Regulations to the General Law of the Electric Industry

Purpose of the Regulation and its scope of application. This Regulation is intended to develop the provisions of the General Law of the Electrical Industry. In particular, this regulation develops the regulation of the activities of generation, transmission, operation, distribution and commercialization of electricity in the territory of the Republic of Honduras; the importation and exportation of electrical energy, in a manner complementary to what is established in international treaties on the matter, executed by the Government of the Republic; and, the operation of the National Interconnected System, including its relationship with the electrical systems of neighboring countries, as well as with the Central American Regional Electrical System and the Central American Regional Electrical Market.

Acronyms. CREE - Electrical Energy Regulatory Commission. CRIE - Regional Commission for Electrical Interconnection. ENEE - National Company of Electrical Energy. EOR - Regional Operating Entity. LGIE - General Law of the Electrical Industry. MEN - National Electrical Market. MER - Regional Electrical Market. ODS - System Operator. RMER - Regulation of the Regional Electrical Market. ROM - Regulation of System Operation and Administration of the Wholesale Electrical Market. RTR - Regional Transmission Network. SER - Regional Electrical System. SIEPAC - Electrical Interconnection System for the Countries of Central America. SIN - National Interconnected System.

Definitions. For the purposes of this Regulation, the following words, phrases, whether in singular or plural, in masculine or feminine gender, have the meaning expressed below, unless within the context in which they are used they express another meaning. Actors of the National Electrical Market: All Agents of the National Electrical Market, Transmission Companies and the System Operator that are authorized by law to operate in the national territory. Buying Agents: Agents of the National Electrical Market that purchase power and/or electrical energy for their own consumption or that of their clients or Users. They may be a Distribution Company, a Commercial Company, as well as a Qualified Consumer that has chosen to carry out transactions in the National Electrical Market. Agents of the National Electrical Market: Generation Companies, Distribution Companies and Commercial Companies, as well as Qualified Consumers that have chosen to participate in the National Electrical Market, that meet the requirements established for this purpose by this Regulation and the Regulation of System Operation and Administration of the Wholesale Electrical Market. Transmission Agent: Generic form that regional regulation uses to refer to the owners of transmission installations belonging to the Regional Transmission Network. Commercial Quality of Service: Aspect of Service Quality related to the commercial service provided by Distribution Companies. This aspect is measured by factors such as compliance with regulatory deadlines to address failures, timely and sufficient information provided to Users, adequate measurement of consumption and its billing, punctuality in sending invoices and attention to requests for new supplies or expansion of these, attention to claims and other factors that could be taken into account to determine quality as a whole. Quality of Product: Aspect of Service Quality that measures the degree of compliance with technical requirements of tension, at a minimum, tension level, phase imbalance, frequency, harmonic distortion and flicker. Service Quality: Set of technical and commercial characteristics, inherent to electrical supply, which is established in technical standards; these characteristics are of a regulatory nature and must be mandatory compliance by companies in the electrical subsector and Users. Technical Quality of Service: Characteristic of the electrical supply service that measures the reliability and continuity with which it is provided. Charges for System Operation: Charges to be collected by the System Operator to recover the costs of operation of the National Interconnected System and administration of the National Electrical Market, duly approved by the CREE. Charges for Use of the Secondary Transmission System: Charges to be received by the owner of Secondary Transmission System assets in case such assets are used by other Agents of the National Electrical Market. The methodology for calculating this charge shall be established by the CREE. Qualified Consumer: One whose demand exceeds the value that the CREE will set and who is authorized to purchase electrical energy and/or power directly from Generation Companies, Commercial Companies or Distribution Companies, at prices freely agreed with them. Any User connected to the high tension network shall be considered a Qualified Consumer regardless of their demand. Average Cost of Capital, Operation and Maintenance: Annuity of capital cost, corresponding to the replacement cost value of an economically designed distribution network, with efficient operation and maintenance costs. Firm Demand: Firm power that Buying Agents must contract. Economic Dispatch: The minimum cost scheduling of production of available generation plants or units to supply electrical demand taking into account the operational restrictions of said plants or generation units, as well as the restrictions imposed by system quality and security. Day: Refers to calendar day. Commercial Company: A business entity whose activity consists of conducting transactions of purchase and sale of power and/or energy with Agents of the National Electrical Market or with agents of the MER; which must be legally, accountably and patrimonially separate from other companies in the electrical subsector that carry out the activities of generation, transmission or distribution. Distribution Company: The legal entity holder of an operating license granted by the CREE to install, operate and maintain distribution facilities. These shall purchase the requirements of power and electrical energy for Users within their exclusive Zone of Operation. In the case of the Distribution Company that operates in an Isolated System, it may be the holder of generation facilities under the conditions authorized by the CREE. Generation Company: A legal entity whose activity consists of the generation and sale of electricity. Transmission Company: The legal entity holder of an operating license granted by the CREE to install, operate and maintain high tension installations intended to provide the service of electrical energy transmission. Energy Not Supplied: Energy not delivered to Users due to interruptions in the generation, transmission or distribution system, whose unit cost is set by the CREE. Unavailability: Condition of a transmission system, distribution equipment or generating unit that is out of service due to its own cause or that of equipment associated with its protection or operation. Authorized Regional Income: The annual remuneration determined by the Regional Commission for Electrical Interconnection that is authorized to be received by a Transmission Agent owner of Regional Transmission Network assets, in accordance with what is established in the Regulation of the Regional Electrical Market. Variable Transmission Income: Income obtained as a result of Economic Dispatch with Nodal Prices in each Market Period. Its amount is the sum of the differences between the Nodal Prices at withdrawal nodes multiplied by the quantity of energy withdrawn at each respective node and the Nodal Prices at injection nodes multiplied by the quantity of energy injected at each respective node, applied to the nodes of the Main Transmission System. These variable incomes reflect the increase in Economic Dispatch costs due to the marginal cost of losses and congestion in the Main Transmission System. Law or LGIE: General Law of the Electrical Industry of the Republic of Honduras, approved by means of Decree 404-2013 published in La Gaceta on May 20, 2014 (No. 33,431). National Electrical Market: A wholesale market that consists of the set of purchase-sale transactions of electricity carried out by Agents of the National Electrical Market within the contract market and the spot market. Regional Electrical Market: In accordance with the Framework Treaty of the Regional Electrical Market, it is the permanent activity of commercial transactions of electricity, derived from an energy dispatch with regional economic criteria and through contracts of medium and long term between enabled agents. Technical Standards: The provisions issued by the CREE that establish the technical, commercial and operational procedures in accordance with the Law and its regulations. These shall serve to complete the set of regulations for the activities of the electrical subsector. System Operator: An entity of public, private or mixed capital, nonprofit, responsible for the operation of the National Interconnected System and its coordination with the Regional Electrical System and for the administration of the National Electrical Market and its coordination with the Regional Electrical Market. Transmission Toll: Charges for access and use of the Main Transmission System that serve to recover its costs. Market Period: Minimum time interval for which prices are calculated at each node of the Main Transmission System in the Spot Market. This period shall be hourly. Reference Price of Power: Marginal cost of investment required to install and connect to the network a generation unit whose technology allows covering demand peaks at the lowest cost, together with the fixed costs of operation and maintenance of this. This price, adjusted with a factor that measures the risk of power shortages in the system, is used for power deviation transactions and shall be calculated annually by the System Operator and approved by the CREE. Nodal Price: Cost of meeting a marginal increase in energy demanded at each node of the Main Transmission System and that is calculated for each Market Period. Regional Transmission Network: The set of transmission installations by means of which regional exchanges and commercial transactions in the Regional Electrical Market are carried out, providing the Regional Transmission Service. Firm Power Requirement: Firm Demand determined by the System Operator that a Buying Agent has the obligation to cover through firm power contracts, including the technical losses of transmission and distribution, as well as the corresponding reserve margin. Secretariat: State Secretariat that is designated as the higher authority of the electrical subsector. Complementary Services: Services required for the operation of the electrical system under conditions of quality, security, reliability and lowest economic cost, which shall be managed by the System Operator in accordance with what is established in the Regulation of System Operation and Administration of the Wholesale Electrical Market. Isolated Systems: Those electrical systems that operate not connected to the National Interconnected System. Regional Electrical System: Central American electrical system, composed of the electrical systems of the member countries of the Regional Electrical Market. Main Transmission System: That formed by transmission installations that allow the bidirectional exchange of electricity and free commercialization of electrical energy at any node of the National Interconnected System, which may be used by any of the Agents of the National Electrical Market or agents of the Regional Electrical Market and its use is paid for by all Buying Agents. Secondary Transmission System: That formed by connection installations to the Main Transmission System for the exclusive use of a Generation Company or a Qualified Consumer. These installations do not form part of the Main Transmission System. User: Natural or legal person holder of an electrical energy supply contract. Added Value of Distribution: The Average Cost of Capital, Operation and Maintenance of a distribution network, referenced to an efficient company operating in an area with a determined load density and Users. Expected Value for Unavailability: As established by regional regulation, it is the product of the compensations established by the values of unavailability provided for in the transmission service quality objectives. The Expected Value for Unavailability shall be incorporated into the Authorized Regional Income of each Transmission Agent. Zone of Operation: The geographical zone in which the Distribution Company enjoys exclusivity to provide the distribution service and for which the CREE has granted it a distribution operating license under the conditions established in the Law, its regulations and other specific Technical Standards. TITLE II INSTITUTIONS OF THE ELECTRICAL SUBSECTOR SOLE CHAPTER Electrical Energy Regulatory Commission (CREE)

Technical Standards to be prepared or approved by the CREE. The CREE shall issue mandatory Technical Standards for the activities of generation, transmission, commercialization and distribution of electricity, system operation, public lighting and in general, of all those aspects of the electrical subsector that it deems necessary for the proper application of the Law and its regulations. In these shall be established minimum requirements, such as: conditions, specifications, design characteristics, construction, operation, quality, infractions and indemnifications. Likewise, the ODS may propose to the CREE the issuance or modification of Technical Standards or regulations that it deems necessary to improve the operation of the system or the electrical market.

Panel of experts. The CREE may form a panel of high-level national and international experts that periodically assist it in evaluating the performance of the Honduran electrical sector and advise it on improvement actions or changes in the structure or functioning of the MEN. TITLE III STRUCTURE, ORGANIZATION AND OPERATION OF THE NATIONAL ELECTRICAL SYSTEM CHAPTER I State Supervision

Powers of the CREE regarding sector supervision. The CREE may require from the Actors of the National Electrical Market and Users all the information to perform the supervision function of the electrical subsector granted to it by the Law. It shall exercise this power in writing, indicating the documents and necessary information, the legal grounds, detail of the information and explain the use it will make of it. The request shall be made through available means of communication to the address that the involved person has registered in the public directories or in the CREE's records. All companies in the sector, public or private, their public officials or employees and Users, are obligated to provide the data, information, documentation and cooperation required by the CREE, which may request information and cooperation required in any investigation process to any public institution to confront it with that obtained by other means. In case the requested information is not provided within the set deadline or is supplied in an incomplete manner, the CREE shall demand it through a duly reasoned administrative act. In this, it shall specify the documents and information it deems necessary, shall set an appropriate deadline for their presentation and shall indicate the sanctions that correspond by law for non-compliance. If even so the information requested is not supplied based on what is established in the Law, deliberately or through negligence, the CREE shall impose the corresponding sanctions. Likewise, it may conduct inspection visits to the offices and physical facilities of the Actors of the National Electrical Market and Users, in order to verify the origin and veracity of the reported information, conducting interviews, reviewing files, computer equipment (hardware and software), reports, operation manuals, records, opinions, installations and other information necessary to confirm the truthfulness of the supplied information, in accordance with the procedure established in this regulation.

Confidentiality. At the request of the interested party, the CREE may declare as confidential the information and documents supplied, provided that the legal ground that gives it such character is indicated, whether because they are secrets in accordance with legislation regarding industrial property or because they can be declared as such in accordance with the Law of Transparency and Access to Public Information. The officials or employees of the CREE who violate the confidentiality of said information or in any way violate what is established in this article shall be removed from their positions without prejudice to the administrative, civil and criminal liability that may be applicable. The information declared as confidential must be kept in a separate file and only the Directory of Commissioners and the employees assigned to the review shall have access to it.

Principles applicable to CREE inspection visits. A. Legality. The formal requirements of the inspection order, as well as the procedure to follow for inspection, must comply with what is provided in the General Law of the Electrical Industry, this regulation and other regulations issued by the CREE. When it deems it necessary, the CREE may conduct inspections without prior notice. B. Legal Security. It must be limited to its purpose, so the respective diligence must conclude once that objective has been satisfied. C. Objectivity. Supervision is based on indications that arise from the analysis of facts or existing documentation provided by each company, User, or by third parties. D. Confidentiality. The information collected regarding which confidentiality is requested, once it is declared as such, shall maintain this character and cannot be disclosed to third parties, except upon request of the competent authority or by express written authorization of the Actor of the National Electrical Market to which the information belongs.

Inspection procedure. The CREE may conduct an inspection according to the following procedure and requirements:

• A)

  The inspection procedure begins when the CREE issues a written inspection order, either in physical or electronic form, with at least three (3) days advance notice. This advance notice is excepted in cases of inspection without prior notice;

• B)

  The inspection order must be issued by a competent official. The CREE shall publish on its website the officials who have authority to issue inspection orders;

• C)

  The inspection order shall state the name of the Actor of the National Electrical Market or User regarding whom the inspection is ordered, the date, time, address, place, or area in which the respective diligence shall take place, the name of the person to whom it is directed, reasons and grounds on which it is based; it shall also contain an indication of the period during which the inspection shall take place, the persons responsible for supervision who are duly designated by the CREE and the objective sought with the inspection;

• D)

  When it deems it convenient, the CREE may appoint natural or legal persons specialized to conduct the supervision on its account and in its name; the person or representative of the company designated by the CREE must sign a confidentiality agreement with the Actor of the National Electrical Market or User subject to the inspection, if the latter so require, but in no case shall the agreement restrict the disclosure, delivery or transfer of findings, documents and other information subject to the inspection to the CREE. The company or representative designated by the CREE to carry out the inspection must have proven experience, independence, objectivity and no conflicts of interest in the national electrical sector;

• E)

  Upon completion of the inspection, a report shall be drawn up recording the names and signatures of the persons involved in the inspection, or, failing that, recording the refusal to sign it; in said report the diligence carried out shall be recorded. A copy of this shall be delivered to the inspected party. The unjustified refusal of the Actor of the National Electrical Market or User to allow entry of personnel designated by the CREE to conduct the inspection shall be considered a very serious infraction of the Law and this Regulation and shall be proceeded with in accordance with Article 26 of the Law. Likewise, the Actor of the National Electrical Market or User shall be warned that their unjustified refusal will result in taking for granted the facts or information that were subject to the inspection. CHAPTER II Organization of the Electrical Market

Legal Enablement of Electrical Subsector Companies. Prior to carrying out the activities regulated by the Law, companies in the electrical subsector must be legally enabled by complying with the provisions established in the current regulations, including the following: A. Registration in the Public Registry of Electrical Sector Companies. Companies in the electrical subsector must register in the Public Registry of Electrical Sector Companies maintained by the CREE, providing all the information requested in the registration form. The information and registration requirements shall be approved by the CREE in accordance with the functions granted to it by the Law. B. Update in the Public Registry of Electrical Sector Companies. Any electrical subsector company that is registered has the obligation to report to the CREE any modification in the documentation that was presented for its registration in the public registry or changes in the characteristics of the facilities or its operation. Said companies shall have a period of twenty (20) business days to notify the modifications or changes described above, once they have taken effect, using the channels made available by the CREE for this purpose.

Organization of the National Electrical Market. The National Electrical Market is a wholesale market that is administered by the ODS and is composed of a contract market and a spot market. A. Contract Market. In the contract market, Buying Agents, with the exception of Distribution Companies, may enter into contracts for firm power and energy at freely agreed prices. Distribution Companies may only enter into contracts through international public bidding processes in accordance with terms of reference prepared by the CREE. The bidding processes of Distribution Companies and the awarding of the resulting contracts shall be supervised by the CREE. Generation Companies may also enter into contracts with other Generation Companies to support their contractual obligations with Buying Agents. Likewise, in this market, Agents of the National Electrical Market may sign contracts with Agents of the Regional Electrical Market, whose duration can range from months to several years. Buying Agents and Generation Companies that enter into contracts must register them with the ODS and the CREE. Contracts signed as of the effective date of the Law may not in any case incorporate conditions that impose restrictions on Economic Dispatch, so the dispatch of generation units shall be independent of the contracts entered into. The ROM shall develop the contract settlement procedure. B. Spot Market. The spot market shall be based on Economic Dispatch of generation units. In this market, the prices of electrical energy shall be determined in the short term for each Market Period and at each node of the Main Transmission System. Nodal Prices shall reflect the costs associated with energy losses and technical restrictions to dispatch imposed by elements of the Main Transmission System. Economic Dispatch shall be conducted based on the variable costs of generation units presented by Generation Companies and verified by the ODS according to the methodology defined in the ROM. The variable costs of generation units may be audited by the CREE and shall include operation and maintenance costs that depend on the production level of the generation units. In the case of hydroelectric plants with reservoirs, the variable cost shall also include the value of water, which must be determined by the ODS according to the methodology established by the corresponding regulations. The ODS shall be responsible for coordinating the national spot market with the regional dispatch, conducted by the EOR, in the phases of weekly programming, pre-dispatch and post-dispatch. The ODS shall settle transactions between Agents of the National Electrical Market based on the results of Economic Dispatch. Additionally, it shall prepare a financial settlement document of MEN transactions and shall incorporate the transactions reported by the EOR. The ROM shall define the settlement methodologies and their periodicity.

Complementary Services. In order to ensure the correct technical operation of the electrical system, the owners of installations that form part of the SIN must provide a series of Complementary Services under the instructions of the ODS and subject to the conditions established by the ROM and the applicable Technical Standards.

Agents of the National Electrical Market. Generation Companies, Distribution Companies, Commercial Companies and those Qualified Consumers who choose to participate in the National Electrical Market, shall be considered as Agents of the National Electrical Market for all purposes of rights and obligations. CHAPTER III The System Operator

System Operator. The System Operator must fulfill all the functions described in the Law and what is established in the ROM to guarantee the reliability of the electrical system and manage the wholesale market for electricity. Furthermore, it must comply with what is established in the ROM and the evaluation of its functions is done primarily through the Committee of Agents. The governance model of the ODS shall be governed by the following provisions: A. Legal Nature. The ODS shall be a nonprofit entity with its own legal personality whose corporate purpose shall be the fulfillment of the obligations entrusted to it by the Law and its regulations. B. Board of Directors. The highest decision-making body of the ODS shall be the Board of Directors whose mission is to ensure that the functions assigned to the ODS are carried out efficiently and transparently. To guarantee balanced representation, the Board of Directors shall be composed of one owner member and their respective alternate, representing the Generation Companies, Transmission Companies, Distribution Companies, Commercial Companies and Qualified Consumers who have chosen to act as Agents of the National Electrical Market. The members of the Board of Directors must be professionals of recognized prestige and shall be proposed by the Agents of the National Electrical Market and Transmission Companies registered with the CREE. It shall be the power of the CREE to validate the mechanisms used to achieve the balanced representation required in the composition of the Board of Directors. The CREE may designate ad hoc directors on the Board of Directors of the ODS to represent any category of Agent of the National Electrical Market or Transmission Companies, in case any of these were not registered. The Board of Directors shall be composed of a president, a vice president, a secretary and, in case they all have representation, by two members. The members of the Board of Directors shall remain four (4) years in the exercise of their functions, and may be renewed in office once; in case of not being reelected, they shall remain as members of the Board of Directors until their substitute is appointed. Both the bylaws of the ODS and their modifications must be approved by the CREE to verify criteria of independence, representativeness, transparency and efficiency. The CREE shall have a maximum period of thirty (30) days from the time they are proposed to approve the bylaws, internal regulations and their modifications. C. Resources and Means. The ODS must equip itself with the adequate technical and human resources for the correct performance of its functions. For this purpose, the CREE shall approve the annual budget of the ODS, which must be recovered through a charge levied on the final demand of users in the SIN. The ODS shall collect charges for the functions of system operation and market administration to recover the operating costs of the entity's operation, approved by the CREE according to the methodology described in the Law and in this Regulation. Buying Agents that by law are obligated to have contracted firm power must pay the operation charge through a per-MW-month charge, calculated proportionally to the Firm Power Requirements determined by the ODS for each of them. The ODS shall annually prepare a budget to collect Operation System Charges, which shall be submitted before October thirty-first (31) for CREE approval; the remuneration shall be based on audited costs of investment, operation, maintenance and administration. Distribution Companies shall transfer the Operation System Charges to their Users. Qualified Consumers and Commercial Companies must transfer to the ODS the amount corresponding to the Operation System Charge. Buying Agents must pay the amounts resulting from the ODS settlement of Operation System Charges based on what is established in the ROM. D. Committee of Agents. The ODS shall have a Committee of Agents. The function of the Committee of Agents is to periodically evaluate the performance of the ODS, as well as evaluate and prepare proposals for improvement measures that may include new regulations or modifications to existing ones. The Committee of Agents shall present its reports to the Board of Directors of the ODS. The Committee of Agents shall be composed of ten (10) members: two (2) representatives of Generation Companies, two (2) representatives of Distribution Companies, two (2) representatives of Transmission Companies, two (2) representatives of Commercial Companies and two (2) representatives of Qualified Consumers. The CREE may appoint ad hoc representatives of Commercial Companies and Qualified Consumers, in case there is not at least one of these types of Agents of the National Electrical Market registered with the CREE. The internal regulations of the Committee of Agents shall regulate its composition and functions, which must be approved by the CREE at the proposal of the ODS. E. Recourse and remedies against ODS decisions. Any company or Qualified Consumer that believes itself affected by decisions of the ODS may challenge them before the superior hierarchical body thereof, through the filing of a written statement within ten (10) business days following the date on which such decision has been communicated to them. The written statement shall contain the facts and reasons on which the challenge is based and the clear expression of what is requested, as well as other information and documentation relevant to the challenge. The superior hierarchical body within the ODS may request the information it deems necessary for the resolution of the challenge presented and must issue its resolution in writing within a period of thirty (30) business days counted from receipt or admission of the written challenge. The resolution referred to in the preceding paragraph may be the subject of recourse before the CREE, according to the following procedure: i. The written request for recourse must be submitted through the representative or legal representative of the interested party within ten (10) business days following notification of the resolution issued by the Board of Directors of the ODS and shall contain, at minimum, the identification of the resolution being appealed, the facts and legal grounds on which the recourse is based and the information relevant to the recourse filed. In addition, relevant documentation and a copy of the appealed resolution must be attached along with the written request for recourse. ii. In order to resolve the recourse, the CREE may request information and conduct necessary inspections to clarify the facts related to the challenge and the recourse filed. Prior to issuing a resolution that resolves the recourse, the CREE may request mandatory and discretionary reports or opinions from any of its units, which must be submitted within a maximum period of fifteen (15) business days each, counting from the date they receive the request. iii. Once the CREE obtains all the information required to resolve the challenge, it shall decide all questions raised by the interested party and any others that arise from the case within a period of twenty (20) business days, through a resolution in which it may pronounce itself as follows: confirming, annulling, revoking or modifying the appealed resolution, without prejudice to the rights of third parties. F. Motion for Reconsideration. Against the resolution issued by the CREE, regarding the challenge, it shall be subject to the remedy of motion for reconsideration, which must be presented to the CREE through a legal representative, within ten (10) business days following notification of said resolution, which shall be resolved in accordance with what is established in the Administrative Procedure Law. Once the motion for reconsideration is resolved by the CREE, the administrative remedy shall be exhausted, and the resolution issued by the CREE shall become final, the foregoing without prejudice to the right that the company or Qualified Consumer has to resort to a conciliation and arbitration procedure in accordance with what is provided in Article 27 of the Law.

Operating scheme. The operating scheme of the ODS shall be governed in accordance with what is established in the Law, this Regulation, the ROM, as well as the bylaws and internal regulations; but in all cases, the ROM shall define the responsibilities and supervision functions of the Board of Directors. The CREE may define the supervision mechanisms for the ODS through Technical Standards or regulations. CHAPTER IV Buying Agents

Obligations of Purchasing Agents. Distribution Companies and Commercialization Companies must have covered through valid contracts, at least until the end of the following calendar year, a Firm Demand not less than the Firm Power Requirement calculated by the ODS in accordance with what is established in the ROM. Qualified Consumers acting as Agents of the National Electrical Market must have contracted, for the following twelve (12) months, sufficient firm power to cover seventy-five percent (75%) of their Firm Power Requirement. The CREE may review the percentage of the Firm Power Requirement that these agents must have covered through contracts based on the evolution of the MEN, notifying the new percentage with an advance notice of twelve (12) months before the effective date. The contracts executed by Purchasing Agents must be presented to the CREE to verify compliance with the obligations noted above. To satisfy their obligation to supply firm power and/or energy, Distribution Companies may execute contracts solely under the modality of international public bidding in accordance with what is established in the Law and its regulations. The ODS shall settle the charge to finance the CREE corresponding to 0.25% of the total amount of electricity purchases made by Qualified Consumers in the month prior to the previous month. Prior to payment of the corresponding fee, the Qualified Consumer must present to the CREE an affidavit of the total amount of electricity purchased each month, together with the liquidation report that the ODS has provided, through the channels established for such purpose. The CREE shall verify the amounts declared by the Qualified Consumer at any time it deems appropriate.

Conditions to classify as a Qualified Consumer and be a Purchasing Agent. When a User subject to regulated tariff or consumers with new facilities, for reasons that serve their interests, wishes to classify as a Qualified Consumer and freely contract their power or energy requirements, must meet the following conditions: A. Have a contracted power demand at the point of supply with its Distribution Company, or projected to contract, greater than the demand limit established by Agreement issued by the CREE. This demand limit may be modified based on studies conducted on the development of the National Electrical Market to expand the participation of Qualified Consumers; modifications shall be published in the Official Gazette La Gaceta. To comply with this demand limit, power demands contracted at different supply points of the User cannot be aggregated. B. Request in writing to the CREE its classification as a Qualified Consumer. The CREE shall verify compliance with the demand limit established by regulation and shall proceed to approve the application, if applicable, within a maximum period of thirty (30) days. In the case that the applicant is not a current User of a Distribution Company, that is, if it is a new facility, demand projections must be presented for the following three (3) years to verify compliance with the demand limit established by regulation. Once the application is approved, the CREE shall register it in a Registry of Qualified Consumers. C. Request from the ODS the authorization to conduct transactions in the MEN as a Purchasing Agent, once it has been registered in the Registry of Qualified Consumers. The ODS shall notify, within a maximum period of thirty (30) days, the Qualified Consumer of its authorization to conduct transactions in the MEN if it has complied with the requirements established in the ROM. In the case of Qualified Consumers who are currently Users of a Distribution Company, this request must indicate the date on which it is proposed to change regimes, which must be not less than thirty (30) days after the date of submission of the request. D. Include in the request submitted to the ODS, a solvency certificate issued by the Distribution Company that has supplied the service, if applicable. In this case, the ODS shall notify the respective Distribution Company of the change in regime of the User and the date on which such change becomes effective. E. Comply, from its registration as an Agent of the National Electrical Market, for all purposes of rights and obligations, and from the notification of authorization to conduct transactions in the MEN, with a minimum period of permanence of three (3) years; without prejudice that if it fails to comply with the requirements established in the ROM and its Technical Standards, it may lose the authorization to conduct transactions. F. Have a commercial measurement system and be responsible for its installation, operation, and maintenance. Measurement systems must comply with the requirements set forth in the ROM and in the Technical Standard for Commercial Measurement.

Conditions to return to the regime of a User of a Distribution Company. When a Qualified Consumer who has contracted its power or energy with Generation Companies, Commercialization Companies, or Distribution Companies at freely negotiated prices, for reasons that serve its interests and after having completed the minimum period of permanence, wishes to return to the regime of a User of a Distribution Company subject to regulated tariff, must meet the following conditions: A. Request in writing to the ODS of its decision to cease participating as an Agent of the National Electrical Market. In this request, it must indicate the date on which it proposes to change regimes. This date must be at least thirty (30) days after the date of submission of the request. B. Pay any outstanding debts that it may have in the MEN and that derive from the liquidations performed by the ODS. The request shall not be processed while the debt persists. After compliance with what is established in the preceding sections, the ODS shall notify the Distribution Company, with a copy to the CREE, when the Qualified Consumer successfully completes the procedure and ceases to be authorized to conduct transactions in the MEN. Having complied with what is established in this Article, the Distribution Company is obliged to supply the User under regulated tariff conditions. The Qualified Consumer who has transferred to or returned to being a User of a Distribution Company cannot return to conduct transactions in the MEN before two (2) years from the start of supply by the Distribution Company.

Calculation of the Power Reference Price. The Power Reference Price is the marginal cost of the investment required to install, connect to the grid, and operate a generation unit whose technology allows covering peak demand at the lowest cost. This price must include an adjustment factor that measures the risk of power shortages in the system. The ODS shall annually calculate a value that it will propose for the CREE to approve as the Power Reference Price. The CREE shall approve the specific regulation that contains the procedure for its calculation.

Indicative Plan for Generation Expansion. The ODS must prepare every two (2) years an Indicative Plan for Generation Expansion that will serve as the basis for the Transmission Network Expansion Plan and will guide the contracting needs of Purchasing Agents. The Indicative Plan for Generation Expansion shall be prepared with an objective function to minimize the cost of supplying national electrical demand in the long term, subject to the constraints inherent to different generation technologies and ensuring an appropriate reserve margin for demand coverage. The indicative plan shall also include an assessment of the situation and projected evolution of the generation reserve margin. The ODS must coordinate with the Secretariat the preparation of the Indicative Plan for Generation Expansion so that it reflects the objectives of the national energy policy. This plan must contemplate a minimum planning horizon of ten (10) years. In preparing the plan, forecasts of demand growth, existing generation, new generation projects committed through firm power and energy contracts, other projected generation projects shall be considered, as well as those resulting from the application of energy policy measures established by the State. The ODS must also consider forecasts of the evolution of fuel prices and the existing potential for renewable generation. The ODS shall develop different future scenarios to account for uncertainties in the materialization of the parameters mentioned above. The CREE may require modification of the proposed Indicative Plan for Generation Expansion if in its judgment it does not contemplate all the elements established in this Regulation and in the Technical Standard for Indicative Planning of Generation Expansion.

Transmission Companies. The transmission service for the Main Transmission System shall be provided by one or more companies. Any Transmission Company may finance, bid, and construct future expansions of the Main Transmission System included in the expansion plans developed by the ODS and approved by the CREE. Transmission Companies must have a valid operating license issued by the CREE.

Owner of Secondary Transmission System assets. Generation Companies, Qualified Consumers, or Transmission Companies may be owners of assets belonging to the Secondary Transmission System. The owner of an asset belonging to the Secondary Transmission System shall not require a transmission operating license.

Regional transmission companies. Regional transmission companies may be owners of national transmission assets under the modalities defined in the Law and this Regulation, always being subject to the regulation of the MER to the extent applicable.

Transmission Network. The transmission network is comprised of high-voltage network assets, which is that whose operational voltage level is equal to or greater than 60 kV and which interconnects generation plants, distribution networks, and Qualified Consumers served at high voltage. The assets of the transmission network shall necessarily form part of at least one of the following three groups: facilities of the Main Transmission System, facilities of the Secondary Transmission System, and facilities of the RTR.

Registry of Transmission Facilities. Transmission Companies must establish and maintain a registry of their transmission facilities with all necessary information relating to transmission assets for the correct operation of the SIN. This registry shall include, at minimum, information on facility availability, data necessary to calculate transmission capacity, and connection points of Main Transmission System users. This information must be available to the ODS as established in the ROM.

Technical Standard for Design and Operation of Transmission. The owners of transmission assets shall be responsible for complying with what is established in the Technical Standard for Design and Operation of Transmission. This Technical Standard shall define design criteria for electrical lines and substations, as well as requirements regarding inspection, control, measurement, communication, protection, and maintenance of these.

Transmission Network Expansion Plan. The ODS shall conduct every two (2) years a Transmission Network Expansion Plan for a ten (10) year horizon. This plan shall be submitted to the comments and suggestions of the Agents of the National Electrical Market and Transmission Companies. The Transmission Network Expansion Plan shall contain works of general interest that the ODS proposes to execute; the final plan must be approved by the CREE within a maximum period of three (3) months, which shall indicate the works that must be tendered on a mandatory basis. The Transmission Network Expansion Plan shall take into account generation projects under construction, future generation projects committed through contracts with Purchasing Agents, those included in the Indicative Plan for Generation Expansion whose operation start date is within the planning horizon, the expected evolution of electrical demand, and the characteristics of the existing transmission system, including international interconnections and their limitations. The objective of the Transmission Network Expansion Plan shall be the minimization of costs for supplying national demand by reducing the impact of technical constraints imposed by the transmission system on Economic Dispatch, considering reliability criteria for supply as well as environmental impact criteria established by current regulations. The costs to be minimized shall include those corresponding to investment, operation of the transmission system, costs of Economic Dispatch of generation, and Unserved Energy. In this regard, the ODS must particularly consider the expansion or reinforcement of those corridors or lines that at the time of the study are generating the highest Variable Transmission Incomes. In the preparation of this plan, different scenarios must be considered to represent uncertainties in the development of generation investments and the evolution of demand. Likewise, the ODS must coordinate with the Secretariat the preparation of the Transmission Network Expansion Plan so that it reflects the objectives of the national electrical access and coverage policy. The Transmission Network Expansion Plan must detail all installations necessary to supply the Distribution Companies' facilities with an adequate level of supply reliability, as well as possible specific quality improvement plans requested by the CREE. When the Transmission Network Expansion Plan foresees that Secondary Transmission System facilities must be incorporated into the Main Transmission System, the owners of such facilities must constitute themselves as a Transmission Company or sell the facilities to any Transmission Company. For tariff purposes, the replacement value of such facilities shall be recognized. Once the Transmission Network Expansion Plan is approved, the ODS must communicate in writing to the EOR the expansions resulting from this plan for the respective coordination with regional system expansions, in the timelines and conditions stipulated in the RMER.

Bidding for construction of transmission works. Once the Transmission Network Expansion Plan is approved and the Transmission Companies to perform the works contained therein are identified and selected, the CREE shall request that competitive international public bidding be conducted for the construction of the respective works within the timelines established in the Transmission Network Expansion Plan. The CREE shall determine the bidding modality in accordance with any of the following two modalities: A. Work bidding. The Transmission Company selected to conduct a bidding for this purpose shall finance the construction and shall be the owner of the corresponding assets. The sum of the costs resulting from the bidding and subsequent construction of the works, as well as the costs of easements, costs derived from environmental requirements imposed by the competent authority, administration, engineering, and supervision costs, financial costs of the investment demonstrable during the preoperative period until the start of commercial operation, and others that at the request of the Transmission Company the CREE deems appropriate, shall define the Replacement Value of the assets that make up the works and that shall be considered in the calculation of the Transmission Company's costs during a period consistent with the useful life of the works, to be determined by the CREE at the time of assigning such works to the Transmission Company. The discount rate that shall be used for the calculation of transmission costs associated with the works and that the CREE must establish at the time of assigning the construction of the works to the Transmission Company shall remain fixed during the useful life of such works. The discount rate established by the CREE shall be based on a methodology that objectively reflects and with internationally recognized indices the level of risk of this type of investment in the country. Additionally, in accordance with what is established in the Tariff Regulation, administration, operation, and maintenance costs, costs of power and energy losses, and the cost associated with the expected value of indemnifications that the Transmission Company must pay if the quality of service corresponds to what is established in the respective Technical Standard shall be recognized. After the useful life period of the works has elapsed, its Replacement Value shall be determined as established in the Tariff Regulation. All types of taxes that Transmission Companies must pay shall be transferred to the tariffs to end users, with the exception of taxes on profits. B. Bidding for construction, operation, and ownership of the work. In this modality, the Transmission Company shall conduct a bidding to select an investor-operator who shall take charge of the financing, construction, and operation of the works and to whom the CREE shall grant an operating license as a Transmission Company. The bidder to whom the bidding is awarded shall be the one offering the lowest income requirement, in the form of a constant annuity, to cover all costs related to the financing, construction, and operation of the works, including the cost of capital for the investments, operation and maintenance costs, costs of power and energy losses, and the cost associated with the expected value of indemnifications that the Transmission Company must pay if the quality of service corresponds to what is established in the respective Technical Standard. The annuity payment shall be made through twelve (12) equal installments to be paid monthly during an amortization period that may be up to twenty (20) years, which shall begin on the day the work enters commercial operation. Once the amortization period is concluded and during the remainder of the operating license term, the transmission costs associated with the works that the winning bidder, as Transmission Company, may transfer to tariffs shall be calculated in accordance with what is established in the Tariff Regulation. All types of taxes that Transmission Companies must pay shall be transferred to the tariffs to end users, with the exception of taxes on profits.

Works of particular interest. The interested party wishing to construct new transmission lines or substations on its own initiative must request authorization from the CREE and, if applicable, the operating license or its modification, submitting the following information: A. Identification of the interested parties. B. Description of the installations. C. Technical studies that allow verification that the installations it requests to connect comply with the Technical Standards for the transmission system. D. Other information required by the CREE. The Technical Standard for Access and Use of Transmission Capacity and Electrical Studies describes the procedure to be followed by those interested in the development of works of particular interest. The CREE may, at the request of the interested party, approve the percentage of the investment and operation costs of a work of particular interest that shall be recovered via transmission tariff for a period not greater than fifteen (15) years, based on the avoided costs that such works generate in the expansion of the transmission network, as determined by the ODS. After this period of fifteen (15) years, the costs that shall be recovered shall be those determined in the Tariff Regulation.

Obligations of Transmission Companies. Transmission Companies shall be responsible for providing the transmission service with the level of quality required by the Technical Standard for Transmission Quality and the RMER, as well as assuming responsibility for the indemnifications and penalties that derive from the application of said regulation. A. Quality indicators. The Technical Standard for Transmission Quality shall establish the required levels regarding both the Quality of the Product (admissible voltage range, flicker, and harmonic distortion) and the Technical Quality of the Service (frequency and duration of unavailability). The regime of Technical Quality of Service shall differentiate scheduled Unavailability, resulting from the execution of scheduled maintenance, from unscheduled Unavailability, caused by failures in the transmission system, with the objective of determining responsibility for Unavailability and possible penalties. The performance of scheduled maintenance must be previously approved by the ODS who may revoke such authorization if necessary to preserve the reliability of supply. B. Penalties for Unavailability. In case the origin of an Unavailability affecting Users and Qualified Consumers connected to the network of a Distribution Company is found in the transmission system and the responsibility of the Transmission Company is determined, it shall compensate the Distribution Company for an amount equal to the indemnification that it must pay to its Users and those Qualified Consumers connected to its distribution network. The Transmission Company shall also compensate Qualified Consumers connected to the transmission system who are affected by Unavailability in its transmission network when its responsibility has been determined in accordance with what is established in the Technical Standard for Transmission Quality. Transmission Companies shall have an incentive or penalty derived from compliance with the quality levels established in the Technical Standard for Transmission Quality regarding Unavailability of transmission system elements. This incentive or penalty does not apply to SIEPAC facilities or to those elements of the transmission system that form part of the RTR, for which the Transmission Company receives the Expected Value for Unavailability as part of the Authorized Regional Income in accordance with the RMER. C. Registry and notifications. Each Transmission Company must inform the ODS, within the timelines established in the Technical Standard for Transmission Quality, of any forced Unavailability or other incident that affects transmission capacity. Both the ODS and Transmission Companies must maintain an updated registry of transmission system Unavailability, as well as its origin and statistics on the resulting quality. D. Specific plans for quality improvement. The CREE may require Transmission Companies to prepare specific plans for quality improvement for certain zones when systematic service quality problems are observed during more than one (1) year and these are attributable to deficiencies in the transmission system. These improvement plans must be included in the Transmission Network Expansion Plan prepared by the ODS.

Responsibilities of the Agents of the National Electrical Market connected to the transmission network. The Agents of the National Electrical Market connected to the transmission network are obligated to maintain their impact on Product Quality within the limits established by regulations, with respect to phase imbalance, harmonic distortion, flicker, and voltage at the connection point. Non-compliance with the required quality levels shall result in sanctions to the Agents of the National Electrical Market connected to the transmission network, in accordance with the Technical Standard for Transmission Quality. TITLE VI DISTRIBUTION AND COMMERCIALIZATION OF ELECTRICAL ENERGY CHAPTER I Distribution Companies

Application for service and requirements that must be met by applicants for electrical service. The point of delivery of the requested service must be within the Operating Zone of the Distribution Company. The applicant located outside the Operating Zone of the Distribution Company must construct the necessary works so that the point of delivery is within the limits of the Operating Zone, or arrange the construction of these by third parties. These works must comply with the standards that regulate the construction of distribution networks. Each applicant for electrical service must present to the Distribution Company a written application or by another means that the Distribution Company facilitates, which shall contain, at minimum, and depending on the service requested, the following: A. Identification of the applicant for electrical service or legal representative. B. Place for which the service is requested. C. Requested connection voltage. D. Maximum requested demand and its expected evolution for the coming years. E. Type of connection (single-phase; three-phase: wye, delta, open delta). F. Document proving its existence, in the case of legal entities. G. And any other information and documentation contained in the corresponding regulation or technical standard. The obligation to pay corresponds to the signatory of the supply contract; the Distribution Company may not require payment for outstanding balances from the property owner, except if the property owner is the signatory of the supply contract.

Limits of the Operating Zone of each Distribution Company. The Operating Zone of each Distribution Company shall extend up to two hundred (200) meters from any element of the distribution network owned by it and identified in the operating license granted by CREE, which shall be disclosed on the Distribution Company's internet portal. The Distribution Company must inform CREE at least every six (6) months regarding any modification of its Operating Zone.

Modalities for the expansion of the Operating Zone. The expansion of the Operating Zone, granted by operating license to a Distribution Company, must be approved by CREE. The modalities may be the following: A. By extension of distribution networks resulting from the execution of the investment plan approved by CREE. B. CREE may grant to another interested Distribution Company part of the Operating Zone of a Distribution Company due to the latter's failure in its obligation to serve new Users. The Distribution Company interested in part of the Operating Zone must demonstrate to CREE, through concrete investment and coverage plans, that it can serve new Users. C. If there exists a geographical zone not granted, it may be requested from CREE by any interested party, for which it must request the corresponding operating license. D. When there is more than one interested party for a geographical zone not granted in concession, CREE shall conduct a public bidding process to select a Distribution Company to which said zone shall be granted. For this bidding process, interested Distribution Companies shall submit their concrete investment and coverage plans, as well as the deadlines for electrification of the zone. CREE shall evaluate the plans presented and select the best option, taking into consideration investment, coverage, and the shortest time for electrification. CHAPTER II International Bidding for the Purchase of Firm Capacity and Energy

International Biddings. Every contract for the purchase of firm capacity and energy that each Distribution Company executes shall result from an international public bidding process. Direct contracting with any supplier is not permitted. The procedure for the bidding is detailed below: A. Bidding obligation. To meet their firm capacity and/or energy requirements, Distribution Companies must conduct competitive international public biddings, which shall result in one or more firm capacity and/or energy contracts that will cover the requirements for the supply to their Users. When the contracting needs of various Distribution Companies are common, biddings must be conducted jointly. B. Bidding modality. In order to achieve the lowest possible price, CREE shall establish the bidding modality which may be by sealed envelope, by auction, or by another procedure established through the terms of reference to be prepared by CREE, provided that it guarantees competition and transparency. C. General aspects of bidding processes. Without prejudice to what is provided in the terms of reference of the bidding process, biddings shall be subject to the following guidelines: i. Public bidding processes and contract awards shall be supervised by CREE. ii. The duration of awarded contracts may not be less than ten (10) years. iii. The guidelines governing the biddings must be consistent with the national energy policy incorporated in the Indicative Plan for Generation Expansion. iv. Distribution Companies shall determine the firm capacity and/or energy to contract based on the projection of their demand requirements. The contracted values of power and energy shall be approved by CREE. The contracted values exceeding five percent (5%) by Distribution Companies may not be passed on to Users in tariffs. v. In each bidding process, Generation Companies established in other countries may participate under equal conditions, under these regulations and those of the MER. D. Procedure for conducting international public biddings. The procedure for international public biddings shall be the following: i. Distribution Companies shall submit to CREE, no later than October thirty-first (31) of each year, the study defining their firm capacity and/or energy requirements for a ten (10) year horizon, including the ten percent (10%) reserve margin, which may be adjusted through a resolution issued by CREE based on the corresponding analyses. The studies shall be presented with all documents and calculations supporting and justifying the demand projection. ii. Within twenty (20) business days, counted from receipt of the study, CREE shall verify the demand projections of Distribution Companies, and may approve or disapprove them. In case CREE disapproves the demand projections, Distribution Companies must correct them within ten (10) business days counted from the respective notification and resubmit them to CREE. If the demand projections still do not meet CREE's requirements, the study shall be deemed disapproved and the demand projections determined by CREE shall be used. iii. In the event that during the projection horizon it is expected that their maximum demand, plus the regulatory reserve margin, will not be covered through firm capacity and/or energy contracts until the end of the following calendar year with respect to year one (1) of the projection, Distribution Companies, under the supervision of CREE, must convene an international public bidding. In order to comply with this legal obligation, Distribution Companies must conduct their biddings with a minimum advance of five (5) years based on the demand projection studies submitted by Distribution Companies, the national energy policy incorporated in the Indicative Plan for Generation Expansion, and the installation times and characteristics of the different generation technologies. In exceptional and justified cases, a waiver of this minimum deadline may be requested. iv. CREE shall prepare terms of reference establishing the methodology for evaluating technical and economic offers, as well as the deadlines that the bidding process must meet. v. Distribution Companies must form a Bidding Committee in the manner established in the terms of reference set by CREE. Distribution Companies, through the Bidding Committee, shall be responsible for preparing the bidding bases, which must be prepared in strict adherence and compliance with what is established in the Law, its Regulation, and the terms of reference issued by CREE. vi. The bidding bases must be sent to CREE for review, so that within the following thirty (30) days of receipt it approves them or orders their modification. The Bidding Committee must make the necessary changes for the bidding bases to comply with the terms of reference and with the current legal framework, which must be returned to CREE within a maximum period of thirty (30) days for approval. Likewise, its manuals and amendments shall be evaluated and approved by CREE, which may order any modifications it deems necessary. In case CREE does not pronounce within the period mentioned in this section, it shall be understood that they have been approved as proposed. vii. When the bidding bases have been approved by CREE, Distribution Companies shall convene the international public bidding through their publication. Said convocation shall be conducted in a maximum period of thirty (30) days, counted from the conclusion of the thirty (30) day period mentioned in the immediately preceding section. viii. Once the bidding bases have been published, clarification meetings shall be held with the purpose of clarifying doubts and providing additional information requested by bidders. Doubts or clarifications may concern any aspects provided for or not provided for in the convocation and in the corresponding public bidding bases. ix. The Bidding Committee shall submit to CREE an evaluation report and request for authorization of award of the international public bidding to the offer, or set of offers that, meeting the requirements established in the bidding bases, offer the lowest cost for the Distribution Company or Companies. x. Execution of contracts must occur within three (3) months following the date on which CREE communicates to Distribution Companies its authorization of award. Contracts must be executed in compliance with the model or models of contract established in the bidding bases. Prices, deadlines, or technical requirements established in the bidding bases may not be modified. xi. Communication with participants in the bidding shall be done exclusively through the Bidding Committee until the time CREE authorizes the award. Representatives or employees of Distribution Companies who are not members of the Bidding Committee must refrain from having direct communication with bidding participants, unless requested by the Bidding Committee for purposes of clarifications. xii. All information regarding the bidding process, as well as the awarded contracts, shall be of public access in accordance with the Law. xiii. Distribution Companies must deliver to CREE within ten (10) business days after execution of the respective contracts, a complete copy of these and their annexes duly authenticated. xiv. In case of doubt, conflict, or discrepancy between what is established in the bidding bases and the terms of reference, what is described in the terms of reference shall prevail. E. Standard bidding documents. These documents shall be composed of the bidding bases and the corresponding contract model or models. F. Minimum content of bidding bases. International public bidding bases must contain at minimum: i. General information. ii. Objectives of the bidding process. iii. Powers of the Distribution Company and the Bidding Committee. iv. Acquisition of bidding bases, clarifications, amendments, and notifications. v. Instructions for bidders. vi. Content of the offer. vii. Presentation and opening of offers. viii. Technical and economic evaluation of offers. ix. Formats for document presentation. x. Legal, technical, and economic requirements to be met by the bidder. xi. Contract model or models and its technical annex. xii. Chronogram of the process. xiii. Other conditions that CREE deems appropriate. G. Minimum content of the contract model. The terms of reference shall establish the minimum content of the contract model or models. H. Bidding Committee. Distribution Companies that must conduct an international public bidding must previously form a Bidding Committee composed of at least three (3) members. If the bidding is conducted by more than one Distribution Company, each company shall have at least two (2) representatives. Aspects related to the composition, operation, and decision-making of the Bidding Committee, the requirements that members must meet, and the functions they shall perform, regarding confidentiality, meeting convocations, among other aspects, shall be proposed by the Bidding Committee through an internal regulation that it must submit for approval by CREE on the occasion of each bidding process. The Bidding Committee shall conduct the following activities: i. Prepare the bidding bases in accordance with the terms of reference prepared and approved by CREE. These shall include a chronogram of execution of the bidding process. ii. Request modifications to the terms of reference from CREE, which shall be applied to prepare the bidding bases. iii. Convene the international public bidding. iv. Collect revenues from the purchase of bidding bases by interested parties, which shall serve to finance activities derived from the public bidding. v. Interpret and clarify the content of the bidding bases and resolve issues not foreseen in the same upon request of participants in the bidding process, prior approval from CREE. vi. Respond to questions raised by participants in the bidding process, in accordance with what is approved in the bidding bases by CREE. vii. Request clarifications or additional information regarding offers presented by interested parties. viii. Prior approval from CREE, award offers that meet the objectives and requirements established in the bidding bases. ix. Develop and manage an internet portal for each bidding process on which all information related to the process and contract awards shall be uploaded. This portal shall be of public access. I. Criteria for declaring the bidding process void or unsuccessful. CREE shall establish in the terms of reference the criteria that the Bidding Committee may use to support a request to declare a bidding process void or unsuccessful, these being at minimum: i. That no offers are submitted. ii. That no interested party acquires the bidding bases. iii. That no bidder meets the requirements provided by the bidding bases. iv. That no offer meets the conditions established in the bidding bases, thus affecting the interests of Users. In any case, the Bidding Committee must present to CREE the justified reasons for which it proposes to declare the bidding void or unsuccessful. CREE shall determine the merits or lack of merits within the following twenty (20) business days. J. Evaluation of offers. The set of offers presented by bidders participating in the bidding process shall be verified to verify that they meet the requirements specified in the bidding bases. The Bidding Committee shall evaluate the offers technically and economically in accordance with what is established in the bidding bases. K. Award of contracts. The Bidding Committee, prior approval from CREE, shall award contracts in accordance with what is established in the terms of reference and bidding bases. Firm power may not be awarded beyond the Firm Power Requirement of Distribution Companies, which must be established in the terms of reference. The term of contracts derived from international public biddings conducted by Distribution Companies may not be extended for any reason. Contracts entered into by Distribution Companies as a result of an international public bidding may not have prices, deadlines, or technical requirements modified that were established in the bidding bases. L. Contract surpluses. When during contract operation resulting from biddings, there are surpluses of power and energy, these may be traded in the opportunity market, and must comply with the ROM and specific Technical Standards issued by CREE. CHAPTER III Operation of Distribution Companies

Metering equipment. The metering equipment and the respective service entrance shall be the property of the Distribution Company and shall not constitute a connection cost for the User. The Distribution Company shall always have access to the metering equipment in order to perform billing and carry out necessary equipment reviews. The metering equipment and service entrance must comply with what is established in the corresponding standards issued by CREE. With prior approval from CREE, the Distribution Company may use prepaid meters for all or part of its Users; CREE may not deny its approval except for justified cause.

Billing. The Distribution Company shall measure all parameters required for billing all of its Users and shall apply the corresponding tariff structures to obtain the billing amount for electricity services. To this amount shall be added the legal fees and taxes not considered in the calculation of tariffs and directly related to the supply, to obtain the total amount to be included in each invoice. Invoices shall be issued monthly. CREE shall issue general regulations, under which, in special cases and with its specific authorization, invoices may be issued at another interval. Invoices shall include all necessary information determined by CREE for its verification and payment. The Distribution Company, with the purpose of providing convenience to the User and being consistent with technological advances, may perform measurement and billing for consumption with new systems and technologies previously authorized by CREE.

Guarantee prior to supply. Except where a prepaid meter is in place, each User must provide the Distribution Company with a payment guarantee. This guarantee may be provided in monetary form or through a surety bond and shall be calculated, for each User category, in an amount equivalent to an average monthly invoice of a typical User of the same category. The procedure for determining the value of said guarantees, the criteria for their updating, and any other relevant aspect shall be developed in the respective regulations.

Payment for Consumption. The Distribution Company must make available to the User the facilities or mechanisms necessary for payment of each invoice. It may also do so through the banking system or other forms of payment.

Failure to pay on time. The Distribution Company may charge the User late payment interest when the User fails to pay their invoice within the corresponding deadline. The charge for late payment may not exceed the weighted average of new operations of commercial banks in national currency of the active interest rate of the national banking system published by the Central Bank of Honduras.

Service disconnections and reconnections. A. Disconnections. The User who has pending payment of electrical service from one or more monthly invoices may be subject to immediate service disconnection by the Distribution Company. The Distribution Company shall charge a fee for the disconnection. When electrical energy is consumed without prior authorization from the Distribution Company or when the supply conditions are altered by the User, the service may be disconnected without the need for prior notice to the User; the foregoing without prejudice to the sanctions to which the User may be liable in accordance with this Law, its regulations, Technical Standards, and other laws. When the energy disconnection has been made due to alteration of the metering or when the connection was made without approval from the Distribution Company, prior to reconnection, the latter may estimate the amount of consumed and unmetered energy and the User must pay this amount to the Distribution Company. Without compliance with this requirement, reconnection shall not be permitted. Payment of this amount does not exempt the User from the sanctions provided for in current and applicable regulations. B. Reconnections. The User who has the service suspended due to failure to pay has the right to reconnection when they have paid the amount owed. The Distribution Company shall charge a fee for each reconnection. CREE shall issue general rules establishing the amounts for disconnection and reconnection, as well as the deadlines for reconnection, keeping such values updated.

Errors in metering and billing. When the Distribution Company commits an error in reading the meter or in issuing the invoice showing consumption of energy greater than what was actually consumed, the User shall notify the Distribution Company, which must correct the error in the following billing period. The Distribution Company shall indemnify the User in accordance with the respective regulations.

Theft or fraud of energy. Any connection made without complying with the process established in the Law and its regulations, duly verified, shall constitute an indication of the commission of an unlawful conduct. In the event that the Distribution Company detects such situation, it must notify the competent authorities for the corresponding legal purposes.

Method to determine the amount of indemnification for poor quality of service. When long-duration failures occur caused by generation, transmission, or the distribution network, and which in CREE's opinion are not due to a case of fortuitous event or force majeure, the Distribution Company shall indemnify the Users and Qualified Consumers connected to the affected distribution network from such failures. Qualified Consumers not connected to the distribution network shall receive their indemnification from the National Electrical Market Agent with which they have contracted their supply. The deadline for payment of indemnifications shall be determined by CREE in accordance with the methodology established in the Technical Standard for Transmission Quality and the Technical Standard for Distribution Quality. The National Electrical Market Agent responsible for the failure that has caused the application of indemnification shall reimburse those affected for the costs of indemnification in which they have incurred. The procedure to follow for determining the responsible party for poor service quality shall be established in the aforementioned Technical Standards. Indemnifications shall be applied to Users when the tolerances established in the Technical Standard for Distribution Quality and the Technical Standard for Transmission Quality are exceeded. CHAPTER IV Public Lighting

Charge for public lighting. It shall be the responsibility of the Distribution Company to charge for the provision of public lighting service to Users and Qualified Consumers in its Operating Zone and to remit it monthly to the companies established for the provision of said service. The Tariff Regulation shall establish the rates and maximum ceiling permitted to determine payment for public lighting service. CREE shall approve the volume of energy to be billed monthly for public lighting. The frequency of review of these rates and maximum ceiling shall also be established in the Tariff Regulation. CHAPTER V Commercialization

6. Generalities of Commercial Companies. The Commercial Companies shall not enjoy zonal exclusivity with respect to other Agents of the National Electrical Market that may compete for the sale of power or energy to Qualified Consumers, nor shall they have exclusivity with these; that is, a Qualified Consumer may enter into one or more contracts with different Agents of the National Electrical Market or the Regional Electrical Market to satisfy its demand. When the contract between a Qualified Consumer and a Commercial Company ends, the latter may not impose conditions that imply obstacles or additional costs for Qualified Consumers to seek a new supplier. The following general provisions shall apply to Commercial Companies: A. Demonstrate economic and financial solvency to be registered in the Public Registry of Companies of the Electrical Sector maintained by the CREE. B. Demonstrate that they have the technical capacity to carry out the commercialization activity for their registration in the Public Registry of Companies of the Electrical Sector; particularly that they are capable of addressing claims and information requests from their customers. C. Maintain auditable accounting and commercial systems, which include databases, contracts, invoicing and collection. These shall be maintained in accordance with international standards in the matter, and taking into account the legal separation of activities required by the Law. D. Have sales of power and/or energy backed by means of contracts subscribed with Generating Companies, complying with the obligation established in Article 17 of this Regulation as a Purchasing Agent. The terms of these contracts, including periods and prices, shall be freely determined by the parties. E. Pay the corresponding charges for the use of transmission and distribution networks, for system operation, for complementary services, for the rate corresponding to 0.25% of the total amount invoiced for energy to finance the CREE, as well as the corresponding charges to the MER, provided that the Commercial Company is the sole supplier of a Qualified Consumer and in accordance with the liquidation carried out by the ODS of these charges. Commercial Companies may pass on these charges to their clients. When a Qualified Consumer has more than one supplier, the ODS shall liquidate to the Qualified Consumer the aforementioned charges. F. Maintain information on contracts signed with Qualified Consumers and Generating Companies, as well as their transactions through ODS liquidations for the last five (5) years, as a minimum. Commercial Companies are obliged to maintain the operational characteristics indicated in their registration form and must notify any modification of the characteristics or requirements that enabled it so that the CREE can verify and confirm whether it continues to be enabled as a company of the electrical sector. When a Commercial Company plans to cease its commercial activity, it must communicate this to the ODS and to the CREE at least thirty (30) days before the date of cessation of activities.

Self-Generating Users. Self-Generating Users are Users who own electrical energy generation equipment within their own home or facilities capable of operating in parallel with the grid, and who meet the following minimum requirements: A. The generation capacity installed by a Self-Generating User shall in no case be greater than its maximum demand, and, in the case of residential users, shall not be greater than fifteen (15) kW in any case, applying this limitation to the generation capacity in alternating current that may operate in parallel with the grid. B. The estimated monthly energy production of the generation equipment shall be less than the average monthly consumption of the supply to which that equipment will supply energy. C. To generation equipment that possesses some energy storage device, the requirement detailed in subsection A above shall not apply, and the estimated monthly energy production detailed in subsection B shall be less than or equal to ninety percent (90%) of the average monthly consumption of the supply to which it will supply energy. In no case shall the maximum power for injection to the grid exceed the maximum demand of the User. Distribution Companies may limit the connection of Self-Generating Users so as not to overload feeders or circuits and transformers, nor cause Service Quality problems. These limitations must be substantiated on technical criteria as established in the respective standard. Until a specific standard is established, Distribution Companies must substantiate the limitations they impose on the connection of Self-Generating Users through specific studies in each case. Users who request authorization to connect generation equipment to become Self-Generating Users may, if necessary to eliminate technical limitations in the grid that prevent the connection of such equipment and in agreement with the respective Distribution Company, carry out works to expand the capacity of the distribution network, or cover the necessary costs if such works are included in the Distribution Company's investment plans. In that case, the works shall become the property of the Distribution Company, which shall reimburse the associated costs within a period not exceeding 10 years. The costs recognized must be congruent with those approved by the CREE for the determination of tariffs to end users. Distribution Companies may charge a binomial tariff for supply to Self-Generating Users connected to their distribution network. The CREE shall issue regulations governing the connection and injection of energy by Self-Generating Users to the networks.

Injection of Excess Energy. The injections of excess energy to the grid shall observe the following rules: A. Distribution Companies, within the injection limits established by the respective Technical Standard, are obligated to purchase the excess energy injected by residential and commercial Self-Generating Users connected to the distribution network, solely when this is from renewable energy sources. B. The Distribution Company may accept injections from residential and commercial Self-Generating Users connected to the distribution network that do not use renewable sources, as well as from industrial Self-Generating Users connected to the distribution network, provided that the Technical Standard issued by the CREE is complied with. The remuneration of these injections shall be made in the manner described in Article 49. C. The injection of energy by Self-Generating Users connected to the transmission network shall be carried out based on what is established in the respective Technical Standard and in the ROM.

Payment for Excess Energy Injected to the Grid. The excess energy injected by Self-Generating Users to the distribution and transmission networks shall be remunerated as follows: A. In the case of residential and commercial Self-Generating Users connected to the distribution network that use exclusively renewable energy sources, the injected energy shall be remunerated at the tariff approved by the CREE at the request of the Distribution Company, which shall be based on the costs avoided by the Distribution Company due to the energy injection made by the Self-Generating User. B. In the case of residential and commercial Self-Generating Users connected to the distribution network that use energy sources that are not exclusively renewable and industrial Self-Generating Users connected to the distribution network, the excess energy injected shall be paid as follows: i. If they are Users of the Distribution Company, the latter shall remunerate the excess energy at the Nodal Price of the high voltage node of the substation that supplies the distribution circuit in which the Self-Generating User is connected, during the Market Periods in which the injection was made. ii. If they are Agents of the National Electrical Market, the ODS shall perform the liquidation of the energy injected by the Self-Generating User as an opportunity market transaction, valuing the energy injected to the grid at the Nodal Price of the high voltage node of the substation that supplies the distribution circuit in which the Self-Generating User is connected, during the Market Periods in which the injection was made. C. In the case of Self-Generating Users connected to the transmission network, the ODS shall perform the liquidation of the energy injected by the Self-Generating User as an opportunity market transaction, valuing the energy injected to the grid at the Nodal Price of the node in which the injection is made, during the Market Periods in which the injection was made.

Connection to the Grid. The connection of Self-Generating Users to distribution and transmission networks shall be governed by the following rules: A. In the case of Self-Generating Users connected to the distribution network and who have a supply contract with the Distribution Company, the latter must install bidirectional metering equipment capable of separately recording the values of energy and power injected and taken from the grid by Self-Generating Users. B. In the case of Self-Generating Users connected to the medium voltage network and who are Agents of the National Electrical Market, they must install at their cost bidirectional metering equipment capable of separately recording the values of energy and power injected and taken from the grid. The connection of the Self-Generating User's installations, including the bidirectional metering equipment, must comply with the applicable Technical Standards. The connection of the Self-Generating User's installations, including the bidirectional metering equipment, must comply with the applicable Technical Standards. The Distribution Company must verify that the connection installations comply with the respective Technical Standard prior to the Self-Generating User being able to make injections to the grid. C. Self-Generating Users connected to the high voltage network must comply with the requirements established in the Technical Standard of Access and Use of Transmission Capacity and Electrical Studies.

Access and Use of the Transmission System. Each Transmission Company must allow non-discriminatory connection and access to the transmission network to any Generating Company, Distribution Company, Qualified Consumer or other Transmission Company that requests it, provided that transmission capacity is available. Each Transmission Company shall charge Transmission Tolls approved by the CREE for the use of the network. A. Access to transmission capacity. Any party interested in accessing the existing capacity of the transmission network, whether a Generating Company, Qualified Consumer, Distribution Company or Transmission Company, must submit an access request to the Transmission Company owner of the transmission assets where it wishes to connect. The procedure to be followed is defined in the Technical Standard of Access and Use of Transmission Capacity and Electrical Studies. i. Evaluation of available capacity. The ODS shall verify for each request that transmission capacity is available to allow connection. If the existence of transmission capacity is verified, and at the request of the interested party, the ODS in coordination with the Transmission Company shall prepare national technical premises so that the interested party may prepare electrical studies that evaluate the impact of the connection of its facilities on the operation of the SIN. Once presented, the ODS shall review the electrical studies and decide on their results. ii. Contents of the access request. This request must include at least: technical characteristics of the interested party's facilities, power to be exchanged at the access point and commissioning date of the facilities. iii. Access, connection and use contracts. Once the request is approved, the applicant shall sign an access, connection and use contract with the Transmission Company, which shall include the technical conditions of the connection point, as well as the rights and obligations of the applicant. The CREE shall approve, at the proposal of the Transmission Company, the format and contents of the standard access, connection and use contract. B. Interconnection requests. Regional transmission companies must submit an interconnection request to the respective Transmission Company with at least the same information required for access requests. The Transmission Company may only reject the request when available capacity does not exist in accordance with what is determined by the ODS. C. Time Limits. The Transmission Company shall have a maximum period of thirty (30) days to resolve access or interconnection requests. In case of unjustified refusal to resolve the access or interconnection request, the applicant may file a complaint with the CREE. D. Nodes of the Regional Transmission Network. In the event that access is required at a node of the RTR, the procedure must comply with what is established in the RMER and in the Technical Standard of Access and Use of Transmission Capacity and Electrical Studies.

Access and Use of Secondary Transmission System Facilities. The owners of secondary transmission system assets must grant access to any Generating Company, Distribution Company, Qualified Consumer or other Transmission Company that requests to connect to the Main Transmission System through such assets. The request may only be denied when there is no sufficient available capacity and after its notification to the ODS so that it may verify it. The owner of these assets has the right to receive the charges for their use that the CREE determines, which charges must be liquidated by the ODS.

Transmission Tolls. The Transmission Company shall receive Transmission Tolls to recover the transmission costs approved by the CREE according to the methodology described in the Tariff Regulation. For the calculation of Transmission Tolls, the ODS must deduct the Variable Transmission Income resulting from the approved transmission costs. Transmission Tolls may not reflect the portion of the costs of RTR assets that their owners receive as Regional Authorized Income, nor the costs of Secondary Transmission System assets developed as works of particular interest, except in the case where these works of particular interest increase the network capacity of the Main Transmission System. In this case, the Transmission Toll must be received by the company owning these assets. All Agents of the National Electrical Market must pay Transmission Tolls in accordance with the established methodology. The contracting parties have freedom to agree on the responsible party for payment. The ODS shall be responsible for applying and liquidating the charges for Transmission Tolls.

Charges for Use of Secondary Transmission System. The owners of Secondary Transmission System assets have the right to be economically compensated for the use that third parties make of such assets. The amount to be recovered shall be determined as the percentage of use that users other than the owner make of the facilities, multiplied by the costs corresponding to the annual investment and annual operation and maintenance costs. These costs shall be calculated by the CREE using the same methodology used for the calculation of Main Transmission System costs. The percentage of use of each user shall be proportional to the installed capacity in the case of Generating Companies or to the firm power required not coincident in the case of Qualified Consumers.

Free Access and Toll for the Use of Distribution Networks. Access to the distribution network is free. Users of the Distribution Company shall pay for the use of distribution networks through the Distribution Added Value. Qualified Consumers connected to the distribution network must pay the Distribution Company the toll for the use of said network in accordance with what is established in the Tariff Regulation. Qualified Consumers who have chosen to act as Agents of the National Electrical Market who wish to access and connect to the distribution network must request this service from the Distribution Company and sign a connection contract. The Distribution Company must process this request without discriminatory treatment.

Tariff Regulation. The Tariff Regulation shall develop, among other aspects, all elements necessary for the calculation of tariffs to regulated end Users, the methodology for the charge for the use of transmission and distribution networks, the periods in which each of the tariff studies must be conducted, as well as the deadlines for their approval and implementation.

Cost Basis. Tariffs must be based on the costs of generation, transmission, operation and distribution. All costs shall be established based on efficient companies. The horizon for conducting the studies shall be five (5) years for calculating distribution costs and three (3) years for calculating transmission costs. Companies are authorized to include taxes within their costs so that they may be recovered through tariffs.

Composition. Tariffs are composed of a base tariff and periodic adjustments, and charges for the power demand made by Users may be established.

Isolated Systems. The Tariff Regulation must provide for special provisions for the establishment of tariffs in Isolated Systems.

Public Hearings. Prior to the implementation of a new tariff scheme, the CREE shall hold public hearings that shall be regulated by what is established in the Tariff Regulation.

Methodologies. The Tariff Regulation must develop the methodologies that allow the calculation of each of the costs included, as well as those parameters that complement its calculation, such as Energy Not Supplied, hourly blocks and the update rate.

Pre-existing Contracts. The costs of contracts existing prior to the effective date of the Law shall form part of the tariffs. The Tariff Regulation shall contain the methodology for the calculation of the costs that will be passed through.

Social Fund for Electrical Development. Electricity Distribution Companies shall finance the Social Fund for Electrical Development (FOSODE), which shall be administered by ENEE, by contributing one percent (1%) of the total sales of electrical energy that they have billed to their Users in the month prior to the preceding month; this amount shall be passed through to the Users in the monthly invoice. CREE shall supervise and audit that the contributions of the Distribution Companies are made in a timely and proper manner, and shall request from ENEE an annual investment plan and an annual execution report, being able to supervise the operation of this fund. TITLE X INFRACTIONS AND SANCTIONS SINGLE CHAPTER General Provisions

Classification of Infractions and Fines. The Actors of the National Electricity Market and Users who incur in infractions shall be sanctioned by means of fines, which shall take into account the seriousness of the infraction, recidivism in the commission of infractions, and whether the infractor, voluntarily and before being required, remedies the infraction. Infractions are classified as very serious, serious, and minor.

Infractions against Free Competition and Transparency of the National Electricity Market.

A. Very Serious Infractions. The following shall be catalogued as very serious infractions committed by the Actors of the National Electricity Market: i. Non-compliance with instructions issued by the ODS. ii. Failure to submit to the ODS offers for available capacity not committed in contracts, not merely occasional or isolated, by any Agent of the National Electricity Market holder of generation units or that has acquired the right over the production of such units. iii. The reduction, without authorization of the ODS, of the capacity of production, transmission or distribution of electrical energy by companies carrying out these activities of the electrical subsector, without reasonable causes justifying it. iv. The development of practices directed at preventing free price formation in the MEN. v. The simultaneous development of activities of the electrical subsector that the Law considers incompatible, as well as carrying them out without the required authorization. vi. The unjustified denial of access to the transmission or distribution network. vii. The refusal to admit verifications or inspections by CREE, or the obstruction of their conduct. viii. The refusal, not merely occasional or isolated, to provide CREE with the information it requests in accordance with what is established in the Law. ix. Non-compliance by the Agents of the National Electricity Market and Transmission Companies with the applicable requirements for installations, in a manner that poses manifest danger to persons or property. x. The commission of two or more serious infractions within a period of twelve (12) months. B. Serious Infractions. The following shall be catalogued as serious infractions committed by the Actors of the National Electricity Market: i. The occasional failure to submit offers for available capacity not committed to the ODS, by Generation Companies that are obligated to do so or by those who have the right over the production of generation units. ii. The occasional or isolated refusal to provide CREE with the information it requests in accordance with what is established in the Law. iii. Non-compliance with the Technical Standard for Transmission Quality, and failure to comply with what CREE orders to remedy the non-compliance within the timeframe CREE determines for each particular case. iv. Non-compliance by the Agents of the National Electricity Market and Transmission Companies with applicable safety measures even when there is no manifest danger to persons or property. v. Non-compliance by the Agents of the National Electricity Market, reiterated three (3) or more times, with the consumption of electrical energy demanded from the ODS. vi. The incurring by the ODS of unjustified delays in the performance of its Economic Dispatch or transaction settlement functions. vii. The incurring by the ODS of unjustified delays in the communication of settlement results or its duties of information about MEN evolution. viii. Any action by the ODS, when determining the order of effective entry into operation of generation units that implies an unjustified alteration of the result of Economic Dispatch. C. Minor Infractions. The following shall be catalogued as minor infractions committed by the Actors of the National Electricity Market those that do not have the character of very serious or serious in accordance with the two preceding subsections.

Infractions against Efficient Provision of Electrical Supply Service by Distribution Companies and Illicit Actions of Users. A. Very Serious Infractions. The following shall be catalogued as very serious infractions committed by Distribution Companies or Users: i. Non-compliance by Distribution Companies or Users with the applicable requirements for their installations, in a manner that poses manifest danger to persons or property. ii. The interruption or suspension of electrical service to a zone or group of population, without reasonable causes justifying it. iii. The refusal to supply electrical energy to applicants for new services without reasons justifying it. iv. The application of tariffs not authorized by CREE. v. The irregular application of tariffs authorized by CREE, in a manner such that the price is altered by more than fifteen percent (15%). vi. The repeated non-compliance with the Technical Standard for Distribution Quality, and failure to comply with what CREE orders to remedy such non-compliance. vii. The commission of two or more serious infractions within a period of twelve (12) months. B. Serious Infractions. The following shall be catalogued as serious infractions committed by Distribution Companies or Users: i. The unjustified delay in the initiation of service provision to applicants for new services. ii. The irregular application of authorized tariffs, in a manner that produces an alteration in the price of between five percent (5%) and fifteen percent (15%). iii. Any other action in the supply or consumption of electrical energy that supposes a percentage alteration of the reality of what was supplied or consumed greater than ten percent (10%). iv. Non-compliance with the Technical Standard for Distribution Quality, and failure to comply with what CREE orders to remedy the non-compliance. C. Minor Infractions. The following shall be catalogued as minor infractions committed by Distribution Companies or Users those that do not have the character of very serious or serious in accordance with the two preceding subsections.

Elements for Determining the Seriousness of the Infraction. To determine the seriousness of infractions or illicit actions, for the purpose of determining the fine amount, CREE shall consider the following criteria: A. The damage caused to Actors of the National Electricity Market, Users, or to third parties. B. Manifest intent. C. The number of affected parties. D. The duration of the infraction. E. The failure to appear before CREE once notified of the initiation of the sanctionary procedure. F. Acceptance of the charges, demonstration of commitment and responsibility in diligently attending to actions that allow restoration or correction of damages caused, provided such circumstance is demonstrated reliably during the substantiation of the sanctionary procedure. G. Failure to provide, delay, or concealment of information. H. Presentation of false documents and information. I. Benefits in favor of the infractor or third parties, in the event it is proven that the infractor obtained benefits for themselves or third parties as a result of the infraction. J. Joint participation, in case that the infractor together with other Actors of the National Electricity Market or Users related to the same participate in the infraction. K. Any other circumstance duly motivated by CREE. If the infractor, voluntarily and before being required, remedies the infraction, they may prove such circumstance before CREE in order to determine the fine amount. If an infractor User relapses in an infraction, they shall be sanctioned with double the amount of the previous fine. An infractor shall be considered as recidivist when by action or omission they commit two or more infractions of the same category (minor, serious, or very serious) within a period equal to or less than twelve (12) months. CREE shall maintain the corresponding registry specifying relevant data for purposes of this paragraph.

Principles Applicable to the Sanctionary Procedure. The principles and criteria that govern the procedure that CREE shall employ when determining infractions and imposing the corresponding administrative sanctions are the following: A. Legality and Guarantee of Due Process. Infractions that are not determined in the Law, regulations, Technical Standards, or resolutions based on law, issued by CREE, in effect at the moment the infraction was committed, may not be sanctioned; for the application of sanctions the formalities as well as the rights and guarantees established in the laws must be observed. B. Publicity. All decisions of CREE shall be public and it shall ensure the publication of its acts. Any interested person who is duly legitimized or their representative has the right to request their file and to be informed about its status. C. Motivation of Sanction. Sanctions shall only be imposed by means of a motivated resolution by CREE, and must

be based on the facts, legal grounds, elements to determine the seriousness of the infraction, and antecedents that serve as its basis.

Procedure for Sanctioning Infractions of the Law. When Actors of the National Electricity Market or Users commit infractions of the Law, its regulations and Technical Standards, they shall be sanctioned by CREE through the following procedure: A. Initiation of Procedure. The procedure may be initiated ex officio or at the instance of an interested party. In case it is initiated by an interested party, a written statement must be presented containing the facts, evidence, or other elements that lead to the conviction that an infraction of the Law, its regulations, and Technical Standards has occurred. B. Preliminary Report of Non-Compliance. When CREE becomes aware of the existence of an infraction of the provisions of the Law, its regulations, and Technical Standards, it shall prepare a report indicating the charges imputed, the sanction that could be imposed, and in its case, the applicable aggravating or attenuating circumstances. C. Resolution on Determination of Charges. In the event there are sufficient indications or elements of conviction that an infraction of the Law, its regulations, and Technical Standards has occurred, CREE, by means of motivated resolution, shall notify the charges imputed to the alleged infractor, so that within a period no less than fifteen (15) business days and no greater than thirty (30) business days, they proceed to present the corresponding response. D. Presentation of Response. Once notified, the alleged infractor shall present through their legal representative a written response to each of the charges imputed in the resolution in which the charges were imputed. This written response must enumerate all the means of evidence that will be used during the procedure. In order to avoid delays during the procedure, evidence proposed together with the response shall be admissible only in cases where it can be clearly expressed and are related to the fact being challenged. Additionally, the written response must indicate: i. The place, objects, and other documents that must be examined. ii. Witnesses to be examined. iii. In its case, acceptance of the charges imputed. E. Failure to Present Response. If the response referred to in the preceding subsection is not presented, CREE, ex officio, shall record this circumstance in the file and shall proceed to declare the term expired and continue with the procedure until issuing the corresponding administrative act. F. Evacuation and Assessment of Evidence. The evacuation of proposed and admitted evidence shall be conducted within a period of twenty (20) business days. The Board of Commissioners shall determine, among other things, the form of presentation of evidence and its assessment, being able to disregard evidence that was not offered in accordance with law, has no relation to the merits of the matter, is improper or unnecessary.

Evidence shall be assessed in accordance with the principle of sound judgment, and preference shall be given to weighing the material reality that the same reflect independent of the legal forms that the same adopt. G. Evaluation of Presented Response and Evacuated Evidence. The General Secretariat shall forward to the corresponding units, for their evaluation, preparation of reports or opinions, including the opinion of the legal counsel. H. Final Resolution. Once the final reports or opinions of the corresponding units have been received, the file shall be forwarded to the Board of Commissioners for its final resolution. The Board must resolve within a period of thirty (30) business days. The resolution shall conclude the procedure and in its operative part shall decide all questions raised by the parties involved and as many from the file as result, whether or not promoted by them, and must contain at least the following: i. Determination of the infraction; ii. Amount of the fine, timeframes, and elements or criteria for its determination; iii. The form of accrediting before CREE the corresponding payment receipts; iv. Notification for the ODS to publish the fine in the transaction report and, if necessary, charges for failure to pay timely; and, v. Impose other measures or obligations aimed at restoring the situation prior to the illicit action and others it deems appropriate, suitable, and necessary to cease and prevent the continuation of the infraction. I. Notification of Resolutions. Resolutions shall be notified personally or electronically within a maximum period of five (5) business days from their date. If personal or electronic notification of the act could not be made within the established period, notification shall be made by posting on the notice board of CREE's General Secretariat. J. Motion for Reconsideration. The resolution issued by CREE, in matters of sanctions, shall be subject to a motion for reconsideration, which must be presented before CREE through a legal representative, within ten (10) business days following the notification of said resolution, which shall be resolved according to what is established in the Administrative Procedure Law. Once the motion for reconsideration is resolved by CREE, the administrative remedies shall be exhausted, leaving available the remedies provided in the legislation on administrative litigation. The filing of judicial remedies against resolutions imposing fines once the administrative remedy is exhausted shall not suspend payment thereof. The foregoing is without prejudice to the parties submitting to a conciliation or arbitration procedure as provided in the Law. K. Publication of Resolutions. At CREE's request and once the resolution becomes final, the infractor must publish in a newspaper of national circulation the resolution in which the infraction of the Law, its regulations,

or Technical Standards is determined. The publication shall be made within the period indicated in the resolution, and the failure to comply with the publication in the terms ordered by CREE shall constitute a minor infraction. CREE shall publish the resolutions resulting from this process on its website.

Payment of Fines. The payment of a fine imposed in accordance with the sanctionary procedure shall be subject to the following forms, conditions, and timeframes: A. Once the resolution becomes final, sanctioned infractors must make payment of the fine to the General Treasury of the Republic, within ten (10) business days following. The sanctioned infractor must present a copy of the corresponding payment receipt to CREE, within three (3) business days following the payment date. B. Delays in payment of the fine shall accrue default interest according to the highest average active rate of the banking system published by the Central Bank of Honduras. In those cases in which the infractor does not comply with payment in the terms established in this regulation, CREE shall notify and request the Attorney General's Office to make the corresponding claim in accordance with applicable legislation.

Non-Compliance in Payment of the Fee to CREE. Non-compliance by Distribution Companies or Qualified Consumers who have chosen to act as Agents of the National Electricity Market with their obligation to make available to CREE within the first five (5) days of each month zero point twenty-five percent (0.25%) of the total amount billed or of the total amount of electricity purchase liquidated and billed, as applicable, shall constitute a very serious infraction to the Law. Payment of the fine does not excuse compliance with the obligation to pay the fee that has not been paid. TITLE XI TRANSITIONAL PROVISIONS SINGLE CHAPTER

Interim Tariff Schedule. Distribution Companies are authorized to propose to CREE interim tariff schedules supported by the Regulation for the Calculation of Provisional Tariffs approved by CREE Resolution-016 of April 20, 2016, while the tariff studies are completed and the tariff schedule resulting from the application of the Tariff Regulation approved by CREE Resolution-148 of June 24, 2019 is approved. Likewise, when CREE deems it appropriate, it may introduce modifications to the interim regime in order to improve the application of tariffs.

Pre-existing Contracts. The power and energy supply contracts that have been signed by ENEE prior to the effective date of the Law shall continue without any change and may be modified according to the legal mechanism recognized in Article 28 letter B of the Law. The same shall be administered by the subsidiary company created by ENEE for distribution activities in accordance with

of the Law.

Effective Date. This Regulation shall enter into effect thirty (30) days after its publication in the Official Gazette "La Gaceta".