities

Compra de ElectricidadElectricity Buyers

Transacciones privadas y bilaterales

Private bilateral energy Transactions

Enlace Entidades para

despachoScheduling Entities

ClientesRetail CustomersBalancea la oferta y

demanda de energíaBalanced schedules of load and

resources

Major requisites to use the DC Tie

* Published in Mexico Diario Oficial 3/17/2006

** Refer to annex for some cost examples

*** Customer has to pay all charges involved

2) CRE :Import permit• Use format CRE-

DGE-005* File for wheeling analysis **• Total demand

(MW)• Estimated annual

consumption (MWh)

3) CFE : 3) CFE : Sign back-up contract withSign interconnection contractInstall smart meter with remote comm. ports ***

1) Customer :1) Customer :Be an established legal entity in MexicoOr, via an established energy broker

Steps for setting up to import electricity for ERCOT

• Find a energy procurement or wholesaler in Texas° Understand and negotiate Power Purchase Agreement

• Exporter is responsible to file for DOE export permit° Be it the end user that is filing it’s own permit, ° or use a wholesaler or broker with one (refer to the

appendix)• File for CRE import permit

° Site and load specific; must be done by Mexican entity° Understand wheeling and interconnection fees

• Sign interconnection agreement with CFE° CRE and CFE will determine feasibility of best route,

wheeling costs, terms of wheeling, back up conditions.° Function of specific Texas-based agreement with supplier

• ERCOT and CFE are the operators° All communications occur between QSE and ERCOT, and

ERCOT and CFE

How the process works?

Purchasing and Selling Entity

Qualifying Scheduling Entity

QSE

CENACE/CFE

Electricity ImporterMexico

US

Mexico

Bila

tera

l Contr

act

Inte

rconnec

tion

Agre

emen

t

ERCOT

Aggregator or Broker

Com

mis

sion

Sal

es O

rder

Consu

ltin

g F

ee

DC Tie

1

4

3

2

5

1

6

7

Summary of scheduling processacross the Sharyland DC Tie

(refer to figure in previous slide)

1. PSE generates a bilateral transaction within ERCOT or CFE2. PSE creates and submits an Electronic Tag (E-Tag) for

approval.3. CFE validates that there is indeed a contract in place with

PSE, validates information, and checks available capacityon Sharyland DC Tie

4. PSE arranges a market schedule in ERCOT to be sent tothe PSE’s QSE

5. QSE submits an obligation schedule to ERCOT6. ERCOT approves the E-Tag if it complies with its

scheduling requirements and if there is enough capacityacross the Sharyland DC-Tie

7. In the Day-Ahead, ERCOT matches the obligationschedule with the Non-ERCOT (or Mexico) E-Tags

Source: ERCOT DC-Tie Operations. ERCOT/CFE could change at any time and without prior notice the operating procedures, so this slide and the following are depicted for ilustration of how a typical commercial operation would occur. Please refer toERCOT and CFE website for most current information on the use of DC Ties.

How is transmission reservedacross the Sharyland DC Tie?

• ERCOT requires:° Purchasing-Selling Entity (PSE) that wants to

schedule power into or out of ERCOT must be registered as a Qualified Scheduling Entity (QSE)1 orhave an agreement with a QSE

° The QSE can submit a bilateral schedule to use theSharyland DC Tie declaring the export as a QSE obligation as per ERCOT Protocols and OperatingGuides

• CFE requires:° A PSE wanting to schedule power into Mexico must

have an interconnection agreement with CFE, andmust have a valid import permit with the CRE

1 http://www.ercot.com/services/rq/qse/index.html

What happens in emergencies?• ERCOT follows NERC specifications when:

° There is loss of generation or load° Reduction of Available Transfer Capacity° Mitigation of a system contingency

• ERCOT will use Last In, First Out (LIFO) forpriorizing curtailment

• IF CFE initiates curtailment:° They will contact Sharyland DC tie operator° They will also use LIFO to program curtailment

schedule

• ERCOT will not approve overbooking across theSharyland DC Tie

Advantages of using the Sharyland DC Tie

• The Sharyland DC Tie is an open access facility

• It will enhance the power flows amongst the two regions, and will enable markets to take advantages of market asymmetries and regional price signals

• It is expected that power flows will be North to South during Mexico’s peak hours and South to North during ERCOT’s peak hours, particularly if margin reserves continue to be challenged by demand growth

• Because it is the first time this type of facility is available, there are tangible arbitrage opportunities that will be available for first movers. Eventually, though, the markets will become efficient

The State of ERCOT• Markets are deregulated• Markets prefer trading with structured blocks,

example:° 7x24 or 5x4, etc° Unique load shapes or blocks are harder to price

• Typical price structure (US$/Mwh):° Energy: $75° + Ancillary: $4° + Line Losses:$2° = Total energy at Point of Delivery (POD) $81/Mwh

(not including wheeling, which typically varies around$1.5-2.5 Mwh)

Pricing structure in ERCOT• Fixed Price

° Locks in ancillary, capacity & fuel components

• Heat Rate° Locks in ancillary & capacity, floats fuel costs

• MCPE° Locks in ancillary, floats capacity and fuel

costs

• Others° Would be based on unique load shapes

Case Study

North East Mexico Case Study

Facts:

• High end industrial customer with a CFE HS-L rate• Located within Monterrey, Mexico area• 38.5 MW of load• Peak hour consumption estimated at 27 GWh

Assumptions:

• Load factor of 0.9• Used March 2008 CFE Northeast region energy costs (published in

CFE website)• Estimated wheeling costs $ 1.7 USD / mwh *• 100% of total demand is considered as back up demand

* As per CRE wheeling simulator

All-In peak hour price comparison

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

$0.40

$0.45

$0.50

J F M A M J J A S O N D

ERCOTCFE

14.4% Reduction of Total Cost

45.4% of Peak Energy Cost Reduction

• DC Tie service is an efficient, reliable and accepted way to reduce peak hour energy costs in the Northeast region (further wheeling analysis would have to be used to show how much savings accrue further south)

• Because it is the first time this type of facility is available, there are tangible arbitrage opportunities that will be available for first movers. Eventually, the markets will become efficient

• Texas energy supply is deregulated and there are a myriad of supply and structuring options that a customer has to choose from

Conclusions

Contact Information:

Enrique J. MarroquinHunt Transmission Services, L.L.C.

1900 North Akard StreetDallas, Texas 75201

214-978-8947emarroquin@hunttransmission.com

www.hunttransmission.com

ASDFG

• Analysis and filing costs with CRE for import permits are a function of the load size:

MXN$ USD$ (approx)a) Up to 10 MW $69,620 $6,000b) Between 10 and 50 MW $90,853 $8,000c) Between 50 and 200 MW $134,343 $12,000d) Over 200 MW $568,229 $50,000

• An annual fee of $7,337 ($US 650) will be assessed every year to each permit holder as a means to cover CRE costs related to managing the permits

Annex:Filing costs with CRE (updated Feb. 08)

DOE Export Permits• The following entities are shown to have a current DOE permit to

export electricity to Mexico. Please refer to DOE website forchanges to the names listed herein.

° AEP Energy Partners° CSW Power Marketing° Tex Mex Energy° Coral Power° Edison Mission Marketing & Trading, Inc (EMMT)° BP Energy Company° Duke Energy Trading and Marketing, LLC

Annex:Screen shot of CRE wheeling cost simulator