General Law of the Electric Industry

SUBJECT MATTER OF THE LAW, REGULATIONS, DEFINITIONS AND SUPPLEMENTARY RULES. A. SUBJECT MATTER OF THE LAW: The purpose of this Law is to regulate: I. The activities of generation, transmission, distribution and commercialization of electricity in the territory of the Republic of Honduras; II. The importation and exportation of electrical energy, in a manner complementary to what is established in international treaties on the matter entered into by the Government of the Republic; and III. The operation of the national electrical system, including its relationship with the electrical systems of neighboring countries, as well as with the electrical system and the Central American regional electrical market. B. REGULATIONS: The provisions of this Law shall be developed through regulations together with specific technical standards. C. DEFINITIONS: For the purposes of this Law, the following terms are understood to mean: I. Agents of the national electrical market: The generating, distributing and commercializing companies that meet the requirements established for that purpose in the Regulations; and qualified consumers that have chosen to act as such. II. Commercialization: The buying and selling of capacity and electrical energy at freely agreed prices. III. Qualified consumer: One whose demand exceeds the value to be set by the Electrical Energy Regulatory Commission (CREE), and who is authorized to purchase electrical energy and/or power directly from generators, commercializers or distributors, at freely agreed prices with them. IV. CREE: The Electrical Energy Regulatory Commission. V. Distribution: The transport of energy from the high-voltage electrical network to the facilities of end consumers; distribution networks are formed by installations of voltage less than sixty thousand volts plus the transformers and associated equipment to connect them to the transmission network. VI. Electricity: The physical good underlying commercial transactions in any of its aspects: energy, power or complementary services, understanding that power is the rate of flow of energy per unit of time, the capacity of an installation is the maximum power it can deliver, transport, use, and complementary services are essential services to maintain supply quality that shall be identified in the Regulations. VII. ENEE: The National Electrical Energy Company. VIII. Generation: The production of electricity through the use and transformation of energy from various types of sources. IX. Law: This General Law of the Electrical Industry. X. Transmission: The transport of energy through the high-voltage electrical network; high voltage shall be understood as that which is equal to or greater than sixty thousand volts; the transmission network connects generating plants, distributing companies and large consumers. XI. System operation: The planning and conduct of the operation of the electrical system and the electrical market and the Central American regional electrical market, as well as with the electrical system and the Central American regional electrical market. XII. Regulations: The Regulations that develop the provisions of the Law. XIII. Secretariat: State Secretariat designated as the superior authority of the Electrical Subsector. XIV. National Interconnected System: The electrical system formed by the generating plants, distribution networks and the national transmission network that physically connects them without interruption. XV. User or consumer: The natural or legal person holding an electrical energy supply contract. D. SUPPLEMENTARY RULES: In the absence of an express provision in this Law, the following shall apply in a supplementary manner, in the order indicated: I. The Commercial Code; II. The Civil Code; III. Special laws; and IV. General laws.

PUBLIC POLICIES: The Secretariat shall be responsible for proposing to the Presidency of the Republic the public policies that shall guide the activities of the electrical subsector. The President of the Republic may present other proposals for discussion in the Cabinet of Ministers, or within a group of State Secretaries convened by him for that purpose. The Secretariat shall likewise be responsible for monitoring the policies adopted, and for such purpose a State Undersecretariat shall be created.

ELECTRICAL ENERGY REGULATORY COMMISSION: The Electrical Energy Regulatory Commission (CREE) is created as a deconcentrated entity of the Sectoral Ministry of Economic Conduct and Regulation, with functional independence, budgetary independence and sufficient administrative powers to ensure the technical and financial partnership necessary for the fulfillment of its objectives. The composition and operation of the Electrical Energy Regulatory Commission (CREE) shall be subject to the provisions of this article. A. COMMISSIONERS OF THE ELECTRICAL ENERGY REGULATORY COMMISSION (CREE): The Electrical Energy Regulatory Commission (CREE) is composed of three (3) commissioners appointed by the President of the Republic at the proposal of a Nominating Board. The appointed commissioners shall serve for a period of seven (7) years in the exercise of their functions and may not be removed without just cause at the discretion of the Nominating Board. The commissioners of the Electrical Energy Regulatory Commission (CREE) have the status of public officials, shall perform their functions on a full-time, exclusive basis, and may not hold any other paid or honorary position except for teaching positions. The salaries of the commissioners of the Electrical Energy Regulatory Commission (CREE) shall be based on competitive values for the type of activity performed. Their terms shall be staggered so that they do not expire simultaneously, in order to protect institutional memory. At the end of the period for which they were appointed, commissioners may be designated for an additional period of seven years at the proposal of the Nominating Board. Legal action may be brought against members of the Electrical Energy Regulatory Commission (CREE) for acts, decisions and agreements adopted in compliance with the Law, provided that the corresponding administrative contentious action has previously been brought and has been resolved favorably to the claims of the plaintiff by final judicial sentence. This requirement is essential for the course of legal actions against members of the Electrical Energy Regulatory Commission (CREE), its officials and employees in their personal capacity. The Electrical Energy Regulatory Commission (CREE) shall cover the costs of defending the commissioners in any proceeding initiated against them for decisions made in the exercise of their regulatory functions. The provision set forth in this paragraph shall also apply to commissioners who are no longer in the exercise of their functions. Additionally, the Electrical Energy Regulatory Commission (CREE) may contract liability insurance for the commissioners. B. COMPOSITION OF THE NOMINATING BOARD: The Nominating Board is composed of: I. A person designated by the Rectors of the national, public and private universities, who shall preside over it. II. A person designated by the Federation of Private Development Organizations of Honduras (FOPRIDEH). III. A person designated by the Honduran Council of Private Enterprise (COHEP); IV. A person designated by the College of Mechanical, Electrical and Chemical Engineers of Honduras (CIMEQH); and V. A person designated by the Federation of Colleges of University Professionals of Honduras (FECOPFRH). C. REQUIREMENTS TO BE A COMMISSIONER OF CREE: The commissioners of the Electrical Energy Regulatory Commission (CREE) must meet the following requirements: I. Be of Honduran nationality; II. Be a university professional, specialist in the matter, of recognized prestige and honorability; III. Have no relationship with companies associated with the electrical subsector; IV. Have no outstanding accounts with the State; V. Be in full enjoyment of civil and political rights; and VI. Not be a member of boards of directors, employee or official of companies supervised by CREE or companies related to those. D. PROCEDURE FOR SELECTION OF COMMISSIONERS: The Nominating Board shall select six candidates that meet the requirements established in the Law and present them to the President of the Republic so that he may choose from among them the three commissioners. The Regulations shall develop the procedure for the nomination of candidates and matters relating to the operation of the Nominating Board. In case of justified resignation, definitive absence or removal for negligence or proven non-compliance of any of the commissioners, the President of the Republic shall appoint the substitute from among the list of six candidates originally proposed. If no candidates are available, the President of the Republic shall request the Nominating Board to propose a list of three candidates. When filling a vacancy to replace a commissioner who did not complete his term, it is understood that the substitute shall be appointed only to complete the term of the original mandate. E. NOMINATION OF THE PRESIDENT AND SECRETARY OF THE ELECTRICAL ENERGY REGULATORY COMMISSION (CREE): The commissioners shall elect from among themselves a President and a Secretary. These positions shall be rotative each year as defined in the Regulations. F. FUNCTIONS OF THE ELECTRICAL ENERGY REGULATORY COMMISSION (CREE): The Electrical Energy Regulatory Commission (CREE) has the following functions: I. Apply and supervise compliance with the legal and regulatory standards that govern the activity of the electrical subsector, for which purpose it may conduct such inspections as it deems necessary in order to confirm the veracity of the information that the companies of the sector or consumers have provided to it; II. Apply the sanctions corresponding to the companies and users regulated by the Law in case of infractions; III. Issue the regulations and rules necessary for the better application of this Law and the proper functioning of the electrical subsector; IV. Grant operating licenses for transmission and distribution; V. Define the methodology for calculating transmission and distribution tariffs, oversee its application, approve, disseminate and implement the resulting tariffs, as the case may be; VI. Establish the update rate, the unit cost of undelivered energy, and the hourly blocks to be used in the calculation of tariffs; VII. Approve bidding bases, oversee the processes for purchase of power and energy by distributing companies and approve the contracts for purchase of power and energy resulting from those processes; VIII. Approve the requests of users for their classification as a qualified consumer; IX. Approve the distributors the volume of energy to be billed monthly for public lighting; X. Prevent anti-competitive, monopolistic or discriminatory conduct among the participants of each stage of the electrical service, including producers and users; XI. Review and approve, as appropriate, the transmission network expansion plans prepared by the System Operator, or by the corresponding operating company in the case of isolated systems that have transmission; XII. Ensure the publication of the decisions it adopts, including the background on the basis of which such decisions were made; XIII. Submit annually to the Executive Branch and the National Congress a report on the activities of the year and suggestions on the measures to be adopted for the benefit of the public interest, including the protection of users and the development of the electrical industry; XIV. Prepare the draft internal Regulations within sixty days after being constituted, as well as any amendments that may be required and subject to the approval of the President of the Republic through the Sectoral Ministry of Economic Conduct and Regulation; XV. Contract the professional advice, consultancies and expert assessments it requires for its functions; XVI. Maintain the Public Registry of Electrical Sector Companies; and XVII. Such other functions as correspond to it by virtue of this Law and by virtue of the Central American Electrical Market Framework Treaty and its Protocols and the MER Regulations. G. FINANCING OF THE ELECTRICAL ENERGY REGULATORY COMMISSION (CREE): The Electrical Energy Regulatory Commission (CREE) has its own budget and funds that it allocates to the financing of its purposes. CREE shall enjoy financial independence and its income shall come from applying a rate to the monthly sales of electricity by each distributing company. All distributing companies, or the National Electrical Energy Company (ENEE) insofar as these companies are created, shall make available to the Electrical Energy Regulatory Commission (CREE) in the first five days of each month, twenty-five hundredths of a percent (0.25%) of the total amount they have billed in the month prior to the previous month. This charge may be passed on to the final electrical energy distribution tariffs, with the prior authorization of the Electrical Energy Regulatory Commission (CREE). H. PERSONNEL OF THE ELECTRICAL ENERGY REGULATORY COMMISSION (CREE): The personnel who work in the Electrical Energy Regulatory Commission (CREE) with the exception of those with directive characteristics, shall be selected through public competition with the assistance of the Advisory Center for the Development of Human Resources (CADERH) or another similar specialized entity, based on the merit and capacity of the candidates. I. RESOLUTIONS OF THE ELECTRICAL ENERGY REGULATORY COMMISSION (CREE) AND REMEDIES: The resolutions of the Electrical Energy Regulatory Commission (CREE) are adopted by majority of its members, who shall perform their functions with absolute independence of judgment and under their exclusive responsibility. Against the resolutions adopted by the Electrical Energy Regulatory Commission (CREE) in the exercise of its regulatory functions, the remedy of reconsideration shall be available before the Electrical Energy Regulatory Commission (CREE) itself, which shall end the administrative remedy. The foregoing is without prejudice to the parties submitting to a conciliation or arbitration procedure as provided in Article 27 of this Law.

AUTHORIZATION OF ELECTRICAL SUBSECTOR COMPANIES: The activities regulated by this Law may be carried out by private, public or mixed capital legal entities that meet the requirements established in this Law, which must be constituted as commercial companies. They are obliged to comply in a timely manner with the service quality standards established and with all requirements derived from other applicable legal and regulatory standards that apply to them. The legal authorization of electrical sector companies may impose conditions on the exit of companies from the sector or the withdrawal of service of their facilities or the reduction of their capacity.

GENERATION AND COMMERCIALIZATION COMPANIES: Generating and commercializing companies must register in the Public Registry of Electrical Sector Companies maintained by the Electrical Energy Regulatory Commission (CREE), providing all the information requested in the registration form. Whenever there are changes in the characteristics of the facilities or their operation, the companies must notify the Electrical Energy Regulatory Commission (CREE) for the purpose of updating their registration in the aforementioned registry. Generating companies that use hydraulic resources must obtain the respective concession for water use rights in accordance with what is established in the Law of Incentives for the Generation of Renewable Energy, Decree No. 70-2007 and its amendments and the General Water Law, said concession shall contain the term, conditions, scope and the corresponding area where the renewable natural resource and the infrastructure of the process are located. For all generating companies that use renewable energy sources, the duration of the respective concession, the license for use of non-hydric renewable resources and the environmental license shall be equal to the useful life of the project, which shall be defined by the Electrical Energy Regulatory Commission (CREE) for each technology through regulatory provisions.

TRANSMISSION AND DISTRIBUTION COMPANIES: Transmission companies and distribution companies, in addition to registering in the Public Registry of Electrical Subsector Companies, must request and obtain from the Electrical Energy Regulatory Commission (CREE) an operating license for the public electricity service.

OPERATING LICENSES AND APPLICABLE REGIME. A. OPERATING LICENSES: Operating licenses for transmission and distribution shall be granted by the Electrical Energy Regulatory Commission (CREE), after verification of the technical and financial capacity of the applicant, and must establish, among others, the following conditions: I. The conditions applicable to the provision of the service, with an indication of the Regulations that shall govern; II. Its duration, which shall be a minimum of thirty (30) years, and the procedure for its renewal or extension; III. The grounds for declaring the expiration of the license or early termination of it; IV. The obligations and responsibilities of the parties in the situations provided in the preceding article; V. The indemnifications and sanctions for non-compliance; and VI. The manner in which the companies for expansion or coverage that correspond shall be calculated and paid, the value of those of their facilities that are not fully amortized at the termination of the operating license, whether it is an early termination or a termination by expiration of the term in the event of no renewal or extension. At the expiration of the term of an operating license, the company holding it may request its renewal or extension, and must do so with at least one year's notice before the expiration date. The request for extension or renewal shall be presented to the Electrical Energy Regulatory Commission (CREE), which shall request in writing the information it deems relevant. B. EARLY TERMINATION OF LICENSES: The following are grounds that authorize the Electrical Energy Regulatory Commission (CREE) to terminate an operating license early: I. The failure of the company holding it to carry out the works and installations required to provide the service within the time periods specified in the license, or the expansions to cover the growth of demand under the conditions provided therein; II. The serious or repeated non-compliance with what is established in the subsector regulations; and III. Inadequate maintenance and preservation of the facilities, provided that the company does not remedy the anomalies within the period set for it by the Electrical Energy Regulatory Commission (CREE), which may not exceed six months; The administrative act declaring the early termination of the operating license must be based on a report prepared for that purpose by the Electrical Energy Regulatory Commission (CREE) and notified personally to the affected company. Against such resolution the remedy of reconsideration shall be available before the Electrical Energy Regulatory Commission (CREE) itself, which shall end the administrative remedy. The foregoing is without prejudice to the parties submitting to a conciliation or arbitration procedure in the terms of the provision of Article 27 of this Law. C. BIDDING FOR LICENSES: When it is foreseen that an operating license for transmission or distribution will terminate, for any cause, without renewal or extension, the State must call with sufficient advance notice for a public international bid to award the license to a new company. The Electrical Energy Regulatory Commission (CREE) must oversee the process. In this case, the State shall pay the outgoing licensee the still unamortized value of its investments, as provided for in the operating license. The bidding documents shall include the operating license, the remuneration regime that shall enter into effect when the new licensee takes over the service, as well as the objective criteria for awarding the new license. D. STUDY PERMITS: The Electrical Energy Regulatory Commission (CREE) shall grant study permits for the construction of generation facilities that are to use renewable natural resources, for which purpose it may establish economic conditions for their granting. The permits shall have a maximum duration of two (2) years, renewable for the same term only once. The permits shall be revoked ex officio if within a period of six months the studies have not been initiated and the reports required by CREE have not been presented. The study permit shall grant to its holder, for the term of its duration, the exclusivity to conduct, within the geographical area delimited in it, studies for the use of the identified resource for purposes of electrical energy production. It shall also give the right to obtain the imposition of the easements that may be necessary for the conduct of the studies. The investigation and study, as well as the eventual subsequent exploitation of wind or solar radiation as sources of energy may be conducted freely throughout the national territory.

SUPERVISION BY THE STATE AND INTERVENTION OF COMPANIES: The supervision of the companies and users of the electrical subsector and the intervention of those shall be subject to the following: A. SUPERVISION: The continuity of the public electrical energy service is essential, for which reason the State shall oversee the operation of the subsector through the Electrical Energy Regulatory Commission (CREE), and the companies or users regulated by this Law are obligated to provide the latter with the information it requires for such purpose. The Electrical Energy Regulatory Commission (CREE), for its part, must specify in detail the information it requests and explain what use it will make of it. Likewise, the Electrical Energy Regulatory Commission (CREE) is obligated to maintain confidentiality with respect to all information that has a confidential character, unless the company and user shall point out the information that has such character and indicate the legal basis that gives it such quality. The Electrical Energy Regulatory Commission (CREE) may conduct such inspections as it deems necessary in order to confirm the veracity of the information that the companies have provided to it, in accordance with the procedure established in the Regulations. B. INTERVENTION OF COMPANIES: The Secretariat, with the prior opinion of the Electrical Energy Regulatory Commission (CREE), may agree to the intervention of any generation, transmission or distribution company whose situation or performance threatens to affect the continuity or security of the service. For these purposes the following shall be grounds for intervention of a company: I. The suspension of payments or bankruptcy of the company; II. Irregular management of the activity, when it is attributable and may give rise to its paralysis, with interruption of supply to users; III. Serious and repeated failure to properly maintain the facilities, which endangers their safety. In the penalty procedure that gives rise to intervention, the non-compliance that motivates it must be substantiated. Intervention shall be a temporary measure and shall cease when the intervened company is inescapably in a position to provide the service. Intervention may not exceed a period of two (2) years.

NATIONAL ELECTRICAL SYSTEM OPERATOR, COMPOSITION AND FUNCTIONS: The System Operator shall be subject to the provisions of this article. A. OPERATION OF THE NATIONAL ELECTRICAL SYSTEM: The operation of the national electrical system shall be in charge of an entity designated as the "System Operator". The System Operator shall be an entity of public, private or mixed capital, non-profit, with technical capacity for the performance of the functions that this Law and the Regulations assign to it, independent from generation, transmission, commercialization, distribution companies and qualified consumers of the electrical system, including personnel experienced in the operation of electrical systems and electrical markets. No shareholder in the capital stock of the System Operator that may hold any company of electrical systems integrated in the Regional Electrical Market may exceed the maximum limit of five percent (5%) of the shares with voting rights of such capital stock and no economic group may have more than ten percent (10%) of the capital, nor may they have control of it nor the power to appoint the governing bodies directly or through corporate structures. The Electrical Energy Regulatory Commission (CREE) determines the model of ownership and additional limitations on control and capital of the entity to ensure the transparency and independence of the System Operator. In operational matters, the System Operator shall have full authority over the holders of facilities that form part of the national interconnected system, who must operate their facilities following the orders issued by the System Operator. B. MARKET AGENTS COMMITTEE: The organization of the System Operator shall include a Market Agents Committee to provide it with periodic evaluations of its performance and proposals for measures capable of improving the functioning of the electrical system and the market. The Committee is formed by representatives of generating, distributing, commercializing companies and qualified consumers. The Regulations shall establish the composition and functions of the Committee. The System Operator shall not pay salaries, fees, per diem, or any type of expenses to members of the Market Agents Committee, but may make office space and secretarial services available to them. C. REMUNERATION OF THE SYSTEM OPERATOR: The System Operator is a non-profit entity, so it shall calculate and submit for the approval of the Electrical Energy Regulatory Commission (CREE) the remuneration it requires for its services, which shall be based on the approval of investment, operation, maintenance and administration. D. OBLIGATION TO COMPLY WITH SYSTEM OPERATOR ORDERS: Non-compliance with the orders issued by the System Operator constitutes serious non-compliance that is sanctioned in accordance with the provisions of this Law and its Regulations. E. REQUIREMENT AND SUPPLY OF INFORMATION: The companies of the electrical subsector must provide, within the time periods and through the means defined in the Regulations, the information that the System Operator requests from them for the exercise of its functions. All companies in the electrical subsector must communicate to the System Operator their projections for growth in demand and their expansion plans so that it can be integrated into the planning of the expansion of the National Interconnected System referred to in Article 13 of the Law, and in its forecasts of the dates when additions of firm generation capacity will be necessary. Companies that operate isolated electrical systems must do so by applying sound engineering practices and all regulations issued by the Electrical Energy Regulatory Commission (CREE) for that purpose. F. FUNCTIONS OF THE SYSTEM OPERATOR: The System Operator shall have as its main functions to guarantee the continuity and security of electrical supply and the correct coordination of the generation and transmission system at minimum cost for all market operations. Additionally, it shall exercise the supervision and control of the operations of the National Interconnected System and the rest of its functions in coordination with the companies and operators of the electrical system, under the principles of transparency, objectivity, independence and economic efficiency. The System Operator shall manage an "opportunity" electrical market. The opportunity market price shall for each operating interval be equal to the corresponding marginal cost determined based on the minimum cost dispatch carried out by the System Operator. All holders of generating units, or buyers who have acquired the right to the production thereof, shall be obligated to place at the disposal of the System Operator all available capacity of their plants, through the submission of the variable generation costs, which shall be duly verified by the System Operator and whose methodology of presentation shall be developed in the Regulations. If deemed necessary, the Electrical Energy Regulatory Commission (CREE) may audit the variable costs declared by the generators. The System Operator shall dispatch the generating units based on the order of their declared costs, with the objective of satisfying total demand at minimum cost, within the limits imposed by the restrictions on network capacity and operational safety. Energy buyers in the opportunity market shall have before the System Operator sufficient guarantees to support their operations. If it deems it appropriate, after hearing the market agents and having completed the studies and investigations supporting its decision, the Electrical Energy Regulatory Commission (CREE) shall be authorized to opt for the implementation of a different model for operating the electrical system. The new proposed model must have demonstrated successful operations in other countries for a reasonably long period, including some in the Americas, and must also produce more efficient and more economical operation than that which would result from operating with the model previously described in this Article. G. ADDITIONAL FUNCTIONS OF THE SYSTEM OPERATOR: The System Operator shall additionally have the following functions: I. Carry out the national dispatch daily, taking advantage of the possibility of sales and purchases in the MER, in such a way as to guarantee the satisfaction of demand at minimum cost for all market operations; II. Calculate the short-term marginal costs of energy in accordance with a dispatch based on margin cost and what the applicable Regulations establish; III. Coordinate, modify and authorize, as appropriate, the maintenance plans of the generation units and transmission facilities; IV. Determine the capacity of the elements of the national transmission network and its connections with the regional electrical network; V. Determine the firm power and firm energy of each of the generating plants in national territory, applying the procedures established in the Regulations; VI. Issue instructions for the operation of the generation units, as well as those for operation of the transmission network, including international interconnections; VII. Order the operation of the generation facilities whose unavailability has not been previously authorized by it, when necessary to ensure the continuity of electrical supply; VIII. Direct the procedures for the restoration of electrical supply in emergency situations; IX. Grant the right of access to the transmission network with objective, transparent and non-discriminatory criteria, applying the procedure approved by the Electrical Energy Regulatory Commission (CREE); X. Carry out the financial settlement of operations in the electricity market; XI. Calculate with the periodicity established in the Regulations, and propose to the Electrical Energy Regulatory Commission (CREE) for its approval, the generation costs that shall enter into the calculation of tariffs to end users; XII. Prepare monthly reports for the Electrical Energy Regulatory Commission (CREE) and for the companies of the electrical subsector; and XIII. Such other functions as correspond to it by virtue of this Law and the Central American Electrical Market Framework Treaty, its Protocols and the MER Regulations. H. PROCEDURE FOR CHALLENGING SYSTEM OPERATOR DECISIONS: Any company that considers itself affected by the decisions of the System Operator may challenge them before the management of the same. The resolution of the management of the System Operator may be subject to appeal before the Electrical Energy Regulatory Commission (CREE). If the company is not satisfied, the parties may resort to a conciliation or arbitration procedure as provided in Article 27 of this Law.

QUALIFIED CONSUMERS: Qualified consumers acting as agents of the electrical market must have contracted sufficient firm capacity to cover the percentage of their maximum power demand that shall be established by regulation. The Regulations establish the conditions for a qualified consumer that has exercised the option to become an agent of the electrical market to be able to return to the regime of being a client of a distribution company subject to a regulated tariff. The Regulations on operation of the national electrical system and electrical market specify the obligations and rights of the agents of the electrical market.

GENERATION OF ELECTRICAL ENERGY: The generation of electrical energy by any means is governed by this Law and its Regulations. Generating companies may sell their products to the following entities: I. Distribution companies; II. Qualified consumers; III. Other generating companies; IV. Commercializers; and V. To the national or regional opportunity electrical market. In the case of generators of energy with renewable sources, the provisions contained in the Law for Promotion of Generation of Electrical Energy with Renewable Resources and its amendments, which do not contravene what is provided in this Law, shall remain in force.

TRANSMISSION COMPANIES: Transmission companies may not have participation, either directly or indirectly, in companies that engage in the activities of generation, distribution or commercialization of electricity. Transmission companies must provide non-discriminatory treatment to users of the transmission network.

TRANSMISSION NETWORK, EXPANSION PLAN AND WORKS OF PARTICULAR INTEREST: The transmission network shall be subject to the provisions of this Article. A. TRANSMISSION OF ELECTRICAL ENERGY: The operation of every facility that forms part of the transmission network in national territory shall be subject to the direction and control of the System Operator. B. TRANSMISSION NETWORK EXPANSION PLAN: The System Operator shall prepare every two years a transmission network expansion plan for a study period of ten years. For this purpose, it shall prepare an indicative expansion plan for generation and international interconnections, hearing from the generators and those interested in developing new projects. Once the study is completed, the System Operator must communicate it to the agents so that they may issue their comments and suggestions. Within the first month following receipt of the agents' comments, the System Operator shall finalize the transmission network expansion plan identifying the works of general interest that it proposes to carry out and shall submit it for the approval of the Electrical Energy Regulatory Commission (CREE), which within a maximum of five business days, counted from when it received the complete required information. The decision of the Electrical Energy Regulatory Commission (CREE) is based exclusively on the offered cost and its impact on the tariff. The transmitter shall carry out respective competitive bids for the construction of the works within the time periods set forth in the plan. The bidding bases must be approved by the Electrical Energy Regulatory Commission (CREE), which must also give its non-objection to the award of the contract or contracts, and must pronounce itself within a maximum of five business days, counted from when it received the complete required information. The decision of the Electrical Energy Regulatory Commission (CREE) is based exclusively on the offered cost and its impact on the tariff. C. TRANSMISSION WORKS OF PARTICULAR INTEREST: Works of transmission of particular interest may be carried out by those interested, following studies by the System Operator to corroborate that they will not negatively affect operation, and with the prior approval of the Electrical Energy Regulatory Commission (CREE). If these works contribute to increasing the network capacity for users in general, a part of their costs may be recovered through tariffs, with the prior approval of the Electrical Energy Regulatory Commission (CREE).

DISTRIBUTION COMPANIES: Distribution companies may not own generating units, except in exceptional cases that must be certified by the Electrical Energy Regulatory Commission (CREE), provided that the total installed capacity of a distributor's own generation does not exceed five percent of its maximum power demand. Systems served by isolated systems are excepted from this rule, which may have their own generating plants. Distribution companies that have their own generation, if part of the National Interconnected System, shall be obligated to establish one or more separate companies to conduct the generation activity. If they are distributors serving isolated systems, they must keep separate accounts for generation and distribution activities. Distribution companies are obligated to: I. Satisfy all requests for new service with timely delivery within its area of operation; II. Satisfy requests for increases in service capacity to current users; and III. Provide service to those requestors who, being located outside the area of operation, reach the limit thereof through their own or third-party lines. The investments that distribution companies must make to comply with this obligation shall form part of the investments that shall be recognized in the tariffs. Service applicants must comply with the requirements established in the respective Regulations. The Regulations shall define the limits of the distribution company's area of operation and the procedures for its expansion. Within its area of operation, distributors shall enjoy exclusivity.

OPERATION OF DISTRIBUTION COMPANIES: The operation of distributors shall be subject to the following: A. FIRM CAPACITY AND ENERGY PURCHASE CONTRACTS: Both distribution companies and commercializing companies must have covered with purchase contracts for firm capacity and energy with generators their maximum power demand plus the reserve margin to be established in the Regulations until the end of the following calendar year at a minimum. Distributors must make joint purchases of capacity and energy through competitive international public bids. The duration of the contracts shall be no less than ten (10) years. The Regulations shall establish the respective procedures for purchases of capacity and energy and shall contain the standard bidding documents, which shall include the corresponding contract model or models. B. BIDDING FOR CONTRACTS: The Electrical Energy Regulatory Commission (CREE) shall oversee the bidding and award process for contracts. The Secretariat may establish on the occasion of each bidding process, based on the indicative generation expansion plan, the minimum percentage of its energy requirements that distributors must acquire from generators using renewable energy sources. For this purpose, the bidding process for the acquisition of electricity shall be conducted separately for each type of source, in order to guarantee transparency and adequate competition in the submission of offers. C. DISTRIBUTION FACILITIES: Distribution facilities shall be subject to construction and operation standards issued by the Electrical Energy Regulatory Commission (CREE) that shall define their technical and safety characteristics. Respecting such standards, distribution companies may construct their facilities using streets, sidewalks and other public spaces. Municipalities shall not charge fees or licenses for the use of streets, sidewalks and similar public spaces for the construction of the facilities referred to in the immediately preceding paragraph, and distribution companies shall be subject to the same municipal tax regime that applies to companies in general. Municipalities may request distribution companies to modify, at no cost to the municipalities, the layout of their works, provided that this does not increase the cost of the work by more than ten percent. Otherwise, municipalities shall pay the difference between the cost of the two alternatives under the terms of the agreements they enter into for that purpose. It shall be the responsibility of municipalities to pay the difference between the cost of an overhead work and an underground work, when they opt for the construction of underground works. Except as otherwise agreed in an agreement in which the distribution company is a party, the cost of modifications to distribution facilities resulting from infrastructure works whose construction has been ordered by municipalities or other State bodies, or by private entities, shall be borne by those requesting such modifications. Any difference between municipalities and distribution companies that cannot be resolved through direct conversations shall be resolved in a conciliation or arbitration procedure as provided in Article 27 of this Law. D. BIDIRECTIONAL METERING: Distribution companies shall be obligated to purchase the excess energy from renewable energy sources generated by residential and commercial users and which they inject back into the network, crediting the corresponding values on the monthly invoice. Each distributor must propose to the Electrical Energy Regulatory Commission (CREE) for its approval the tariff to be applied for such purchases. For that purpose, distribution companies shall install bidirectional meters to those consumers. The Regulations shall regulate matters relating to metering and monthly settlement. E. CONTRIBUTIONS FOR NEW WORKS: In case of connections that require line extensions or capacity increases, or in other cases of construction of new works, including rural electrification, the distribution company may demand from the beneficiaries a contribution provided that it is reimbursable under the modalities determined by the Regulations. In cases of social interest, the contribution that corresponds to the interested parties may be covered totally or partially by the Fund referred to in Article 24 of this Law. F. NEW ELECTRIFICATION PROJECTS: When new subdivisions are constructed or existing groups of dwellings are electrified within the distribution company's area of operation, the latter may request those interested to construct all or part of the distribution network, and may require the primary circuits, transformers, secondary network and public lighting. In that case, the project must be previously approved by the distribution company, establishing at that time the value of the facilities for the purposes of their reimbursement to those interested. In accordance with what is established in subsection E of this Article 15. The fund referred to in Article 24 of the Law may finance in whole or in part the investment in projects that are of social interest. Distribution companies must inform the Electrical Energy Regulatory Commission (CREE) of the works that are constructed under this mechanism. The distribution company shall supervise the construction and upon completion of the works, shall receive the investments, which shall become its property. Investments made in distribution facilities that have not been paid by the distributor may not be passed on to tariffs. Any discrepancy between those interested and the distribution company regarding the value of the works shall be resolved by the Electrical Energy Regulatory Commission (CREE). G. SUPPLY CONTRACTS: Distribution companies must supply the service connection and meter required to provide service to each of its users and enter into a supply contract with each of them that shall establish the obligations and rights of the parties. The obligation to pay corresponds to the person signing the supply contract; the distribution company may not demand payment of outstanding balances from the owner of the property, except that such owner is the signer of the supply contract. The invoices for electrical service issued by distribution companies must clearly detail the billed components. In particular, they must show the breakdown of the total charge for service into generation, transmission and system operation costs of distribution. Likewise, the invoices must include all taxes that the company must pay directly or that are transferred to it by generation, transmission or system operation companies, which the company has the right to pass directly on to users, except for the tax on profits. The metering equipment shall be installed in places that are accessible to the distribution company during the 24 hours of the day, without the need to enter the property. H. PRIOR GUARANTEE FOR SUPPLY: The distribution company has the right to obtain from the user, prior to the beginning of supply, a deposit or other guarantee, to ensure payment of the electrical service. The deposit shall correspond to one month of consumption based on the power contracted by the user and on the typical consumption pattern of the category to which it belongs. In the event that it is not possible to measure all energy consumption for public lighting, the unmeasured part shall be estimated by the distribution companies, which must request the Electrical Energy Regulatory Commission (CREE) to authorize the feasibility of the following estimates that the public lighting service providers may bill annually. The distribution company shall bill the energy used for public lighting at a tariff approved by the Electrical Energy Regulatory Commission (CREE) for that purpose. The distribution company may charge an approved rate by the Electrical Energy Regulatory Commission (CREE) for the billing and collection service, and must transfer the surplus to the companies responsible for providing public lighting. The Regulations may introduce changes to this system. I. PAYMENT OF SERVICE BY STATE INSTITUTIONS: The General Budget of Income and Expenditures of the Republic and the budgets of autonomous or decentralized institutions must include the necessary appropriations to pay for the electrical service provided to State institutions, including the legislative and judicial branches, municipalities and any other autonomous or deconcentrated institution. Except in the case of municipalities, the Secretariat of Finance shall be responsible for making payments for all State institutions, including municipalities, charged against their budgets or authorized transfers. If the corresponding appropriations are exhausted before the end of the year, the Secretariat of Finance must make transfers from other appropriations in order to honor payment commitments to distribution companies. J. SUSPENSION OF ELECTRICAL SERVICE: Distribution companies may suspend service immediately, without the need for notice, to any public or private user when: I. The user has pending payment of one or more monthly invoices; II. The user consumes electrical energy without having a supply contract or when violating the conditions stipulated for supply in the respective contract; III. There is a danger to the safety of people or property due to defects in the company's or user's facilities; and IV. Acts of unlawful consumption or use of electrical energy occur. Everything else relating to metering, billing, deposit of guarantee that requestors of new services must make, collection, disconnections and reconnections of service, treatment of measurement and billing errors, theft of energy and other similar matters shall be addressed in the Regulations. K. INDEMNIFICATION FOR DEFICIENT SERVICE QUALITY: Except in cases of force majeure, when interruptions or other deviations from service quality with respect to applicable standards occur, the distribution company must indemnify the affected users. The Electrical Energy Regulatory Commission (CREE) shall resolve in case of disagreements regarding who is responsible for the failure, whether generation, transmission or distribution companies. The Regulations shall establish the method for determining the amount of indemnification in each case, which must be based on the unit cost of undelivered energy set by the Electrical Energy Regulatory Commission (CREE). However, in cases where the cause of the failure is attributable to one or more of the affected users, the latter shall have no right to the indicated compensation. In the case of failures whose cause is attributable to generation or transmission companies, such companies must reimburse the distribution company for the amounts it must pay as compensation to the affected users. Distribution and transmission companies shall have the right to include in their tariffs a reasonable component of the failure that will allow them to recover the expected amount of compensation they will have to pay to users if the quality of the service they provide corresponds exactly to the applicable quality standard.

PUBLIC LIGHTING SERVICE: The public lighting service shall be supplied by one or more companies established for that purpose. Upon request of the aforementioned companies, the Electrical Energy Regulatory Commission (CREE) shall approve the rate to be charged for this service. Distributing companies are authorized to charge the public lighting service directly to users in the corresponding area in proportion to their electrical consumption, up to a consumption ceiling that shall be established by regulation. In the event that it is not possible to measure all energy consumption for public lighting, the unmeasured portion shall be estimated by the distributing companies, who must request the Electrical Energy Regulatory Commission (CREE) to authorize the feasibility of the estimates that public lighting supply companies may bill annually. The distributing company shall bill the distributed energy at a rate approved by the Electrical Energy Regulatory Commission (CREE) for that purpose. The distributing company may charge itself an approved rate by the Electrical Energy Regulatory Commission (CREE) for the billing and collection service, and must transfer the surplus to the companies in charge of providing the lighting. The Regulation may introduce changes to this system. TITLE VII USE OF TRANSMISSION AND DISTRIBUTION SYSTEMS CHAPTER I FREE ACCESS TO NETWORKS AND PAID USE THEREOF

FREE ACCESS TO NETWORKS AND PRICES FOR USE OF NETWORKS: Access and use of networks shall be subject to the provisions of this Article. A. FREE ACCESS TO NETWORKS: Transmitters and distributors shall be obligated to permit connection to their networks of any company of the electrical subsector or consumer that requests it. The System Operator must previously verify that the corresponding network has the required capacity to conduct the same energy flows, or that reinforcements are proposed that make it possible. B. PRICES FOR USE OF NETWORKS: The pricing regime for the use of transmission and distribution networks shall be established in the Regulation. The pricing regime for transmission network use must simulate that established in the Regulation of the Regional Electrical Market for the Regional Transmission Network. The prices for transmission network use and the prices for distribution network use by third parties must reflect the same investment, operation, and maintenance costs respectively of transmission and distribution as are determined for tariff calculation based on the provisions of the chapter on the tariff regime of this Law. TITLE VIII TARIFF, FISCAL, AND TAX REGIME CHAPTER I GENERAL PROVISIONS

TARIFFS: Tariffs shall reflect the costs of generation, transmission, distribution, and administration of providing the electrical service approved by the Electrical Energy Regulatory Commission (CREE). Tariffs shall be structured in a manner that promotes efficient use of electrical energy. Under no circumstances shall operational or administrative inefficiencies of public, private, or mixed companies of the electrical subsector, the latter being of generation, transmission, or distribution, be passed on to the final consumer through tariffs. Based on the principles established in this chapter, the Regulation shall develop the detailed method for tariff calculations and shall establish the terms and procedures for studies, as well as the values of the parameters to be used in the calculations.

UPDATE RATE: The update rate to be used for tariff calculation shall be the real annual capital cost rate, determined by means of studies that the Electrical Energy Regulatory Commission (CREE) must contract with specialized consulting firms on the subject. The update rate must reflect the capital cost rate for activities of similar risk in the country. If the update rate results lower than seven percent (7%) real annual or higher than thirteen percent (13%) real annual, the lower limit of seven percent (7%) shall be applied in the first case and the upper limit of thirteen percent (13%) in the second case. In this case, different capital cost rates may not be used for transmission and distribution activities.

REQUIREMENT AND DELIVERY OF INFORMATION TO CREE: Companies of the electrical subsector shall be obligated to deliver to the Electrical Energy Regulatory Commission (CREE) all information, including mathematical and financial models, that they use in the preparation of tariff studies, transmitting said information through the means and within the timeframes that the Electrical Energy Regulatory Commission (CREE) specifically designates. CHAPTER II COSTS OF GENERATION, TRANSMISSION, OPERATION, AND DISTRIBUTION

COST CALCULATION: The calculation of the costs of generation, transmission, operation, and distribution shall be subject to the following: A. BASE GENERATION COST: The System Operator shall calculate monthly, applying the methodology established in the Regulation, the base generation costs that shall enter into the calculation of tariffs to final users of the distributors that form part of the National Interconnected System and shall propose them to the Electrical Energy Regulatory Commission (CREE) for approval. The Electrical Energy Regulatory Commission (CREE) shall examine the proposal of the System Operator and shall request the changes it deems necessary, where applicable. Once the review process is concluded to the satisfaction of the Electrical Energy Regulatory Commission (CREE), it shall approve the base generation costs for each distributor. In order to reflect the actual costs of generation over time, the Electrical Energy Regulatory Commission (CREE) shall adjust the base generation costs quarterly by applying the method indicated by the Regulation. For distribution systems that do not form part of the National Interconnected System, the distribution companies themselves shall be the ones that must calculate annually the base generation costs and provide them to the Electrical Energy Regulatory Commission (CREE), in accordance with what the Regulation provides. The indicated generation costs shall be based on the following data: I. Costs of power and energy purchase contracts entered into by the distributor; II. Projected costs of energy in the opportunity electrical market, which must include power and energy components differentiated by time block; and, III. Quantities of power and energy from each source. For those power and energy purchase contracts that the distributor has entered into through public bidding, the costs shall be determined based on the contract prices; for contracts that have resulted from other procurement procedures, CREE shall determine standard costs based on the technology and age of the generating plant or plants in question. B. TRANSMISSION COSTS AND SYSTEM OPERATION COSTS: The transmission company calculates every three years the transmission and system operation costs that shall enter into the calculation of tariffs to final users of the distribution companies that form part of the National Interconnected System and shall propose them to the Electrical Energy Regulatory Commission (CREE) for approval. The Electrical Energy Regulatory Commission (CREE) shall annually update the calculation of transmission costs in accordance with what the Regulation provides in this regard. I. Transmission costs shall include the following: a) annuities of investments corresponding to an economically adapted network, calculated based on the replacement value of facilities, their useful life, and the established update rate; and, b) operation and maintenance costs corresponding to efficient transmission management. II. Transmission operation costs shall include, among others:

• a)

  The cost of power and energy losses with respect to the Regulation, based on percentages of standard losses approved by the Electrical Energy Regulatory Commission (CREE);

• b)

  The expected value of indemnifications referred to in subsection K of Article 15 above, which the transmitter shall pay if the quality of service exactly corresponds to the standard established by regulation. The transmission company and distributors shall have the right to pass on to final users all types of taxes they must pay, except the profit tax. The Regulation shall establish the mechanism that shall be applied for this purpose. C. DISTRIBUTION COSTS: Distribution companies shall have a study conducted every five years, by a consulting firm pre-qualified by CREE, to determine distribution costs and tariffs to final users, and shall propose those costs and tariffs to the Electrical Energy Regulatory Commission (CREE) for approval. Distribution costs shall be those reflecting the economic value added to electricity by distribution companies, which is designated as Distribution Added Value (VAD). D. CALCULATION OF DISTRIBUTION ADDED VALUE: The Distribution Added Value (VAD) of each distributor shall be calculated assuming an efficient model company operating in the same environment as the real company, and shall include the following components: I. Costs associated with providing service to the subscriber, independent of their power and energy demand; II. Annuities of distribution investments, calculated based on the Replacement Value of facilities, their useful life, and the established update rate; and, III. Operation and maintenance costs of distribution, which shall include, among others: (i) 0.04 drops in the recognized power and energy losses in networks, and (ii) the expected value of indemnifications referred to in subsection K of Article 15 above, which the distributor shall pay if the quality of service it provides exactly corresponds to the standard. The study shall calculate the components of Distribution Added Value (VAD) separately for typical distribution zones, differentiated by their energy demand density, user density, and other similar parameters that the Regulation shall indicate. The Electrical Energy Regulatory Commission (CREE) shall determine, for each distribution company, weighting factors based on the characteristics of its total operation zone, which shall be applied to finally calculate the Distribution Added Value (VAD) of each distribution company. CHAPTER III CALCULATION AND ADJUSTMENT OF TARIFFS

CALCULATION AND PERIODIC ADJUSTMENT OF TARIFFS: The calculation and periodic adjustment of tariffs shall be carried out as follows: A. CALCULATION AND PERIODIC ADJUSTMENT OF TARIFFS: Each distribution company must contract with a consulting firm pre-qualified by the Electrical Energy Regulatory Commission (CREE) the necessary study to determine every five years its Distribution Added Value (VAD) and thus its tariffs and adjustment mechanisms; and shall propose it to the Electrical Energy Regulatory Commission (CREE) for approval. The Electrical Energy Regulatory Commission (CREE) shall prepare the terms of reference for the study. The contracted consulting firm must work with independence of judgment with respect to the distributor, in strict compliance with the terms of reference issued by the Electrical Energy Regulatory Commission (CREE). The Electrical Energy Regulatory Commission (CREE) may supervise the progress of the study and make the observations it deems relevant. The Regulation shall establish the mechanism for the periodic adjustment of tariffs or external economic parameters that shall be used for it. When the distribution company presents the study prepared by its consultants for the approval of the Electrical Energy Regulatory Commission (CREE), the latter shall formulate in writing the observations it deems relevant. The distributor shall have the timeframe that is regulatory established to respond to the comments and observations of the Electrical Energy Regulatory Commission (CREE) and to make to the study the necessary changes. If this process is completed to the satisfaction of the Electrical Energy Regulatory Commission (CREE), it shall approve the tariffs and shall publish them so that these are in effect. In the process of review and approval of tariffs to final consumers, the Electrical Energy Regulatory Commission (CREE) shall hold public hearings in order to give users the opportunity to present their points of view. The Regulation shall establish the frequency and procedures for the hearings. All reports that the Electrical Energy Regulatory Commission (CREE) prepares during the discussion and approval process of tariffs shall be of public access. Tariffs may only be applied once published in the Official Gazette La Gaceta and in at least one of the newspapers with the largest circulation in the country. The values of the tariff schedule approved and published by the Electrical Energy Regulatory Commission (CREE) shall be maximum values. The distribution company may charge lower values, provided it gives the same treatment to all users of the same class. In all cases described in Chapters I to III of this Title VIII, relating to the calculation of generation, transmission, and distribution costs, as well as the calculation of tariffs to final users, the Electrical Energy Regulatory Commission (CREE) may perform in parallel its own calculations, or in the case of distribution, contract with another of the consulting firms pre-qualified by it and entrust it with the preparation of a parallel study for the determination of Distribution Added Value (VAD) and tariffs to final users, using the same terms of reference. B. RESOLUTION OF DISCREPANCIES IN TARIFF REVIEW AND APPROVAL: In case the discrepancies are not resolved in the manner indicated in subsection A of this Article 22, the Electrical Energy Regulatory Commission (CREE) shall state in writing the differences that persist and shall be resolved by a partial commission of three members, one appointed by each party and the third selected by mutual agreement of the first two. The partial commission shall pronounce exclusively on the discrepancies stated in writing by the Electrical Energy Regulatory Commission (CREE) and its decision shall not be binding on the parties. CHAPTER IV FISCAL AND TAX REGIME

FISCAL AND TAX REGIME: Companies engaged in activities regulated by this Law are subject to the same fiscal, customs, and tax regime applicable to any other commercial company. No measure of a customs, tax, or fiscal nature may be enacted against companies of the electrical subsector. Sales of energy and power by companies of the electrical subsector shall be exempt from the payment of Sales Tax, with the exception of sales to final consumers. The foregoing in this Article is without prejudice to the benefit to electrical energy generation with renewable resources referred to in the fourth paragraph of Article Eleven (11) of this Law.

ELECTRICAL DEVELOPMENT SOCIAL FUND: Creates an Electrical Development Social Fund (FOSODE), which shall be administered by the National Electrical Energy Company (ENEE) and which shall serve to finance studies and electrification works that are of social interest. The Fund shall be financed with a contribution from distribution companies equal to one percent (1%) of sales to final users. This contribution shall be passed on to users in the monthly bill. As a complement to the Fund, the Central Government shall appropriate in the General Budget of Income and Expenditures of each fiscal year an allocation of FIFTEEN MILLION LEMPIRAS (L.15,000,000.00). TITLE IX IMPOSITION OF EASEMENTS ON PUBLIC AND PRIVATE PROPERTY UNIQUE CHAPTER GENERAL PROVISION

EASEMENTS: Regarding easements, the corresponding provisions of the Constitutional Law of the National Electrical Energy Company (ENEE), the Civil Code, and other applicable laws shall be applied. When the Constitutional Law of the National Electrical Energy Company (ENEE) refers to "Company" it shall be understood to refer to all companies of the electrical subsector, and where it refers to the Ministry of Development and the Ministry of Interior and Population, it shall be understood to refer to the Secretariat. Easements shall be constituted following the legal procedure that corresponds. TITLE X INFRACTIONS AND SANCTIONS UNIQUE CHAPTER GENERAL PROVISIONS

INFRACTIONS AND SANCTIONS: Infractions of the Law and Regulations, and applicable sanctions shall be subject to the following: A. INFRACTIONS: Infractions of the Law or Regulations by companies of the sector or by users of the electrical service constitute infractions that shall be sanctioned by the Electrical Energy Regulatory Commission (CREE) taking into account the following elements: I. The seriousness of the infraction; II. Whether the violator is a recidivist; and, III. Whether the violator, voluntarily and before being required, remedies the infraction. B. CLASSIFICATION OF INFRACTIONS: For purposes of the Law and Regulation, infractions are classified as follows: I. Very serious infractions, which are:

• a)

  Non-compliance by companies or users regulated by the Law of applicable requirements for facilities, in a manner that puts persons or property in manifest danger;

• b)

  Non-compliance with instructions issued by the System Operator;

• c)

  Interruption or suspension of electrical service to an area or group of population, without reasonable causes that justify it;

• d)

  Refusal to supply electrical energy to applicants for new services without reasons that justify it;

• e)

  Refusal to allow verifications and inspections by the Electrical Energy Regulatory Commission (CREE), or obstruction of their performance;

• f)

  Application of tariffs not authorized by the Electrical Energy Regulatory Commission (CREE);

• g)

  Irregular application of authorized tariffs, in a manner that the price is altered by more than fifteen percent;

• h)

  Any action in the supply or consumption of electrical energy that supposes a potential alteration of the reality of the supplied or consumed amount of more than fifteen percent;

• i)

  Refusal, not merely occasional or isolated, to supply the Electrical Energy Regulatory Commission (CREE) with the information it requests based on this Law;

• j)

  Reduction, without authorization, of the capacity for production, transmission, or distribution of electrical energy by generators, transmitters, or distributors;

• k)

  Simultaneous performance of incompatible activities in accordance with this Law;

• l)

  Development of electrical subsector activities without the required authorization;

• m)

  Non-presentation of offers for available capacity not committed by contract, merely occasional or isolated, to the System Operator, by any agent of the national electrical market holding generation units or that has acquired rights over the production of such units;

• n)

  Development of practices aimed at preventing free price formation in the national electrical market; o) Unjustified delegation of access to transmission or distribution networks; p) Commission of two or more serious infractions during a twelve-month period; and, q) Reiterated non-compliance with service quality standards and failure to develop improvement plans ordered by the Electrical Energy Regulatory Commission (CREE). II. Serious infractions that are conducts classified in this Article as very serious, when, due to the concurrent circumstances, they cannot be classified as very serious and in particular:

  • a)

    Occasional or isolated refusal to facilitate the Electrical Energy Regulatory Commission (CREE) with the information it requests in accordance with what is provided in this Law;

  • b)

    Non-compliance with safety measures, even when it does not imply manifest danger to persons or property;

  • c)

    Unjustified delay in the beginning of service provision or obstacles to expansions;

  • d)

    Non-compliance by distributors, marketers, or qualified consumers, reiterated three or more times, with consumption of electrical energy demanded from the System Operator;

  • e)

    Irregular application of authorized tariffs, in a manner that produces an alteration in price between five percent (5%) and fifteen percent (15%);

  • f)

    Any other action in the supply or consumption of electrical energy that supposes a percentage alteration of the reality of the supplied or consumed amount exceeding ten percent (10%);

  • g)

    Occasional non-presentation of offers for available capacity not committed by contract, merely occasional or isolated, to the System Operator, by any agent of the national electrical market holding generation units or that has acquired rights over the production of such units;

  • h)

    Incurring by the System Operator in unjustified delays in fulfilling its functions of economic dispatch or liquidation of transactions;

  • i)

    Incurring by the System Operator in unjustified delays in communicating the results of liquidation or its duties to inform about market evolution;

  • j)

    Any action by the System Operator, when determining the order of effective entry into operation of generating units that implies an unjustified alteration of the result of economic dispatch; and,

  • k)

    Non-compliance with service quality standards. III. Minor infractions are those that do not have the character of very serious or serious in accordance with the preceding subsections. C. SANCTIONS: Infractions shall be sanctioned as follows: I. Very serious infractions, with a fine of no less than one half of one percent and no more than one percent of annual sales of the violating company during the last calendar year; II. Serious infractions, with a fine of no less than one tenth of one percent and no more than one half of one percent of sales of the violating company during the last calendar year; and, III. Minor infractions, with a fine of no less than three hundredths of one percent and no more than one tenth of one percent of sales of the violating company during the last calendar year. IV. In case of infractions and unlawful actions by users, the Regulation shall define the fines to be paid, which shall not be less than fifty percent (50%) of the cost of energy consumed and shall not exceed five hundred percent (500%) of said cost when it is a matter of recidivists. All fines must be paid to the General Treasury of the Republic, without prejudice to payment of consumed energy and corresponding interest to the administering company. The Electrical Energy Regulatory Commission (CREE) shall apply sanctions following the procedures established in the Regulations. The above sanctions are understood without prejudice to criminal and civil liability that may arise in accordance with Law and penalties that may be agreed upon in contracts regulated by this Law and its Regulations. Against the resolutions of the Electrical Energy Regulatory Commission (CREE) regarding sanctions, the remedies provided in legislation on administrative proceedings are available. The foregoing, without prejudice to parties submitting to a conciliation or arbitration procedure under the terms of what is provided in the immediately following Article of the Law. TITLE XI DISPUTE RESOLUTION UNIQUE CHAPTER CONCILIATION AND ARBITRATION

CONCILIATION AND ARBITRATION: The parties may resort to the Conciliation and Arbitration Center of the Chamber of Commerce and Industry of Tegucigalpa to settle their differences or agree on the conditions to which, where applicable, they shall submit to a conciliation or arbitration procedure. Should said conditions not be agreed upon, the provisions of the Conciliation and Arbitration Law shall apply. The ruling issued in the arbitration procedure shall be final. TITLE XII TRANSITIONAL PROVISIONS UNIQUE CHAPTER

TRANSITIONAL PROVISIONS: The following transitional provisions are established: A. The material and financial resources that as of the effective date of this Law are in charge of the National Energy Commission shall be transmitted to the Electrical Energy Regulatory Commission (CREE) within a maximum period of ten working days counted from the swearing-in of the first commissioners of the Electrical Energy Regulatory Commission (CREE). The labor rights of workers of the National Energy Commission shall be respected in accordance with the provisions of applicable labor laws, without prejudice to their ability to participate in the merit competitions held by CREE as provided for in this Law. For the formation of the first Electrical Energy Regulatory Commission (CREE), in order to ensure institutional memory, the President of the Republic shall appoint one commissioner to serve only three years, another to serve five years, and the third to serve seven years. Having completed their respective terms, replacements shall be appointed for periods of seven years. B. Power and energy purchase contracts that the National Electrical Energy Company (ENEE) has at the effective date of this Law with private generating companies shall continue without any change until the expiration of the term, when said contracts end they may be transferred to tariffs only during the time remaining until their expiration and dispatch shall be performed taking into account the contractual conditions of each one of them and in the manner that minimizes the cost of the entire set of electrical market operations. Such contracts shall not be renewed. However, the plants subject to said contracts may participate in the electrical market as merchant plants, which with those that sell to the opportunity market without having contracts with market agents and furthermore may participate in biddings promoted by distribution companies. The National Electrical Energy Company (ENEE) or the distribution companies are authorized to agree and formalize with the generating companies, with prior opinion from the Electrical Energy Regulatory Commission (CREE), the changes that may be necessary in the contracts if due to specific conditions contained therein, the new operational scheme contained in this Law were to affect their effectiveness. C. Distribution companies shall be responsible for billing users, and the risks approved by the National Congress through Decrees No. 118-2013 and 163-2013, in accordance with the corresponding contracts, they shall transfer to the National Electrical Energy Company (ENEE) the funds corresponding to cover their obligations. D. In the event that the National Electrical Energy Company (ENEE), in its capacity as a distribution company, must make new purchases of power and energy, it must do so through competitive international biddings. E. Any meter reading and billing contract that could be in effect as of the effective date of this Law may not be renewed upon expiration, except that the renewal expires before June 30, 2015, so that the company or companies distribution can initiate the selection process for private investor-operators to handle meter reading and billing in the manner they deem most convenient. F. The regulatory provisions that establish the standards for electrical service quality for both transmission and distribution must be applied gradually during a transition period, taking into account the initial condition of the networks and the time it will take to conduct the works for their strengthening and expansion.

MODERNIZATION OF THE NATIONAL ELECTRICAL ENERGY COMPANY (ENEE): The Board of Directors of the National Electrical Energy Company (ENEE) is instructed so that with the objective of modernizing itself, before July 30, 2015, the National Electrical Energy Company (ENEE) transforms itself into an entity and completes its process to split into a generation company, a transmission and system operation company, and at least one distribution company, which are entities owned by the State through the National Electrical Energy Company (ENEE) as the parent company. Once the subsidiary companies are created, and within the same timeframe established above, the corresponding assets must be transferred to each of them, this without prejudice to the use rights that have been granted to the trusts mentioned below. The Board of Directors of the National Electrical Energy Company (ENEE) is also instructed so that the Generation company that is created modernizes itself, so that it can compete actively in the generation market and in the development of the country's renewable resources. The members of the Board of Directors must carry out all necessary acts and facilitate the Management of the National Electrical Energy Company (ENEE) with the corresponding implementation being responsible in case of non-compliance. The assets, liabilities, and personnel of the National Electrical Energy Company (ENEE) must be divided and transferred to each of these new companies as corresponds to the nature of their functions, with absolute respect for the use rights that have already been granted to the trusts mentioned below.

REPEAL OF PROVISIONS: The Electrical Subsector Framework Law and its reforms are repealed, except for what is expressly referred to and provided in this law, also repealed are all those provisions contained in other laws or decrees that are opposed to this Law, excepting Decree No. 279-2010 constituting the Special Law Regulating Public Renewable Energy Projects.

EFFECTIVE DATE OF THE LAW: This Law shall enter into force forty-five (45) days after its publication in the Official Gazette. Done in the city of Tegucigalpa, municipality of the Central District, in the Session Hall of the National Congress, on the twentieth day of the month of January of one thousand eight hundred fourteen. MAURICIO OLIVA HERRERA PRESIDENT BY THE LAW GLADIS AURORA LOPEZ CALDERON SECRETARY ÁNGEL DARIO BANEGAS LEIVA SECRETARY Let it be sent to the Executive Branch on the date of April 2, 2014. Therefore: Let it be executed. Tegucigalpa, M.D.C., April 11, 2014 JUAN ORLANDO HERNÁNDEZ ALVARADO PRESIDENT OF THE REPUBLIC THE SECRETARY OF STATE IN THE OFFICES OF NATURAL RESOURCES, ENVIRONMENT AND MINES JOSÉ GALDAMES