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be consulted in the event that EPE desires to sell to a third party any quantities of gas

supply at a location other than the originating supply basin (to discuss appropriate

compliance with FERC shipper-must-have-title rule).

Work with Real Time Traders to see if possible to increase power sales or decreasepurchases.

Consider reducing intrastate gas nominations and flow - consider contract ramifications

such as reinjection fees. Call Sequent Energy Management and ONEOK Gas Control toinform them of the condition.

If EPNG calls to invoke manual flow control, EPE should implement the following actions:Actions for a Draft Condition (limiting condition for flow control)

1. Confirm with EPNG that EPE is to receive at least its Scheduled Volumes2. Consider Flow Day Diversion to drafting delivery station if supply available3. Consider scheduling gas from storage to drafting station4. Work with Real Time Traders to increase power purchases or reduce sales5. Increase intrastate gas nominations and flow. Call Sequent Energy Management

and ONEOK Gas Control to inform them of the condition.6. Consider using EPE's emergency fuel oil supply to supplement gas and assist

during the alert to reduce gas usage.7. Notify Environmental Department if Fuel Oil is used within 24 hours or as

indicated in the Gas Curtailment Procedures

These flow control procedures are subject to change as conditions and/or the situation change -depending on the emergency and the pertinent language in EPNG's tariff Review EPNG'sSOC/COC tariff sections periodically to ensure procedures are relevant. See Sec. 1 1.1-STRAINED AND CRITICAL OPERA TING CONDITION PROCEDURES Transportation GeneralTerms and Conditions and Sec. 11.2 Flow Control Equipment (See Web Linkhttp:f/oassoartebh elbaso com/ebbmasterpagell arift7fJ^^-EPNG^

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EL PASO ELECTRIC COMPANY2015 TEXAS RATE CASE FILINGSCHEDULE I-2: FUEL AND PURCHASED POWER PROCUREMENT PRACTICESSPONSOR DAVID HAWKINSPREPARER: KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015

POWER NARKE T TNG AND

FUELS DEPARTMENT

» EI Paso Eteetric

OFF-SYSTEM SALES AND PURCHASES

TABLE OF CONTENTS

SCHEDULE I-2PAGE 108 OF 204

Document No. 2

Version No. 1.2

Issued Date 12106/2033

Document ClassificationInternal Use

TRANSACTION CATEGORIES ................ ............................................. 37

TRANSACTION CONSIDERATIONS ..................................................... . 37

TRANSACTION CRITERIA . . . . . . .. . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . ............ 38

APPROVED PRODUCTS ............................................... ...................... 39

TRANSACTION CONFIRMATION ...................... ................................... 39

TRANSACTION NOTIFICATION .................... ...................................... 39

MARKET RISK MITIGATION .. . .. . ... ... .. .... ... .......................................... 40

APPROVAL PROCESS ..................... ................................................... 41

CHECKS AND BALANCES...... ... . ..... . .. ... . . . . . . . ......................... 42

TABLE ................. .......................................................................... 43

APPENDIX (Power Pre-scheduler/ Gas Pre-scheduler Operating44Policies) ......... ......... .. . . .. . . .... . .. . ..

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EPE's wholesale Power Marketing and Fuels department ("PM&F") function isresponsible for maximizing the value of EPE's generation assets and minimizing fuel andpurchased power costs. To accomplish this, PM&F enters into different types of sales andpurchases ("transactions") of energy and/or capacity ("power") at various points on its system.The most common points are the Palo Verde ("PV") and Four Corners ("FC") hubs. In order tosucceed in this goal, procedures must be in place that allows PM&F to participate in marketactivities and to quickly respond to changes in the market without subjecting EPE to undue risk.The controls in place must include criteria governing transactions, an approval process, as wellas checks and balances to ensure that the process is followed by all personnel and documented.These criteria are specific to those products identified herein.

GENERAL TRANSACTION INTENT - to Meet EPE's Obligations

Statement of Intent: As stated above. it is intended that any fuel and purchased power procuredare for EPE's use and expected to be taken to delivery. Therefore, all fuel and purchased powershould be considered Forward Contracts within the meaning of the Commodity Exchange Act(CEA) and the Rules of the Commodity Futures Trading Commission since:(a) EPE is a commercial market participant with respect to the specified commodity and is

entering into the transaction in connection with its business:(b) EPE intends to make or take physical delivery of the specified nonfinancial commodity.

and(c) if any transaction includes volumetric optionality, any exercise, or non-exercise, of such

volumetric optionality by the holder thereof is based primarily on factors outside of EPE controland which influence demand for, or the supply of, the specified nonfinancial commodity, such asthe impact on its commercial needs of physical factors (such as weather, customer demand,transport, shipping, or other operational constraints) or regulatory requirements.

Two proactive reviews are suggested to be performed at least annually to assist inmeeting the requirements of the Dodd-Frank Act - i) a random sample review of transactions inAligne to help ensure that EPE's transactions comply with EPE's intention of Forward contractsexpected to be taken to delivery and ii) in-house marketing training classes discussing Dodd-Frank requirements and implications to EPE by OGC. These reviews are under development andsubject to change based on Dodd-Frank and CTFC changes as the rules are further developed.

TRANSACTION CATEGORIES

Transactions are categorized based upon the term of the transaction. These categoriesare: 1) Real-Time, which consists of same-day hourly and balance-of-the-day; 2) Day-Aheadwhich are next day and up to three days as defined by the Western Electricity CoordinatingCouncil (WECC) scheduling calendar; 3) Balance-of-the-Month, which are entered into duringthe current month and expire at current month end; 4) Long-Term, which are one month orlonger, whereby the common terms are monthly, quarterly, and yearly.

Each transaction category can further be delineated by the hours in which deliveryoccurs. These sub-categories are: 1) On-Peak, which is defined as the 16 hour block from 6 a.m.to 10 p.m. PPT (Pacific Prevailing Time), Mondays through Saturdays 2) Off-Peak which is theremaining Monday through Saturday hours as well as all 24 hrs on Sunday and most holiday

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hours. PPT; 3) Around-the-Clock, which combines On- and Off-Peak hours; 4) Shaped, whichare specific hours agreed to by counterparties such as super peak (HE13-20 PPT), for example ;and 5) Hourly, which are same day hourly transactions.

TRANSACTION CONSIDERATIONS

Reasons for entering into a transaction fall into three broad categories. These categories are:

Forced Sales - Low load conditions or lack of transmission import capability result inconditions whereby Forced Sales are required. Low load exists when minimum generatoroperating levels exceed native load requirements, resulting in load and generationimbalance. In this instance, sales are made to put load and generation back into balance.Import restrictions at times can result in EPE's remote generation being stranded fromEPE's native load. EPE is forced to sell energy at the constrained generation locations toconform to import constraints.

Economically Advantageous - These transactions occur when EPE's incremental cost ofgeneration is below the market price and entering into a sale is expected to produce apositive margin. Also, when the market price is below EPE's cost of generation andtransmission into EPE's service territory is available, EPE can enter into purchases tosave fuel expenses. EPE may also be in a position to reverse out of an earlier saletransaction, resulting in a fixed transaction margin or lock in energy at a known price.

Operationally Beneficial - Transactions which do not result in a clear economicadvantage are still useful and necessary at times for operational reasons. Systemconstraints can be alleviated by transacting at different EPE generation hubs, therebydecreasing system imports at the constrained generation hub and increasing imports at anunconstrained hub.

TRANSACTION CRITERIA

Purchases must meet the following criteria:

1. The counter-party must have a credit rating that is commensurate with the value of thetransaction or provide credit assurances; and,

2. The purchase is expected to fulfill any of the following:a. The purchase is necessary for EPE to meet its reserve requirements;b. The purchase is economically advantageous vis-a-vis EPE's projected cost in serving

EPE's load, or serves to minimize market-price risk;c. The purchase is operationally beneficial or necessary due to system constraints; ord. The purchase will be used to serve an off-system sale (direct assignment);

Sales may be entered into on a Real-Time, Day-Ahead or Balance-of-the-Month basis subjectto meeting all of the following criteria:

1. EPE can meet its Southwest Reserve Sharing Group (SRSG) requirements with the sale;

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2. The sale is expected to result in a net positive economic impact (see exception below);and

3. The counterparty must have a credit rating that is commensurate with the value of thetransaction or provide credit assurances.

An exception to criteria 2 can be made if the sale is a forced sale or is operationallybeneficial as previously described.

Prior to agreeing to a sale with a term longer than a month or further out than the prompt-month, analyses must show that EPE can meet the following criteria:

1. At minimum, EPE's reserves must equal or be greater than its planning reservemargin for the duration of the sale.

2. Margin estimates will be determined and if margins are negligible, the transactionmust provide operational benefits.

The counter-party must have a credit rating that is commensurate with the value of thetransaction or provide credit assurances.

APPROVED PRODUCTS

EPE may enter into power transactions necessary to manage the reliability and economicsof EPE's system generation and load that fall within the wholesale power market TransactionCategories and are governed by EPE's Transaction Criteria.

TRANSACTION CONFIRMATION

Transactions in all categories and time frames require mutual agreement betweencounterparties. The means by which agreement is reached may vary in the various time framesof transactions, but is always done in the most beneficial means in terms of economics andefficiencies. The three primary means of transaction completion are direct contact withcounterparty - either through recorded electronic communication, electronic brokerage, or voicebrokers. These means of transactions have accuracy assurances, by recording transaction termsbetween counterparties.

Real-Time transactions are confirmed primarily through direct conversation due to theefficiencies required in meeting the time restrictions of the real time market. Confirmations arerecorded on a password protected telephone recording system, which provides documentationshould transaction discrepancies arise between counterparties. Should instances occur wherebytransactions are completed on an unrecorded phone line, the real-time marketer will re-confirmwith the counterparty on a recorded phone line.

Daily preschedule transactions, Balance-of=the-Month and Long-Term transactions arecompleted using all three methods of confirmation. Power Pre-scheduler/ Gas Pre-schedulerphone lines are recorded by the same system as the real time conversations for transactions donedirectly with counterparties. Should instances occur whereby transactions are completed throughmeans without record (an unrecorded phone line, instant messenger, etc.) the Power Pre-scheduler/ Gas Pre-scheduler will re-confirm with the counterparty as soon as possible on arecorded phone line. Transactions using electronic brokerage are documented online and

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available for review should discrepancies occur. Transactions completed via voice brokerage arerecorded and confirmed with paper documentation.

EPE follows the WSPP Inc. confirmation procedures pursuant to the WSPP Agreement,with signature confirmation required for transactions exceeding one week. EPE determines onan individual transaction basis a counterparty's request for signature confirmation fortransactions less than one week.

TRANSACTION NOTIFICATION

Transactions requiring written confirmation per the WSPP guidelines will be reported viae-mail to EPE's Director of Energy Trading. The email will include the following information:commodity, rate of delivery-MW, MWh quantity over term, transaction price, delivery/receiptpoint, counterparty, contract term of the transaction, start and end date of transaction, sale orpurchase, trader for counterparty, EPE cost of supply, and trader for EPE. The email will bedistributed the day the agreement to purchase or sell is reached, unless the transaction occursafter 3 p.m. MCT in which case it will be distributed no later than the 9 a.m. MCT the followingday.

Email notification may be used for transactions for which a written confirmation is notrequired under WSPP guidelines, if requested by the counterparty, and agreed to by EPE.

MARGIN RISK MITIGATION

EPE looks to maximize transaction margins and minimize losses through approved tradingstrategies.

These strategies include transaction reversal, heat rate transactions, and anycommercially available energy product as approved by EPE management.

Each transactioncategory utilizes different methods of risk mitigation to secure the economics of a transaction.Shorter term transactions have less risk than longer term transactions due to greater accuracy ofsystem forecasts market conditions and shorter duration.

• Real Time Transactions

1.Forced Sales - Transactions are entered into for operational reasons other thaneconomic, therefore, economic risk mitigation is only viable if the conditions thatinitiated the transaction no longer exist.

2.Economically Advantageous -'1'ransactions are based on generation costs andtherefore are subject to minimal economic risk. Load forecast and system statuses areprojected for a shorter duration, and therefore have a greater degree of accuracy thanlonger term projections. Transaction reversal is only necessary if assumptions varysignificantly from actual conditions, or if favorable economic conditions allow.Transaction reversal eliminates risk associated with margins.

3.Operationally Beneficial - Transactions that mitigate system constraints or providefavorable operational benefits.

Transaction costs and revenues are known prior totransaction start-up.

• Pre-Schedule (Day-Ahead)

Forced Sales - In certain situations, EPE may be forced to sell power to mitigate

system constraints (for example, a transmission import restriction) that prevent thepower from being able to reach load. Risk may be managed depending on the nature

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of the system constraint. Excess generation due to testing or low load conditions alsomay result in forced sales.

EPE will look to market its forced sales quantities topotential buyers.

Economically Advantageous - Pre-Schedule transactions are based on one day and upto 3 day load and generation availability and cost assumptions. Load forecasts andgeneration status are generally stable from day-to-day.

Generation is the primarymethod of mitigating risk.Transaction reversal removes risk and fixes transactionmargin.

Operationally Beneficial - Transactions that mitigate system constraints or providefavorable operational benefits.


• Balance-of-the Month

Forced Sales - In certain situations. EPE may be forced to sell power to mitigatesystem constraints (for example, a transmission import restriction) that prevent thepower from being able to reach load. Risk may be managed depending on the natureof the system constraint. Excess generation due to testing or low load conditions alsomay result in forced sales.

EPE will look to market its forced sales quantities topotential buyers.

Economically Advantageous - Transactions are based on load and generationcapability forecasts for up to one month.

Excess system generation and marginopportunities should reflect additional risk associated with longer term forecasts.Generation is primary means of mitigating risk. Transaction reversal eliminates riskassociated with margin.

Presents opportunities to market available generation overand above the levels needed for retail bundled load.

Operationally Beneficial - Transactions that mitigate system constraints or providefavorable operational benefits.


• Long-Term Transactions

Forced Sales - Long-Term transactions are typically not entered to satisfy thesetransaction types.

Due to the long term nature, the system requirement dictating thetransaction

may change and may expose EPE to a Long-Term adverse economiccommitment.

Economically Advantageous - Transactions are based on longer term load andgeneration forecasts.

Fuel costs are less certain, depending on gas purchasestrategies. Transactions are entered into based on significant margin expectations dueto increased risks. Risks can be hedged using physical purchases to secure generationcosts to sales price ratio (securing market heat rate), or to secure fixed prices at levelsthat provide acceptable cost savings or margins.

Operationally Beneficial - Transactions that mitigate system constraints or providefavorable operational benefits. Transaction costs and revenues are known prior totransaction start-up.

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APPROVAL PROCESS

A defined approval process will permit EPE to efficiently transact in the dynamicwholesale power market.

The required response time associated with each transactioncategory is commensurate with the approval authority level. Table I provides a snapshot ofthe authorized trader as well as transaction review requirements to ensure that all transactionsare consistent with Company policies and procedures.

Real-Time and Balance-of-Day: Real-Time Marketers have final authority to oversee,negotiate and enter into Real-Time and Balance-of-the-Day transactions as long as thosetransactions meet the established criteria and are properly documented. This authority isnecessary to allow EPE to effectively transact in the short scheduling window every hour.Transactions are reviewed after-the-fact by the Manager of Real-Time Trading to ensuretransactions are consistent with Company policy and procedures.

• Day-Ahead Transactions: Power Pre-schedulers are authorized to oversee, negotiate, andenter into Day-Ahead transactions to allow EPE to efficiently operate in the preschedulemarket. Transactions are reviewed after-the-fact by the Director of Energy Trading toensure transactions are consistent with Company policy and procedures.

Long-Term Transactions (Balance of Month and longer): Transactions with terms longerthan NERC/WECC defined preschedule days are not constrained by limited transactionwindows, and do not require immediate response from EPE's transacting employees.However, given the quick changes that can occur in the market, an expedited approvalprocess is necessary.

As shown on Table 1, below, the Long-Term Trader/ Power Pre-scheduler/ will oversee, negotiate and enter into such transactions on a day-to-day basis,with Supervisor advance approval required for transactions more than one month induration. In certain cases, depending on the length of the transaction, the Trader/ PowerPre-scheduler and/or Supervisor have a notification obligation to inform others within theCompany of the transactions before commitment. In all instances, an after-the-factreview is performed to check for compliance with Company policy and procedures.

• Transactions that are for the Balance-of-Month can he overseen, negotiatedand entered into by the Trader/ Power Pre-scheduler.

• Transactions that are a single month in duration can be overseen, negotiatedand entered into by the Long-Term Trader (Forward Marketer) or by thePower Pre-scheduler but must be approved by the Long-Term Trader, and theLong-Term Trader must notify the Director of Energy Trading of suchtransactions before commitment.

• Transactions greater than a month require prior review and approval from theSupervisor of Long Term Trading and Fuels. Transactions greater than amonth the Trader must notify the various parties within the Company, asshown in the table below.

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CHECKS AND BALANCES

Transactions will comply with the aforementioned criteria and approval processes.Employees responsible for wholesale power marketing transactions will adhere to the followingguidelines:

Real-Time and Balance-of-the-Day Transactions - All Real-Time Marketers will

understand and comply with the criteria for Real-Time transactions. The Manager, Real-

Time Trading will review the previous day's bottom-of-the-hour report ("BTH report")

and the Transaction Log to ensure that all criteria for real-time sales and purchases werenet.

Day-Ahead and Balance-of-the-Month Transactions - All Pre-Schedulers will understandand comply with the criteria for Day-Ahead and Balance-of-the-Month transactions.Deal Sheets will provide the details of all transactions committed to that day, and theDispatch will model the impact of the sale or purchase on EPE's system. The Director,Energy Trading will review the Deal Sheet and Dispatch to ensure that the establishedcriteria for sales and purchases were met.

The Energy Schedulers will check the current Day-Ahead transactions with eachof the counterparties as well as with System Operations personnel to ensure that all of thetransactions are correct and scheduled properly. Transaction for each day will bereconciled prior to closing by the Energy Accountants against transactions reported in theCompany's Energy Management System. For those transactions that are not resolvedwith counterparties an estimate will be recorded and adjusted when resolved.

•Long-Term Transactions - Documentation and analysis for each Long-Term transactionshall include a Loads & Resource (L&R) worksheet and estimates of the economicimpact of the transaction. This information shall be kept on file in accord with EPE'sdocument retention policy.

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EL PASO ELECTRIC COMPANY2015 TEXAS RATE CASE FILINGSCHEDULE 1-2: FUEL AND PURCHASED POWER PROCUREMENT PRACTICESSPONSOR- DAVID HAWKINSPREPARER: KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31. 2015

Wholesale Power Marketing Aoorovai ChartTABLE i

AFTER THEFACT

TRANSACTKINTERNAL N

TRANSACTION TYPE TRADER PROREAL TIME & REAL-TIME

CESSMEETS TRANSACTION CRITERIA

REVIEW

BALANCE OF DAY MARKETERS APPROVED BY TRADER MANAGER-R'.

DAY AHEAD PRESCHEDULER MEETS TRANSACTION CRITERIA: DIRECTOR -APPROVED BY TRADER ET

BALANCE OF MONTH PRESCHEDULER MEETS TRANSACTION CRITERIA, DIRECTOR -APPROVED BY TRADER ET

1 MONTH PRESCHEDULER j MEETS TRANSACTION CRITERIA- DIRECTOR -FORWARD MARKETER APPROVED BY TRADER ET

Notification to Director - ET VP-PM&F

MEETS TRANSACTION CRITERIA:1+ MONTH -

QUARTER FORWARD MARKETER APPROVED BY SUPERVISOR DIRECTOR -

Notification to Director - ET & ET

VP - PMF VP-PM&F

MEETS TRANSACTION CRITERIAQUARTER+ to

FORWARD MARKETER

.APPROVED BY SUPERVISOR DIRECTOR -

ANNUALNotification to Director - ET, ET

VP - PM&F, CRO, COO, CFO, CEO VP-PM&F

MEETS TRANSACTION CRITERIA:ANNUAL + FORWARD MARKETER APPROVED BY SUPERVISOR DIRECTOR -

Notification to Director - ET, ET

IVP - PM&F. CRO. COO rcn rFn VP-PM&F


AGREEMEN

T

SIGNATURE

REQUIRED

ELECTRONICALLY RECORDED

ELECTRONICALLY RECORDED

<= WEEK: ELECTRONICALLY RECORDED. >WEEK: SIGNATURE ON PAPER CONFIRM

VP SIGNATURE ON PAPER CONFIRM




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APPENDIX

Pre-scheduler OperatingPolicies

SCHEDULE 1-2PAGE 117 OF 204

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ContentsDeal Sheet Distribution ...... . ...................................................... .............................................................................47

Unit Commitment Distribution ................................................... .............................................................................48

Natural Gas Estimates.. .... .......................................................... .............................................................................49

Network Resource Desienation/L'ndesignation .......................... .............................................................................50

Dispatch Distribution ............................................... .................. ..................................................................... ....... 57

Deal Sheet Distribution. ........ - ........... - ..................................... ........................ ........ .... ... ..... . ........................ .58

Natural Gas Price Update...... ....... ........................ ................ . .... ........................................................................59

Natural Gas Instructions ..................... ........ ......... .... ............... .. . ........................................................................60

Natural Gas Burn Summary... ..................... ........ ... .................. .............................................................................60

Daily Reports to the Director of Energy Trading ....................... ..................... .......................................................61

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Power Pre-scheduler Operating Policy 1Deal Sheet Distribution

Daily Deal Sheet shall be emailed or delivered to Energy Schedulers andDirector of Energy Trading after completion of daily transaction entriesinto Aligne.

Additional transactions may be conducted after Energy Scheduler andDirector of Energy Trading notification for economic reasons or systemefficiencies.

The Daily Deal Sheet shall be printed and signed by Power Pre-schedulerpersonnel responsible for the day's power prescheduled transactions.

The Director of Energy Trading will sign the Deal Sheet whentransactions are electronically "stamped" within Aligne, at which pointthe fully executed Deal Sheet will be returned to the Power Pre-schedulerpersonnel for filing.

The Director of Energy Trading will reconcile the electronic version tothe fully executed version for evaluation purposes.

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Power Pre-scheduler Operating Policy 2

Unit Commitment Distribution

The Unit Commitment utilized in daily preschedule activity will bereconciled with Aligne deal entry for MWh totals at each transactionpoint prior to Deal Sheet distribution.

Following the electronic distribution of the Daily Deal Sheet, thereconciled Unit Commitment will be signed by the Power Pre-schedulerpersonnel responsible for the day's power prescheduled transactions.

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Power Pre-scheduler Operating Policy 3Natural Gas Estimates

The Power Pre-scheduler(s) will provide a natural gas burn estimate forEPE owned generation to the Natural Gas Prescheduler by 6:15 a.m. ofthe trading day.

The estimate will note additional gas requirements for non-EPEgeneration in cases whereby EPE is responsible for the gas procurement.

The estimate will be provided via email with the Director of EnergyTrading included on the distribution.

Updated estimates will be provided as system, market, and loadconditions impact projected natural gas requirements during the courseof trading.

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Network Resource Designation/Undesignation/Redesignation

The Power Prescheduler will prepare EPE's temporary undesignation ofNetwork Resources and simultaneous redesignation of NetworkResources upon receiving the transaction purchase and sale summaryfrom Energy Scheduling.

In designating, undesignating and redesignating a Network Resource,the Power Pre-scheduler shall comply with the more detailed proceduresset forth in the Desk Instructions (attached), which instructions wereupdated in conjunction with EPE's last FERC audit on OATTcompliance. In particular, please use the attestation language in theexact way it is shown in the attachments (the FERC auditors will tolerateno deviation in the attestation language which is in Attachment E to thisOperating Policy No. 4). In addition, in no instance should a NetworkResource be temporarily undesignated without that temporaryundesignation also containing a redesignation.The Designation/UndesignationfRedesignation Network Resourcedocuments will be emailed / faxed to EPE's System Operationsdepartment with the Director of Energy Trading on the emaildistribution.

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EL PASO ELECTRIC COMPANY2015 TEXAS RATE CASE FILINGSCHEDULE 1-2: FUEL AND PURCHASED POWER PROCUREMENT PRACTICESSPONSOR. DAVID HAWKINSPREPARER KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015

Desk Instruction Title Real-Time TemporaryUn-designation and Re-designation ofNetwork Resources


Desk Instruction No 001Revision No 1

Effective Date. July 20, 2009Page 51 of 68

EL Paso Electric CompanyReal-Time Trading

Temporary Termination & Re-DesignationOf a Network Resource

ProceduresPurpose

To document procedures and controls for the temporary termination and re-designation of a networkresource on a real-time basis. A source document used in preparation of temporary termination and re-designation of a network resource is provided as an attachment.

For every firm sale made from either Palo Verde generation or Four Corners generationor other, a temporary termination and re-designation of the specific Network Resourcemust be made with EPE Transmission Provider.

Real Time Trader shall provide notice to Transmission Provider of request for temporarytermination/re-designation of a Network Resource when making a real time sale out of PaloVerde or Four Corners generation (or any Network Resource, PD/FM exchange power, localgeneration, etc.).

2 The notice will be done using the form in the Bottom of the Hour Report under temporarytermination & re-designation of a Network Resource

3. Trader will fill the template with the required information and send the request via MS Outlookto the Transmission Provider at the following e-mail address . As analternative to email, such notice may be made by recorded phone line or fax to theTransmission Provider.

4. Request for temporary termination & re-designation of Network Resource shall be provided assoon as reasonable, but not later than the firm scheduling deadline for the period oftermination The FERC approved script may be found in Attachment E to Operating Policy No4

At least annually, Real-Time manager will provide network training classes to all Real-Time Traders andDay-Ahead preschedulers.

Approved by: Manager-Real Time Trading

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SPONSOR- DAVID HAWKINSPREPARER• KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015

Desk Instruction Title Day-Ahead TemporaryUndesignation and Designationof Network Resources


Page 52 of 68

EL Paso Electric CompanyLong-Term Trading & Fuels

Day-Ahead Temporary Undesignation/Redesignation & Designationof Network Resources

Procedures

Purpose

To document procedures and controls for the temporary undesignation and redesignation of networkresources on a day-ahead basis. Source documents used in preparation of temporary undesignation andredesignation of network resources are provided as attachments

Entering Deals into the Scheduling Workpaper

1. Obtain the Deal Sheet (see Attachment A) from the Power Pre-scheduler (s).This spreadsheet contains deals that were made on a day-ahead basis.

2. Open the ALIGNE batches application and run the batch report ZTL_PMTD_PWR_SCHEDNext go to S drive: Prescheduler folder and open Power Marketing Schedule Builder and enterscheduling day to download transactions into daily scheduling spreadsheet.

3. Obtain Unit Commitment spreadsheet for the scheduling day (see Attachment B). Enter theindicated Palo Verde, Four Corners generation or other resources into the daily schedulingspreadsheet.

4 From the resulting transaction summary, determine which purchases will sink in the Company'sservice area and which sales to third parties will be from Palo Verde and Four Cornersgeneration less any contingent sales. Then print the Preschedule Un/Re-Designationsummary and provide to the Preschedule personnel (see Attachment C).

Notification of Undesignation and Redesignation of Network Resources

5 The Preschedule personnel then determine the remaining amount of Palo Verde, Four Cornersgeneration or other resources from the above calculation, i.e, the amount that will beundesignated as sales to other

6. The temporarily undesignated amounts that are classified as sales to others are then enteredinto the Form for Temporary Undesignation of Network Resources located (s:YellowFotderlNetwork ResourceslTemplateslCurrentl "Undesignation of Network Resources') (seeAttachment D)

7.The amount of Palo Verde, Four Corners generation or other resources temporarily designatedas generated for sales to third parties less contingent sales that will not sink into theCompany's service area is entered into the Network Transmission Customer Attestation andRequest for Short-Term Designation as a Network Resource located (s: Yellow FolderWetworkResourcesVTemplateslCurrentl"Request for Short-term Designation of Network Resources)(see Attachment E) A form is filled out for both Palo Verde and Four Corners.

8 A completed copy(ies) of the Network Transmission Customer Attestation and Request forShort-Term Designation as a Network Resource form is then transmitted by email, which also

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SCHEDULE 1-2. FUEL AND PURCHASED POWER PROCUREMENT PRACTICES PAGE 125 OF 204SPONSOR: DAVID HAWKINSPREPARER: KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015

includes the Customer Attestation, to EPE Transmission Provider at EPE System Operationsfor the amount that will sink to the Company's service area. As an alternative, the form may besubmitted to EPE Transmission Provider by fax to EPE's System Operations (915-521-4763).

9 Faxed copies with the confirmation report are filed along with electronic copies at (s. YellowFolderiNetwork Resources Designation lYearlMonth)

Attachments

A. Deal Sheet

B. Unit Commitment

C. Preschedule Un/Re-Designation summary

D Form for Temporary Undesignation of Network Resources

E. Network Transmission Customer Attestation and Request for Short-Term Designation of aNetwork Resource

Approved by: Director - Energy Trading

Example Attachment A:

Power Deal Sheet

If iME MiE: 1W 0p.1bg l, N1 P

ê^^P+O' a'+Y ^Y YMr^ Y1our YN Pos. YraSr (% w^M1î &dmr ^pry <'mnar♦

aM^ ^

X+

53

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SCHEDULE 1-2: FUEL AND PURCHASED POWER PROCUREMENT PRACTICESSPONSOR DAVID HAWKINSPREPARER: KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015

Example Attachment B:

.__. . ^_ _..^ ^ .L .Y 'L'_ ^ ^ ,^-^ &^.<.r

'n,':...'+^....`...

w..e',«^...'^^.û.'a.^â+^.«.«^....aw......âwaw.,.„..nn:n....+.s«..,.w..w. rm^:,^ .w:.ar^M.www,.w•^^......s.«.......,rw......ww..,...pw«

....wM.M..^...u...ww.ww.r......i^...

Example Attachment C:

. ^. ,.-in m

Example Attachment D:I ...^^._ w ...... .. ...^"':a<u.._......^..:., :.,.....,

,... ^

:i

^

Example Attachment E:


54

EL PASO ELECTRIC COMPANY2015 TEXAS RATE CASE FILING SCHEDULE I-2SCHEDULE 1-2- FUEL AND PURCHASED POWER PROCUREMENT PRACTICES PAGE 127 OF 204SPONSOR DAVID HAWKINSPREPARER: KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015

..on.cm.x Tera Y,..cni.,tp, Duty) P r

Contco-c puuM.^cP IX4'^ p ^

DnsiDr.xceA Qnattt3ty ^.R• u ^

..e qr<xaen ._mn. _n.< md .ran OmY D.. .:.1... Q.t p0 PDi

C< vqnnxvon pw â.n xna ,zme pyy oJ ^Jb_. _^ D_ .YS

'po -Yaerpchenpurcpaat qeemnc ^ y fow ..arnerv

snc.,oik c,:xo><r n::en^ .cc<:_: nc.c i.,n .e.o., ,nnca..ane c,.^chmp a yoa.:mQre.mo-.^. .:.., cn. .,alo„a^.a r

;1, ea<. anx<ork c , ,,.'. r , nv a^.ar..<nie

Cwennse ven zttaoncDUreukpY co .z. axe ^=ou <tl o QveCAapn azv,erac,nn ui.era e zaS ac^ •^

IiIxo gcAeitari[ehemaa (."^chxWttvorkaâsezv^:ammder Dmri

s - v do n D nnclude°^zm; _ e r 'n1' . o

rcm

DWmx mnec .h<dR<c.orkDCVet..aer x Necvoxk .o.S onn ruv, rncez yc^Die

55

EL PASO ELECTRIC COMPANY2015 TEXAS RATE CASE FILINGSCHEDULE 1-2: FUEL AND PURCHASED POWER PROCUREMENT PRACTICESSPONSOR DAVID HAWKINSPREPARER: KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015

Desk Instruction Title Notice of Change in Designationof EPE Network Resources

El Paso Electric CompanyLong-Term Trading & Fuels

Notice of Change in Designation of EPENetwork Resources

Procedures

Purpose

Page 56 of 68

To document procedures and controls for the notice of a change in designation of EPE's NetworkResources on a timely basis This procedure is intended as a periodic update, as appropriate, to theannual notice to EPE Transmission Provider of network generation loads and resources for EPE'swholesale and native load customers

A notice is to be given for an increase or decrease in the amount of a previouslydesignated Network Resource, i.e. change in amount of a power purchase; addition of aNetwork Resource, i.e. a new generation addition or power purchase that is designatedas a Network Resource; permanent reduction in capability of a designated NetworkResource; retirement of a generating unit or termination of a purchase that was adesignated Network Resource.

1 A letter to the System Operations stating:• the designated Network Resource that is affected,• the reason for the change, e g. to meet growing customer requirements,• the amount of the change, increase or decrease expressed in megawatts,• the duration of the change if temporary,

2 Additional information may also be sent in the form of an attachment such as a loads andresources document reflecting customer load growth, addition or reduction in designated NetworkResources, retirement of a designated Network Resource or termination of purchase designatedas a Network Resource.

Approved by: Director - Energy Trading



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EL PASO ELECTRIC COMPANYSCHEDULE 1-22015 TEXAS RATE CASE FILING



Dispatch Distribution

The next day's Dispatch shall be updated for forecasted systemconditions and load profiles prior to distribution.

The dispatch shall be distributed by email to system operations, real-time marketing, and additional EPE personnel as required. Email willinclude notes on EPE generation status, transmission, and Dispatchsummary.

Distribution shall be provided by 10:30a.m. El Paso MountainPrevailing Time (MPT) to accommodate SRSG reporting timeline.

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E21-24

SPONSOR. DAVID HAWKINSPREPARER: KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015

Natural Gas Pre-scheduler OperatingPolicy 1

Deal Sheet Distribution

The Deal Sheet for natural gas transactions shall be signed and deliveredto the Director of Energy Trading on each transaction day.

The Deal Sheet shall provide EPE's counterpart, volume, and priceinformation. In addition, the Deal Sheet shall include the beginning ofthe month volumes by plant, the NOx adder for Texas generation, InsideFERC prices for the San Juan, Permian, and Waha basins, and the nextday forecasted volumes.

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EL PASO ELECTRIC COMPANY SCHEDULE I-22015 TEXAS RATE CASE FILING PAGE 131 OF 204SCHEDULE 1-2: FUEL AND PURCHASED POWER PROCUREMENT PRACTICESSPONSOR: DAVID HAWKINSPREPARER KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015


Natural Gas Price Update

Every trading day, the Prescheduler responsible for natural gasschedules will provide via email the Natural Gas Price Update.

The Update will provide Current and Next Day Estimates, and Prior DayActuals for the following information:

1) Rio Grande Interstate delivered price2) Newman and Montana Interstate delivered price

3) Newman and Copper Intrastate delivered price

4) Newman Interstate and Intrastate blended price

Delivered natural gas prices will include estimated NOx allowancecosts, as well as pipeline delivery, and appropriate state tax rates.

The report will include Monthly estimated nuclear and coal fuel costs on$/MMBtu and $/MWh basis, and spot and delivered natural gas pricesfrom EPE storage and regional supply basins to EPE generation.

Additionally, the report will summarize estimated generation costs fornon-EPE owned generation whereby EPE is responsible for supplyingfuel.

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Natural Gas Pre-scheduler Operating3 g

Natural Gas Instructions

Natural Gas Instructions shall be distributed to appropriate systemoperation, power plant, and marketing personnel, providing gas supplyvolumes by plant for interstate and intrastate supply.

Y•

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EL PASO ELECTRIC COMPANY2015 TEXAS RATE CASE FILING SCHEDULE I-2SCHEDULE 1-2• FUEL AND PURCHASED POWER PROCUREMENT PRACTICES PAGE 133 OF 204SPONSOR: DAVID HAWKINSPREPARER: KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015


Natural Gas Burn Summary

Previous day natural gas burns by plant and pipeline shall be distributedto marketing personnel.

The Summary shall include Estimated, Scheduled, and Actual gas burns.

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Daily Reports to the Director of Energy Trading

The Pre-scheduler responsible for Natural Gas scheduling will email tothe Director of Energy Trading the following reports on a daily basis:

EPNG Imbalance Update - This update will provide current andhistorical month imbalance status.

EPE Storage Update - This update will provide EPE's availablenatural gas in storage, value of gas in storage, the month-to-datewithdrawal and injection volumes, and the month-to-date net transactionvolume.

Afternoon Natural Gas Update - This update will provide detailsregarding current day gas supply information. The details includeupdated natural gas estimate from real-time desk, pipeline pressureissues, additional supply information from EPE storage or SequentEnergy Management intrastate natural gas contract, and/or plan tomitigate natural gas over supply.

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W 1 -

MARKETING ANDFUELS DEPARTMENT

El Paso Electric

EMPLOYEE ATTESTATION

Document No.

Version No. 1 1.2

Issued Date - ( I2/06/2013

Document_C_jlas__s_ificationInternal Use

I^for: [insert employee name], acknowledge that I am responsible

(check all that apply)- Fuel Procurement and/or Administration_ Off-System Sales and/or Purchases

I hereby attest to the following:

Ihave read the policies and procedures for all areas for which I have indicated my

responsibility above.I

understand that if I become aware of any activity that is not in compliance with thesepolicies and procedures, I will immediately bring it to the attention of the Director ofEPE's Power Marketing and Fuels department.I

also understand that should I fail to comply with these policies and procedures, I amsubject to discipline, up to and possibly including the loss of work duties and/or thetermination of employment, as warranted by the nature of the policy violated. and thefacts and circumstances surrounding the violation.

Date:(Signature}

(Printed)

63


SCHEDULE 1-2• FUEL AND PURCHASED POWER PROCUREMENT PRACTICESSPONSOR: DAVID HAWKINSPREPARER: KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015

Document A ravalspate Natae (Place your initiab next to

onr name to indicate our a roval Title05f3I,?012 John Whitacre121031202

Vice President = Power Marketing and FuelsSteve Buraczyk12106j2013 David Hawkios

Vice President - Power Marketing and FuelsVice President - Power Marketing and Fuels

Revision HistoryEffective Date Version Revised By

Revision History

EPE's pre-existing policy and proceduresdocuments governing the procurement of fueland of'f-system sales/purchases were combined

05/31J2012 1.0into a single volume, with this newly combinedvolume reflecting the addition of se tic ons torecord supervisor approvals, revision history anddocument distribution. This newly consolidatedvolume contains a single employee attestation

Pa$e, and is also intended to allow for the futureaddition of other icies

12/03/2012 1.1 Barry Gray Gatiflcatioa in Table ),page 42 and addedcooChange Summary:-VP change from Steve Buraczyk to DavidHawkins.-Added abbreviation listing.-General Fuel and PP Transaction / procurement jintention - Dodd-Frank - with 2 pro-activereviews to assist--Contract Administrator assigned toOGC/Compliance.

Dave Hawkins, Barry-Added Real-Time late nightJeveningauthorization to assist gas balanci fng e

Tort-I2I6/2013 L2 Gmy, Tony Soto, Cynthia requiring training and RT desk-top procedures.Henry Stanley Gross, ,

Fred Hill-Montana Plant added to local resources.-Intrastate supply/transport agreement languageto reflect new assigned to Sequent. PreviouslyOES.-MPT t MCT time clarification.-EPNG cycle nomination time update.-EPNG gas flow control equipment languagechange to include Newman 5, Rio Grande 9 andMontana.-Pro-active at least annual networkdesignation/undesigttation training added.Various wordsmithin than es.

Distribution

Date ^ Name12l612013 Department

Barry GraY PM&F - all reporting personnel12J612013 Fred Hill Contract Administrator12/6/2013 Ana Boisselier EA&CI2l612013 Marcos Lope2 PG (Information purposes)12/6J2013 Linda Barker EH&S ([nformation twroasesl


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Review and Update Responsibility and Cycle

Review Responsibility: Barry Gray, Tony Soto. Stanley Gross. Dave Holguin, Diana Gonzalez for PM&F, FredHill for Contract Administrator, and Ana Boisselier for EA&C.

Review Cycle: Annual review but updated as needed - as requirementschange.

Acronyms

EPE El Paso Electric CompanyEA&C Energy Accounting & CreditEH&S Environmental, flealth and SafetyFERC Federal Energy Regulatory CommissionPG Power Generation DepartmentPM&F Power Marketing &Fuels

Purpose

The purpose of these guidelines are to provide EPE employees with responsibilities in the areas addressed within thepolicies and procedures that are to be used in performing their duties and responsibilities. All employeesresponsible for activities and transactions covered by these policies and procedures are responsible forunderstanding and complying with them.

Scope

These policies and procedures apply to the following EPE personnel: Power Marketing and Fuels, EnergyAccounting & Credit, Contract Administrator. Power Generation and Environmental. Health & Safety,

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ATTACHMENT 3

FUEL PROCUREMENT AND ADMINISTRATIONOFF-SYSTEM SALES AND PURCHASES - DECEMBER 2014

^Yrnn


SCHEDULE 1-2: FUEL AND PURCHASED POWER PROCUREMENT PRACTICES PAGE 139 OF 204SPONSOR: DAVID HAWKINSPREPARER. KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015

E! Paso Electric

Resource ManagementDepartment

DOCUMENT COMPILATION OF POLICIES AND PROCEDURES ON:

FUEL PROCUREMENT AND ADMINISTRATIONOFF-SYSTEM SALES AND PURCHASES

Updated December 16, 2014

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SCHEDULE 1-2- FUEL AND PURCHASED POWER PROCUREMENT PRACTICESSPONSOR DAVID HAWKINSPREPARER: KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31. 2015

W-El Paso Electric

RESOURCE MANAGEMENT

DEPARTMENT

FUELS POLICIES AND PROCEDURES

Table of Contents:

Abbreviations

Fuel PlanningItFuel ProcurementIII• Fuel Contract NegotiationsIV. Fuel Contract AdministrationV. Fuel HandlingVI• Environmental ConsiderationsVII. Fuel Regulatory Affairs

Appendix A Nuclear Fuel Request for Funds ReviewAppendix B Emergency Gas ProceduresAppendix C Interstate Flow Control Action Plan


Document No, I

Version No. 1.3

Issued Date 12/16;201^

Document ClassificationInternal Use


SCHEDULE 1-2: FUEL AND PURCHASED POWER PROCUREMENT PRACTICESSPONSOR: DAVID HAWKINSPREPARER. KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015

Abbreviations:

A-Annual

AGC-Automatic Generation ControlANPP-Arizona Nuclear Power ProjectAPS-Arizona Public Service CompanyBTH-Bottom of the HourCEA-Commodity Exchange

CFTC- Commodity Futures Trading CommissionCOC-Critical Operating ConditionDA-Day-Ahead

DA&LT Day-Ahead and Long-Term TradingE&O-Engineering and OperatingEA&C-Energy Accounting & CreditEBB-Electronic Bulletin BoardEH&S-Environmental. Health & SafetyEPE -El Paso Electric CompanyEPNG-EI Paso Natural Gas CompanyFA-Financial Accounting DepartmentFC-Four Corners

FCSS - Fuel Cycle Scoping SoftwareFERC-Federal Energy Regulatory CommissionFM-Forward Marketer

FPP-Fuel and Purchased Power Budget ForecastH-HourICE-Intercontinental ExchangeLTC-Long Term ContractLTT&F-Long Term Trading and FuelsMCT-Mountain Clock TimeMPT-Mountain Prevailing TimeMO-MonthMTC-Mid Term ContractOATT-Open Access Transmission TariffOES-Oneok Energy ServiceOGC-Office of General CounselOWT-Oneok WesTexPG-Power Generation DepartmentPM&F-Power Marketing & Fuels Department


PR-Prescheduler

PVNGS-Palo Verde Nuclear Generating StationR&DP-Resource & Delivery PlanningRAM-Remote Asset ManagementRFF-Request for Funds

RP-Resource Planning, previously R&DPRP&NF-Resource Planning & Nuclear FuelRT-Real-Time Marketing or Real-Time TradingRM-Resource Management, previously PM&FSEM-Sequent Energy ManagementSOC-Strained Operating ConditionSRSG-Southwest Reserve Sharing GroupWACOG-Weighted Average Cost of GasWECC-Western Electricity Coordinating CouncilWSPP-previously Western Systems Power Pool.WSPP is also used as an organization name


SCHEDULE 1-2: FUEL AND PURCHASED POWER PROCUREMENT PRACTICES PAGE 142 OF 204SPONSOR DAVID HAWKINSPREPARER: KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015


El Paso Electric Company ("EPE" or "Company") is committed to providing its customers withreliable, efficient and economic electric service.

An effective fuels policy is important inmeeting this commitment. The Company's Fuels Policies and Procedures address the followingfuel

practices as established by the respective departments: planning, procurement, contractnegotiation and administration, handling, environmental planning, and regulatory affairs. Theinteraction and communication between departments is documented.

The Fuels Policies andProcedures is fully implemented and will be updated as required in keeping with the Company'scommitment to obtain a reliable and economic fuel supply and thereby provide the best possibleelectric service to its customers. In addition, Company generating units shall be dispatched in aneconomically and environmentally efficient manner while providing a reliable supply of electricpower to the Company's customers.

The responsibility for incorporating the Company's fuels policy into its operating and planningfunctions is shared by several departments.l Therefore, the Company's fuels policy and eachdepartment's responsibilities under the policy are documented in the following Fuels Policies andProcedures. In general, the Fuels Policies and Procedures should be treated as a general guide toassist EPE's fuel procurement to obtain reliable and least cost fuel prices - except for specificmanagement approvals discussed in Section II.

Fuels Planning

Resource Management (RM) shall estimate Company fuel requirements, forecast fuelavailability and prices based on evaluation of current and expected market conditions andtrends. In generation fuel planning, Day-Ahead and Long-Tenn Trading (DA&LT)personnel shall endeavor to provide an economic, reliable fuel supply with maximumflexibility and shall minimize over or under supply of fuel. Fuel forecasts shall bedocumented in a timely manner for use in Company planning, budgeting and regulatoryactivities. DA&LT and Resource Planning (RP) will continue to work and coordinateclosely to assist in meeting planning and operational study needs.

A.DA&LT personnel shall maintain monthly and long-term estimates and fuel

requirements using appropriate computer models and other planning tools. Theseforecasts shall be updated at least annually. These forecasts shall be consideredconfidential and treated appropriately.

The computer program PROMOD shall be used to provide monthly andlong-term estimates of generation fuel requirements. A PROMOD Basecase

I Several RM areas with responsibilities under these policies and procedures were reorganizedin 2014.The Power Marketing and Fuels department was reorganized as Resource Management

(RM). The Day-Ahead and Long-Term Trading area (DA&LT) was formed in August 2014 from RM's Long-TermTrading & Fuels (LTT&F). The planning functions of the former LTT&F area were also moved toResource & Delivery Planning (R&DP), which was subsequently renamed as Resource Planning (RP).

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PAGE 143 OF 204SCHEDULE 1-2: FUEL AND PURCHASED POWER PROCUREMENT PRACTICESSPONSOR. DAVID HAWKINSPREPARER. KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015


shall be updated periodically by RP with input from various departmentsincluding RM. In addition, sensitivity analyses will be performed as needed byRP to evaluate projected fuel costs, and future generating unit additions -termed long-term planning studies. The fuel requirements will be based on theprices and availabilities of the different fuels as obtained from DA&LT andinput into PROMOD for the economic dispatch of EPE's resources as simulatedby PROMOD. When required, PROMOD sensitivities of alternative fuels andfuel oil inventory level planning shall be made by DA&LT (because of theoperational nature of the review), with assistance from RP and EnvironmentalHealth & Safety (EH&S) (pertaining to oil procurement) as a means ofdeveloping a long-term fuel strategy. The fuel requirements shall be updatedperiodically to reflect substantive long-tenn changes in generation requirements,mix, and fuel regulations affecting availability and prices. DA&LT and RP shalluse the latest PROMOD basecase to perform short-tenn purchased power/salesanalyses, as well as any required periodic projected short -term sales marginstudies.

2. A one-year "Fuel and Purchased Power Budget Forecast" (FPP) will beprepared annually by DA&LT. The latest PROMOD basecase, as obtainedfrom RP, will be used to prepare the FPP. The FPP budget estimate willprovide a monthly listing of estimated fuel requirements (by generating plant)and purchased energy along with their estimated costs during the budget period.

3. DA&LT will develop estimated monthly and daily fuel requirements asrequired. DA&LT will consider any available natural gas imbalance volumesand supply in storage in determining gas procurement needs.

B. DA&LT personnel shall be aware of fuel availabilities and prices under existing fuelcontracts and market conditions.

Transportation (intra- and interstate), natural gas, and fuel oil suppliers to EPE'sgeneration resources will be contacted periodically for price and availabilityestimates.

The natural gas storage price shall be calculated using a weighted average ofnatural gas purchases in storage.

Arizona Public Service Company (APS), the Operating Agent for Four CornersStation Units 4 and 5, will be contacted periodically for Four Corners coalstation gas prices and availability estimates as required.

APS, the Operating Agent for the Palo Verde Nuclear Generating Station(PVNGS), will be contacted periodically by RP for PVNGS fuel priceinformation and forecasts and fuel loading schedules.

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SCHEDULE 1-2 FUEL AND PURCHASED POWER PROCUREMENT PRACTICES PAGE 144 OF 204SPONSOR: DAVID HAWKINSPREPARER* KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015


5. The fuel oil inventory price shall be calculated by DA&LT and/or Day Aheadusing a weighted average of fuel oil purchases into inventory as additional oilsupplies are delivered to EPE's current inventory. Fuel oil inventory levelsshall be reported at least quarterly by the Power Generation Department (PG).

6. Potential fuel suppliers for all fuel types shall be contacted as required to surveycurrent prices and availabilities. EH&S will be responsible for all fuel contentand chemistry analyses. See Sections V.B and VI.A.4 for additional inventorydetails.

Energy and fuel-related magazines, journals, reports, newsletters, etc., will bereviewed regularly to evaluate market supply, demand, prices, and to monitorprices paid by other utilities if available.

C. Forecasts of short and long-term term fuel prices and availability forecasts shall beperformed for use in procurement, planning, budgeting and regulatory activities.

Natural gas forecasts will be derived utilizing forecasts from governmentalagencies, natural gas suppliers, national fuel associations, private forecastingservices and/or market indices.

2. Four Corners coal and Four Corners gas forecasts will be obtained at leastannually from APS. Four Corners coal and gas forecasts will be based on theappropriate escalation changes for selected commodities specified in the FourCorners Coal Contract and estimates from APS. Private forecasting services,such as IHS CERA (formally Global Insight), may be utilized to obtainprojections for the various economic indicators specified. Market coal forecastswill be based on forecasts developed by coal companies, governmentalagencies, national fuel associations and/or private forecasting services.

;. Fuel oil forecasts will be based on estimated average inventory prices andmarket fuel oil. Market fuel oil forecasts will be based on forecasts for ultra-low sulfur No.2 fuel oil (diesel) from governmental agencies, major/local oilcompanies, national fuel associations, private forecasting services and willinclude a transportation expense estimated to EPE's local area.

4.PVNGS nuclear fuel forecasts are based on nuclear fuel assumptions, cash flowinformation, operations schedule and nuclear fuel component pricing from APS,the PVNGS operating agent. Using this information and estimated monthlyPVNGS energy, Financial Forecasting develops nuclear fuel prices that includenuclear fuel trust interest. Financial Forecasting also provides rates foramortized expenses for post-load interest, revolving credit facility and dry caskstorage in which RP adds these expenses to the fuel rates. APS may from time

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to time provide EPE a specific mills/kWh forecast using the projects Fuel CycleScoping Software (FCSS) and/or APS will provide cash flow and core loadinginformation for in-house forecast development by EPE's Financial Services. RPwill provide EPE's Financial Services the estimated Palo Verde MMBtu usageby month over the term so that a$lMMBtu price forecast can be determinedbased on the latest Palo Verde maintenance schedule. The energy is based onplant modeling in PROMOD.

The firm purchased energy price forecast, as applicable, will be based onregional and market data reflecting what EPE could expect to purchase or sellenergy at the Palo Verde switchyard. Emergency power prices shall be basedon current market peak conditions and/or based on pertinent reasonable ceilinglimits.

11. Fuel Procurement Procedure

DA&LT personnel will procure natural gas, coal, and oil, and RM will procure nuclear fuelsupplies to meet generation needs.

GENERAL TRANSACTION INTENT - to Meet EPE's Obligations

Statement of Intent: As stated above, it is intended that any fuel and purchased powerprocured are for EPE's use and expected to be taken to delivery. Therefore, all fuel andpurchased power should be considered Forward Contracts within the meaning of theCommodity Exchange Act (CEA) and the Rules of the Commodity Futures TradingCommission since:(a) EPE is a commercial market participant with respect to the specified commodity and

is entering into the transaction in connection with its business:(b) EPE intends to make or take physical delivery of the specified nonfinancial

commodity, and(c) if any transaction includes volumetric optionality, any exercise, or non-exercise, of

such volumetric optionality by the holder thereof is based primarily on factors outside ofEPE control and which influence demand for, or the supply of, the specified nonfinancialcommodity, such as the impact on its commercial needs of physical factors (such asweather, customer demand, transport, shipping, or other operational constraints) orregulatory requirements.

Two proactive reviews are suggested to be performed at least annually to assist incomplying with the requirements of the Dodd-Frank Act - i) a random sample review oftransactions in Aligne to help ensure that EPE's transactions comply with EPE's intentionof Forward contracts expected to be taken to delivery and ii) in-house marketing trainingclasses discussing Dodd-Frank requirements and implications to EPE by the Office of the

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General Counsel (OGC).2 These reviews are under development and subject to changebased on Dodd-Frank and CTFC changes as the rules are further developed.

EPE's fuel procurement, review and approval procedure policy is presented below.

A. Gas Procurement: DA&LT personnel will determine EPE's expected gas demand forcurrent and/or next day, monthly and extended tennis including greater than onemonth but less than one year (called mid-term contracts) and one year (annual) orgreater (called long-term contracts) via a review of planning studies and historicalgas demand. The mix of contract terms may vary based on market and supplyconditions and EPE's management review.

All natural gas procurement confirmations received from suppliers are to be faxed,reviewed and disseminated by the assigned Contract Administrator3 formanagement review and approval. These confirmations are to be included in theappropriate documentation memorandums as discussed below. The ContractAdministrator was reorganized to the Office of the General Counsel (OGC),Compliance and Risk Management and now reports to the Vice President ofCompliance and Risk Management and Chief Risk Officer. All gas purchases are tobe entered into EPE's deal capture system (Aligne) as soon as practicable but no laterthan the following dar of the transaction date by the trader.

2 References to the Office of General Counsel in this document include both EPE's internal and externalcounsel.

3 The assigned Contract Administrator reports to the Vice President, Compliance and Chief Risk Officer.

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EL PASO ELECTRIC COMPANYSCHEDULE 1-2


SCHEDULE 1-2: FUEL AND PURCHASED POWER PROCUREMENT PRACTICESSPONSOR: DAVID HAWKINSPREPARER: KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015


Gas Purchase Approval Summary Table:

Gas EPE Gas Purehase Approval After the Fact Final ManagementTransaction Purchaser Type Prior to Documentation Approval Level

Tv e Commitment SignaturesDaily Gas Pre-Scheduler Index Price No Yes. Daily Deal Sheet Suprvr. DA&LTPurchase Fixed Price ;So Yes. Daily Deal Sheet Su . rvr. DA&LT

Monthly Gas Long-Term Index Price Yes Yes, Spot Memo and Suprvr. Director RMPurchase Trader Fixed Price Yes Confirmations Su rvr, Director RM

Mid-Term Long-Term Index Price Yes Yes, MTC Memo and DA&LT ManagementPurchase Trader Fixed Price Yes Confirmations DA&LT ManagementAnnual Long-Term Index Price Yes Yes, MTC Memo and DA&LT Management

Purchase Trader Fixed Price Yes Confirmations DA&LT ManagementLong-Term Long-Term Index Price Yes Yes. MTC Memo and DA&LT Manaeement*Purchase

All LR ....__

Trader__ __ _I- I

Fixed Price Yes Confirmations_

DA&LT Management*nu gaa } uiciiasc^ are vaseu on competitive survey.

* VP may require/request senior management approval before commitment.

DA&LT personnel will issue a competitive bid request for gas proposals toprocure EPE's long-term gas requirements based on a gas requirements reviewof planning studies performed in Section I.A and/or historical gas demand.Once bid responses are received from the survey from fax, email and/or instantmessaging, procurement will be based on economics, credit of supplier, andreliability of gas supply.

a. DA&LT personnel will document all pertinent procurement activity toinclude reason for long-term gas supply, bid response information, optionsavailable and recommended action in a separate purchase memorandum.

b. The DA&LT Supervisor, Director - Resource Management (RM) andVice President System Operations Resource Planning & Management("VP") comprise EPE's DA&LT Management. DA&LT Managementwill review and approve any long-term purchase before procurement ismade on all long-tenn supplies.

Once approved by DA&LT Management, DA&LT personnel will contactthe winning bidder via phone call and/or instant messaging and begincontract negotiation as described in the following section or use masteragreement confirmation if already in place. All confirmations will beincluded in documentation memorandums.

2. DA&LT personnel will issue a competitive bid request to procure EPE's mid-term gas requirements based on a gas requirements review of planning studiesperformed in Section LA and/or historical gas demand. Once bid responses arereceived from fax, email and/or instant messaging, procurement will be based

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PAGE 148 OF 204SCHEDULE 1-2: FUEL AND PURCHASED POWER PROCUREMENT PRACTICESSPONSOR. DAVID HAWKINSPREPARER: KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015


on economics, credit of supplier and reliability of gas supply available at thetime.

a. DA&LT personnel will document all pertinent procurement activity toinclude reason for mid-term gas supply, bid response information, optionsavailable and recommended action in a separate purchase memorandum.

DA&LT Management will review and approve the purchase beforeprocurement is made of mid-term gas contracts. DA&LT Managementwill review and sign the mid-term gas contract memorandums.

c. Once approved by DA&LT Management, DA&LT personnel will contactwinning bidder via phone call and either begin contract negotiations or usemaster agreement confirmation if already in place. All confirmations willbe included in documentation memorandums.

If monthly gas procurement is required based on a review of planning studiesperformed in Section LA and/or historical gas demand to meet daily gasrequirements. DA&LT personnel will issue a competitive bid request forproposal based on a gas bid letter, phone surveys and/or instant messaging.Once the bid letter response/survey is obtained through fax, email and/or instantmessaging, procurement will be based on economics, credit of supplier andreliability of gas supply.

a. DA&LT personnel will document all pertinent procurement activitv toinclude reason for monthly gas supply, bid survey information, optionsavailable, recommended action and final result in a monthly purchasememorandum.

b. The DA&LT Supervisor and Director will review/approve the purchasevolume before procurement is made with the understanding that thelowest priced and reliable bidder will be accepted. The DA&LTSupervisor and Director will review and sign the monthly memorandums.

c. Once approved by the DA&LT Supervisor and Director, DA&LTpersonnel will contact winning bidder via phone call and either begincontract negotiations or use master agreement confirmation if already inplace. All confirmations will be included in documentationmemorandums.

4. If daily or any rest of month gas procurement is required, DA&LT Pre-schedulers assigned to natural gas oversight duty will solicit competitive offersby phone, instant messaging, Intercontinental Exchange (ICE) and/or otherutilize recognized industry resources. Procurement will be based on economics.

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SCHEDULE 1-2: FUEL AND PURCHASED POWER PROCUREMENT PRACTICES PAGE 149 OF 204SPONSOR: DAVID HAWKINSPREPARER. KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015


credit of supplier and reliability of gas supply available at the time. Real-TimeTrading (or Real-Time Marketing) personnel are to provide intra-day gas usageinformation as needed to Gas Pre-scheduler(s) assigned to gas duty as changesbecome known based on the latest unit commitment information. Real-Timepersonnel are not authorized to procure natural gas unless specificallyauthorized by management. Real-Time personnel are authorized to assist inbalancing EPE's gas requirements with scheduled volumes using variousmethods available - such as flow day diversion (move gas between deliverypoints), gas storage injection / withdrawal revisions to initial nomination,intrastate (but not below base without approval from pre-schedulers) or other asavailable but only after i) appropriate training / certification by the pre-schedulers and ii) desk-top procedures are completed/approved and in place toassist.

Pre-schedulers will review Real-Time Trader's previous late night balancingefforts as needed and adjust training to make sure Real-Time is making theappropriate gas balancing adjustments.

a. Preschedulers will document all pertinent daily procurement activityincluding the reason for incremental gas supply, survey bid information,recommended action and final result in a daily memorandum if ICE is notused.

b. If a competitive phone survey and/or instant messaging are used, Gas Pre-schedulers personnel will contact winning bidder via phone call and/orinstant messaging and either begin contract negotiations, use masteragreement if already in place or use confirmation letter/notice. Otherwise,recognized industry transaction confirmation will be used.

c. The Supervisor DA&LT will review and sign daily documentationmemorandums or deal sheets after procurement.

DA&LT Management and section personnel will participate in periodic (atleast quarterly) meetings to evaluate procurement of long-term and mid-term,fixed and market index-based price gas contracts as part of its portfolioconcept. If the group consensus is to procure a particular type of contract, theDA&LT personnel will attempt to procure said contract after a competitiveprice bid/survey is performed and availability is determined.

DA&LT personnel will periodically compare EPE's procured natural gassupply base price position with the appropriate index price on a historical basis.If DA&LT Management decides to adjust contract procurement amount.DA&LT personnel will review the natural gas supply mix and evaluate theneed and opportunity for a change in long-term and/or mid-term portfolio

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contracts based on current market conditions and expectations. Any supplyprocurement will be discussed in the A/LTC/MTC approval documentationmemorandums discussed in II.I.b and II.2.b above. It should be noted,however, that management of EPE's gas supply portfolio may not affect EPE'sbase price until later periods due to timing issues associated with EPE's gasrequirements and existing gas supply contracts in place at the time.

Emergency situations associated with either disruption of natural gas suppliesand situations on EPE's system may significantly impact volume of natural gasprocured and/or price in the short-term. DA&LT's emergency or curtailmentprocurement of gas supplies to meet reliability issues may or may not,depending on the situation, be used in EPE's base price to index comparisonsince they were made to meet reliability concerns.

B. Coal Procurement: DA&LT personnel will review all Four Corners fuel contractproposals from the Four Corner Operating Agent (APS) from a reliability, coalrequirements and/or economic planning considerations.

a. DA&LT personnel will document all pertinent review activity including thereason for the coal procurement proposal, options available andrecommended action in a separate review memorandum.

b. OGC will review the coal contract and any associated authorization letter asto form and legal content as discussed in Section III.

c. DA&LT Management will review and approve before authorization isprovided to the Operating Agent.

C. Nuclear Procurement: RP personnel will review all nuclear fuel contract proposalsfrom the Palo Verde Operating Agent (APS) from a reliability, nuclear fuelrequirement and/or economic planning considerations.

a.RP personnel will document all pertinent review activity to include reasonfor the nuclear procurement proposal, options available and recommendedaction in a separate review memorandum.

b. As part of RP review. OGC will review the nuclear contract and anyassociated authorization letter as to form and legal content as discussed inSection Ill.

c. RP and VP will review and approve before authorization is provided to theOperating Agent.

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EL PASO ELECTRIC COMPANYSCHEDULE I-2




D. Oil Procurement: RP and DA&LT personnel will determine the estimated need foradditional fuel oil based on reliability. EPE's fuel oil inventory will be used foremergency purposes and operator training because of environmental emissionlimitations in the El Paso area. These limitations include ozone, carbon monoxideand particulate matter as detennined and monitored by EH&S. Section IV A and Breferences inventory fuel handling procedures. Only fuel oil No. 2 (light gas oil)ultra-low sulfur diesel will be procured due to environmental concerns. Competitivebid process will be used in the procurement of fuel oil, unless market based contractsare already in place and approved.

a. DA&LT personnel will document all pertinent procurement activity toinclude reason for procuring additional fuel oil supply, bid responseinformation/contract information, options available and recommendedaction in a separate purchase memorandum.

EH&S and plant managers will be notified of the pending fuel oilprocurement so they can ensure oil quality, adequate truck deliveryequipment and health/safety compliance.

c. The DA&LT Management will review and approve before fuel oilprocurement is made.

d. EH&S and plant managers will be notified of the approval and pendingfuel oil procurement to coordinate/manage deliveries, quality checks andenvironmental off-loading concerns in a timely manner.

Once approved by DA&LT Management, DA&LT personnel will contactbidder/contract via phone call to coordinate deliveries, quality and off-loading requirements.

DA&LT may provide contact information as needed to coordinateactivities as needed in a. through e. to the fuel oil supplier and PowerGeneration.

111. Fuel Contract Negotiations

DA&LT and the Contract Administrator shall be responsible for negotiating fuel supplyagreements for the Rio Grande, Newman, Montana, and Copper Generating Stations.DA&LT personnel shall be responsible, in conjunction with the other participant owners ofFour Corners Units 4 and 5, for negotiating fuel supply agreements for Four Corners Units4 and 5. RP will oversee APS, as the Palo Verde Operating Agent, shall be responsible forproviding the fuel supply for the PVNGS under the guidelines established in the ANPPParticipation Agreement (excluding uranium concentrates provided independently by anyPalo Verde Participant). APS shall present fuel supply recommendations to the

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EL PASO ELECTRIC COMPANY SCHEDULE !-22015 TEXAS RATE CASE FILING PAGE 152 OF 204SCHEDULE 1-2- FUEL AND PURCHASED POWER PROCUREMENT PRACTICESSPONSOR- DAVID HAWKINSPREPARER KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015


Administrative Committee for their review and approval. RP shall be responsible foroverseeing and reviewing APS fuel supply recommendations and providing arecommendation concerning approval to EPE's Administrative Committee representative.

A. Gas Contracts:

DA&LT personnel, in conjunction with the Contract Administrator, willdevelop draft contracts to exchange/negotiate with natural gas supply vendor.

2. OGC and/or outside counsel will review all draft gas supply contracts andprovide recommendations as to form and content to ensure legal appropriatenessand state/federal regulatory compliance.

3. OGC will provide final contract review and approval as to form prior toDA&LT Management review and approval.

4. Master gas/fuel oil contracts may be in place for future LT, MTC, monthlyand/or daily deliveries as long as they are based on market prices and approvedby DA&LT Management and OGC as to form.

5. A creditworthiness review will be performed on all new natural gas suppliersand a periodic review on existing gas suppliers to help ensure supply reliability.

B. Coal Contracts:

APS is responsible for developing initial contracts to purchase the coal supplyfor Four Corners and APS will negotiate with Four Corners coal supplier.

2. DA&LT and OGC will provide input to APS to use in future draft contracts andapprove all Participants authorization letter/notice allowing APS to negotiate afinal contract with Four Corners' coal supplier.

EPE's authorization letter/notice will state in some form that APS must use bestefforts in implementing DA&LT and EPE's OGC significant comments or APSwill provide timely notice if such comments were not accepted by Four Cornerscoal supplier.

4. OGC will provide final authorization letter/notice or legal stamp of legal reviewand approval as to form prior to DA&LT Management review and authorizationapproval.

If APS provides notice that EPE's comments (legal or otherwise) were notaccepted by coal supplier. DA&LT personnel and OGC will discuss anddetermine recommendation to DA&LT Management on any appropriate action.

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C. Nuclear Contracts:


I. APS is responsible for developing contracts to purchase nuclear fuel, exchangenuclear fuel forms and negotiate with Palo Verde nuclear fuel suppliers.

RP and OGC will review proposed contracts and provide input to APS to use insuch contracts and recommend approval of all Participants' authorizationletters/notices allowing APS to negotiate final contracts with the Palo Verdenuclear fuel supplier.

RP will notify APS of significant and general comments on proposed contracts.APS is to provide timely notice if significant comments were not accepted byPalo Verde nuclear fuel supplier. EPE's authorization letter/notice will state insome form that APS must use best efforts in implementing RP and OGC'sgeneral comments and any understanding as to EPE's acceptance of APS'review of EPE's comments.

OGC will provide final authorization letter/notice review and approval as toform prior to or in tandem with RP Management and VP review andrecommendation for authorization approval.

If APS provides notice that EPE's significant comments (legal or otherwise)were not accepted by Palo Verde nuclear fuel supplier, RP and OGC willdiscuss and determine recommendation to RP management and VP on anyappropriate action.

D. Fuel Oil Characteristics

Fuel Oil Characteristics shall be based on oil specifications established by EPE's PGand/or EH&S for the local units and in conjunction with APS for Four Corners Station andPVNGS. Such specifications shall take into account the operating characteristics of eachgenerating unit in EPE's system and the regulatory and environmental constraints established byfederal, state and local authorities.

IV. Fuel Contract Administration

Administration of existing fuel supply contracts shall assure that performance is incompliance under all agreements and is in the best interests of the Company. Companypersonnel shall closely interface with suppliers under existing fuel contracts to ensure anopen line of communication with regard to contract administration.

A. Company personnel shall verify delivery schedules, delivered amounts, unit costs,methods of delivery and quality of delivered fuels.

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SCHEDULE I-2: FUEL AND PURCHASED POWER PROCUREMENT PRACTICES PAGE 154 OF 204

SPONSOR: DAVID HAWKINSPREPARER: KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31, 2015


Power Generation (PG) shall be responsible for verifying and reporting fuelquantities delivered to Rio Grande, Newman, Montana, and Copper GeneratingStations. EPE's PG and EH&S shall also be responsible for verifying thequality of fuel delivered to the Rio Grande, Newman, Montana and CopperStations. PG will be aided by DA&LT in reconciling supplier invoices to totaldeliveries reported at the local stations as needed. Any supplier noncomplianceshall be reported immediately to DA&LT for appropriate action.

DA&LT shall be responsible for verifying fuel costs for fuel delivered to theRio Grande, Newman, Montana and Copper Generating Stations during the gasinvoice review process and that such costs are in compliance with contractprovisions. DA&LT and/or Energy Accounting & Credit (EA&C) shall reportimmediately any problems relating to quantity and cost directly to the supplierand see that appropriate action is taken. EH&S and DA&LT shall reportimmediately any problems relating to quality to the supplier and see thatappropriate action is taken.

3. PG shall report on a monthly basis the quantity and estimated cost of fuelconsumed in all Company power plants.

4. DA&LT shall assist in monitoring Company fuel usage and determine whetherfuel deliveries are in compliance with contract provisions.

5. EA&C shall receive the original monthly invoices for natural gas purchasedfrom the Company's natural gas suppliers as well as any fuel oil invoices. Uponverification of unit price and volumes received from DA&LT and PG,respectively, the invoices will be forwarded for payment. The same procedureshall apply to fuel oil transportation invoices.

6. APS shall be responsible for the verification of the quantity quality and cost offuel, pursuant to contract stipulations, delivered to Four Corners Units 4 and 5.

EA&C, Remote Asset Management (RAM) in PG and/or DA&LT personnelshall periodically monitor APS reports of fuel usage, cost and quality at FourCorners for reasonableness and for adherence to contract stipulations. Companypersonnel in the Four Corners Coordinating Committee, the Four Corners E&OCommittee and/or DA&LT shall monitor all fuel-related activities at FourCorners. EA&C shall review for reasonableness fuel charges reported by APSagainst Four Corners coal invoices received from the coal supplier. APS willthen send invoices to the Four Corners Participants for coal supplied during themonth.

7. APS shall be responsible for the verification of quantity, quality and cost offuel, pursuant to contract terms, delivered to the PVNGS (excluding uranium

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EL PASO ELECTRIC COMPANY SCHEDULE I-22015 TEXAS RATE CASE FILING PAGE 155 OF 204SCHEDULE 1-2: FUEL AND PURCHASED POWER PROCUREMENT PRACTICESSPONSOR. DAVID HAWKINSPREPARER: KATHY PETERSONFOR THE TEST YEAR ENDED MARCH 31. 2015


concentrates contracts entered into independently by any Palo VerdeParticipant). APS will send Requests For Funds (RFF) to Palo VerdeParticipants for their share of nuclear fuels costs. The RFF will include invoicesfor fuel components and expenses for PVNGS other than for diesel fuel oil foron-site electric generation for station service in the event of the loss oftransmission facilities used to bring in off-site power. RP and/or EA&C areresponsible for reviewing RFFs for reasonableness by comparing the RFF price,quantity and delivery to contract terms. RP management and VP of SystemOperations, Resource Planning & Management will be responsible forapproving EPE's share of RFFs. The approved RFF will be sent to CashManagement for payment. If an RFF must be paid under protest, the Director -RP will write the protest and coordinate with the Director of RAM on theprocedures for conveying the protest to the APS. The final protest letter will beforwarded to EPE's Cash Management. Company personnel on the Palo VerdeAdministrative Committee, Palo Verde E&O Committee, RP and/or RAM shallmonitor all fuel-related activities at Palo Verde. RP and/or RAM shall alsoparticipate in the Nuclear Fuel Task Force meetings for the purpose ofmonitoring nuclear fuel-related activities. Appendix A provides additionalreview details on RFF.

B. EPE's Financial Accounting Department (FA) conducts audits to ensure adherence tocontract provisions. These audits shall be performed periodically by FA or adesignated representative at the various Audit Committees of Four Corners and PaloVerde.

A periodic review of the monthly fuel adjustment factors, as determined by FAand customer billings, shall be performed. The review shall consist ofrecalculating the fuel computations and their application in accordance withapplicable tariffs and rate schedule requirements.

2. Verification shall be made of the costs pertaining to any agreements and toascertain compliance with the Trust agreements.

Review shall be made of the fuel suppliers' cost computations and suppliercompliance with all provisions of existing fuel agreements shall be ascertained.

4. Observations of the oil inventories shall be made periodically to ascertain thatoil inventory exists and that the quantities agree with the fuel oil reports. Theseshall be coordinated with the PG for the local power plants.

Reviews shall be made of the fuel purchase policies and procedures to ascertainthat internal controls are adequate.

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V. Fuel Handling

Company personnel shall coordinate fuel deliveries in an efficient, reliable,environmentally friendly and economical manner.

A. DA&LT personnel and PG shall determine and monitor alternate methods oftransporting Company fuels to achieve the most environmentally friendly andeconomical means of fuel transportation and act as liaison with fuel transportcompanies to coordinate fuel deliveries.

DA&LT personnel shall maintain current information regarding available fueltransportation methods, procedures, routes and the costs associated with eachmethod of transporting fuel to Company generating units.

a. The fuel source for the Four Comers Plant is a coal mine adjacent to thepower plant. All reference to the fuel source point of origin shall beconsidered at the power plant and there shall not be "transportation" costsper se associated with the coal supply.

b. DA&LT personnel shall be aware of the feasibility and cost oftransporting coal from various coal-producing areas to potential futureCompany coal-fired generating station sites.

Natural gas shall be delivered to the Newman, Montana, Rio Grande andCopper Generating units via pipelines owned and operated by El PasoNatural Gas Company (EPNG) on the interstate system and ONEOKWesTex Transmission (ONEOK) on the intrastate system. DA&LTpersonnel shall maintain current information on alternate suppliers (if any)and on the costs of transporting natural gas from various gas-producingareas to the El Paso area. In addition, DA&LT personnel shall be aware ofcurrent supplier (EPNG and ONEOK or Sequent) policy and charges fortransporting natural gas obtained from other sources, including marketsources. Also, Federal and State legislation concerning the transportationof natural gas shall be monitored and the impacts on the Companyanalyzed.

d. Any natural gas imbalance and shrinkage volumes will be consideredoperational supply and taken into account in all natural gas procurementactivities.

e. Fuel Oil shall be delivered to Newman Station via truck. The deliverymethod shall be based on the transport mode available to the particularstation and on the economics involved if two modes are available.Additionally, the reliability of the transportation method shall be taken

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