Laredo RMR Exit Strategy Presentation to Technical Advisory Committee

1. LAREDO RMR EXIT STRATEGYPresentation toTechnical Advisory CommitteeMarch 4, 2004Transmission ServicesOperations

2. Goals and Objectives • Develop RMR Exit Strategy for Laredo 1, 2 and 3 • Short- and long-term plans • Maintain reliable service to customers • ERCOT Planning Criteria • NERC Planning Standards and Guidelines • Good Utility Practice • Minimize RMR costs before exit implementation • 138 kV upgrades/additions underway • Additional reactive resources underway • RMR Exit Strategy development • Thermal studies • Stability studies • Includes voltage dependent load models • Using Transient Stability Assessment Tool and Voltage Stability Assessment Tool from PowerTech Labs Incorporated

3. Open Process • Short-term alternative proposed at meeting on September 15, 2003 • Long-term alternative proposed at meeting on October 10, 2003 • CFE/ERCOT Interconnection Study released at October 24, 2003 • Report finalized in December • ERCOT recommendation released at South RPG meeting February 19, 2004 • Comments received February 26

4. South Texas

5. Laredo

6. Laredo Area • Load totaling over 400 MW and growing • Small commercial and residential • Reliability Must Run (RMR) generation • Laredo Plant 1, 2 & 3 178 MW (35, 34 & 109 MW) • Needed for thermal and voltage transmission limits • STATCOM in service +/- 150 MVAR • 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

7. Laredo 2003 MW Load

8. Application of ERCOT Planning Criteria VOLTAGE COLLAPSE WITH 345 kV LINE VOLTAGE COLLAPSE BASE CASE NO OUTAGES (N-0) VOLTAGE COLLAPSE WITH 150 MW CFE TIE TRANSACTION LAREDO 1 & 2 ON-LINE VOLTAGE COLLAPSE WITH LAREDO 3 ON-LINE LAREDO 1 & 2 OFF-LINE VOLTAGE COLLAPSE WITH 150 MW CFE TIE TRANSACTION LAREDO OFF-LINE VOLTAGE COLLAPSE WITH LAREDO 1 & 2 ON-LINE LAREDO 3 OFF-LINE LAREDO AREA PEAK DEMAND PROJECTION VOLTAGE COLLAPSE LIMIT WITHOUT GENERATION LIMITS DO NOT INCLUDE OPERATING MARGIN

9. Operational Requirements for Energy Injection VOLTAGE COLLAPSE WITH 345 kV LINE VOLTAGE COLLAPSE BASE CASE NO OUTAGES (N-0) VOLTAGE COLLAPSE WITH 150 MW CFE TIE TRANSACTION LAREDO 1 & 2 ON-LINE VOLTAGE COLLAPSE WITH 150 MW CFE TIE TRANSACTION LAREDO OFF-LINE VOLTAGE COLLAPSE WITH LAREDO 1 & 2 ON-LINE LAREDO 3 OFF-LINE 147302 MWH 87845 MWH 45742 MWH VOLTAGE COLLAPSE WITHOUT GENERATION 18350 MWH 2011 2009 2007 2005 2003 23.8% 2.8% LIMITS DO NOT INCLUDE OPERATING MARGIN

10. Options Considered to Maintain Reliability • Additional static reactive additions – not viable • Installed capacity already exceeds MVAR load • Large amount needed for small benefit • Still susceptible to voltage degradation during faults • 138 kV Line from Corpus Christi – not viable • 150 mile line upgrade/rebuild of existing 69 kV line • Long time to complete will probably require CCN • Does not prevent voltage collapse • New reliable/available 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 • Must have excellent reactive response and ride through capability • Maintenance or fuel should not shut down whole plant • Local transmission additions may be necessary to incorporate • Known for long time without any market solution • May not be economic in the current market environment, and no ERCOT Protocol or PUCT rule exists for subsidies

11. Options Considered to Maintain Reliability • CFE Tie (150 to 300 MW) – feasible • Reduces RMR run time with economic energy from CFE • Enhances voltage stability with reactive capability incorporated • Responds to thermal limits within minutes • Operates preemptively to prevent voltage collapse • Supports to 2 to 3 years of load growth beyond 2007 • 345 kV line from San Miguel – feasible • Includes 345/138 kV autotransformer • Requires CCN and about five years to complete • Provides margin for load growth • 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

12. Estimated Cost • 150 MW CFE Tie • $50 M estimate • $0.30 M per MW of increase • Includes significant 138 kV system integration costs • Subject to bid • TCOS $8.3 M • Based upon 16.5% annual carrying charge rate • 345 kV line from San Miguel to Northeast Laredo • $150 M estimate • $0.59 M per MW of increase • TCOS $ 24.8 M • Based upon 16.5% annual carrying charge rate 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.

13. Comments

14. Comments

15. Comments

16. Comments

17. Recommendation • Construct 150 MW CFE Tie • Comply with ERCOT Planning Criteria and reduce RMR dispatch costs • Retain Laredo Generation as RMR • Re-evaluate on an annual basis • DC Tie may allow release • Construct San Miguel to Laredo 345 kV line • Projected in-service date of 2010 • Establish Highway 59 345/138 kV station • Allows the release of Laredo • Continue evaluation of Lower Rio Grande Valley impacts • Designate “Critical” status for all projects/additions • Includes 138 kV additions and static reactive already underway

18. Questions, Discussion & Determination Due to its very nature, transmission planning is a continuous process and is constantly changing due to the addition (or elimination) of plans for new generation, transmission facilities, equipment, or loads. Benefits of good planning are not realized until transmission projects are completed and placed in service.