LAREDO PLANT RMR EXIT STRATEGY Presentation to Board of Directors March 16, 2004 Transmission Services Operations

© ERCOT 20043/16/2004 RMR UNITS

© ERCOT 20043/16/2004 Goals Develop RMR Exit Strategy for Laredo 1, 2 and 3 Short- and long-term plans Minimize RMR costs before exit implementation 138 kV upgrades/additions underway Additional reactive resources underway Maintain reliable service to customers ERCOT Planning Criteria NERC Planning Standards and Guidelines Good Utility Practice Dispatch Laredo generation when needed to maintain security

© ERCOT 20043/16/2004 Open Process South Regional Planning Group analysis and input Short-term alternative proposed at meeting on Sept. 15, 2003 Long-term alternative proposed at meeting on Oct. 10, 2003 CFE/ERCOT Interconnection Study released at meeting October 24, 2003 Report finalized in December ERCOT Staff recommendation released at South RPG meeting February 19, 2004 TAC review and support March 4, 2004

© ERCOT 20043/16/2004 South Texas

© ERCOT 20043/16/2004 Laredo

© ERCOT 20043/16/2004 Laredo Area Load totaling over 400 MW and growing Small commercial and residential Reliability Must Run (RMR) generation Laredo Plant 1, 2 & MW (35, 34 & 109 MW) Needed for thermal and voltage transmission limits STATCOM in service +/- 150 MVAR at Laredo Dynamic reactive support Under Voltage Load Shed (UVLS) in service 25% of load interruption in three steps to protect grid for extreme events No new generation development in area

© ERCOT 20043/16/2004 Application of ERCOT Planning Criteria VOLTAGE COLLAPSE LIMIT WITHOUT GENERATION LAREDO AREA PEAK DEMAND PROJECTION VOLTAGE COLLAPSE WITH LAREDO 1 & 2 ON-LINE LAREDO 3 OFF-LINE VOLTAGE COLLAPSE WITH 345 kV LINE VOLTAGE COLLAPSE WITH 150 MW CFE TIE TRANSACTION LAREDO 1 & 2 ON-LINE OPERATING LIMITS INCLUDE 5% MARGIN VOLTAGE COLLAPSE WITH 150 MW CFE TIE AND 345 kV LINE

© ERCOT 20043/16/2004 Options Considered to Maintain Reliability Additional static reactive additions – not viable 138 kV Line from Corpus Christi – not viable New generation in Laredo – not viable 300 to 500 MW maximum due to transient stability limit Two or three independent blocks of 100 to 150 MW each Local transmission additions may be necessary to incorporate Known for long time without a market solution CFE Tie (150 to 300 MW) – feasible Responds to thermal limits within minutes Operates preemptively to prevent voltage collapse Supports to 2 to 3 years of load growth beyond kV line from San Miguel – feasible Requires CCN and about five years to complete Reduces MW losses (cost savings) Facilitates proposed San Miguel to Laredo to lower Rio Grande Valley 345 kV line which provides second source to Laredo as load grows

© ERCOT 20043/16/2004 Estimated Cost 150 MW CFE Tie at Laredo Total Capital $50 Mill Includes 138 kV system integration costs Subject to bid Annual TCOS $8.3 Mill 345 kV Project from San Miguel to Highway 59 Total Capital $150 Mill Annual TCOS $ 24.8 Mill Estimated Annual Offset $ Mill Starting in 2010 with 345 kV addition and Laredo plants not under RMR Agreement Range is driven by CFE purchase assumptions These are functional estimates based upon typical project costs, which are subject to change and should not be presumed to capture the exact amount or timing of projected capital expenditures.

© ERCOT 20043/16/2004 Recommendation ERCOT Staff recommends that the Board approve construction of the 150 MW CFE Tie and the San Miguel to Highway kV project as described in Attachment A of the Board materials

© ERCOT 20043/16/2004 Questions?