Those problems included:

--Energy demand for Santa Cruz County and its major population center Nogales, Arizona was projected to exceed existing local generation and outside transmission capacity  in a few years. In addition, due to the single radial transmission line serving the area, power outages were common. In response to this situation Tucson Electric Power (TEP) proposed a new 345 kv transmission line from Tucson to Nogales, with about 100 MW of the capacity allocated to Nogales, and 400 MW of capacity allocated to providing interconnected energy flow between the United States and Mexico.

--The proposed TEP power line ignited a firestorm of controversy throughout the Santa Cruz Valley as proposed alignments of the line either negatively impacted proposed wilderness areas, or the significant riparian and historic areas within the Santa Cruz River valley itself.

--The government of Mexico had initiated a program to issue 25 year Power Purchase Agreements (PPAs) to Independent Power Producers (IPPs) to attract energy companies from outside of Mexico to build new power plants inside Mexico to serve that country's growing energy demands. These 25 year PPAs are issued under a competitive bidding process. The government-owned electric utility of Mexico, the Comision Federal Electricidad (CFE) was tendering a bid called "Naco-Nogales" for approximately 250 MW of new generation, with this new power plant to be located either in Nogales, Sonora, or Naco, Sonora.

--Nogales, Sonora did not have any natural gas supply via pipeline. The existing natural gas pipeline serving Nogales, Arizona only had about 7.5 million cubic feet per day of delivery capacity. The gas supply for Nogales, Arizona was insufficient to serve the residential, commercial and industrial needs of the Arizona city, let alone fuel the 48 MW of local generation available within the city for emergency demands when the transmission line failed.

--Wastewater from Nogales, Sonora (which has a population estimated at 350,000 people) is treated at the Nogales International Wastewater Treatment Plant (NIWTP) in Nogales, Arizona. The NIWTP also treats wastewater from Nogales, Arizona (population 22,000). The existing treatment plant has a capacity of 17.2 million gallons per day, of which 9.9 mgd is allocated to Mexico and 7.3 mgd is allocated to the Arizona needs. Wastewater flows from Mexico routinely exceed the 9.9 mgd allocation for Mexico, the pipeline carrying the Mexican wastewater to the NIWTP is badly in need of rehabilitation as it absorbs over 3 mgd of inflow and infiltration, and the treatment plant capacity is essentially all consumed. New US federal and state water quality standards dictate that the NIWTP must be upgraded to meet the more stringent environmental standards. Mexican governmental officials are less than enthusiastic about paying the capital costs to upgrade this treatment plant or to pay higher operating costs, as all the treated wastewater from Mexico ends up in the Santa Cruz River, which flows north into the interior of Arizona. The treated effluent sustains a significant riparian area and a population of endangered species of fish.

The concerned Santa Cruz County residents banded together and created the Maestros Group and formulated a comprehensive solution to the five challenges facing the region.

The initial issue was...if someone (TEP) wanted to sell 400MW of energy to Mexico via a transmission line, and if Mexico was putting out bids for new power plants to serve Mexican energy demand, why couldn't those Mexican demands be met from a power plant located in Nogales, Arizona?

Simply put--why not a power plant in Nogales, Arizona?

Maestros Group formulated a proposal for a power plant in Nogales, Arizona to provide energy to Mexico and to Santa Cruz County. Click here for the updated Maestros Group Proposal.

In order for the Maestros Group proposal to work, we needed the following:

--a new natural gas pipeline to provide at least 80 million cubic feet per day of gas supply

--cooling water

--a site

--a Presidential Permit

--financing to build the power plant

--someone to operate the power plant.

We then set out to see if all the pieces could be assembled.

The result was yes they could.

El Paso Natural Gas (EPNG) company expressed interest in building a new pipeline from Tucson to Nogales--provided there was a customer demand large enough to justify the pipeline. EPNG in fact built a new pipeline from Wilcox to Douglas, Arizona and across the Mexican border to serve a power plant in Agua Prieta, Mexico. Thus there was precedent for the gas supply to emerge.

Maestros Group proposed utilizing 3 million gallons per day of treated wastewater from the NIWTP for cooling water for the power plant, now called the Ambos Nogales Generating Station  (ANGS), and had the feasibility of this verified.

Maestros Group identified at least 3 viable sites upon which a large power plant could be constructed.

Maestros Group applied for a Presidential Permit.

Maestros Group obtained a Financial Advisor who has guided the effort through preliminary due diligence.

And Maestros Group entered into confidential agreements with equipment suppliers and operating entities, the combination of which provided the capability to construct and operate a power plant.

In the course of this effort, Maestros Group established a set of criteria to guide the development of this project. The criteria were essential to protecting both the economic and environmental benefits being sought by this effort. Click here to see the criteria.

Simultaneously, the Mexican government repeatedly delayed the formal announcement of its 25 year PPA bid for 400+ MW called "Agua Prieta II".

Thus, the stage had been set for a bid to originate from Nogales to the Mexican government based on a power plant in Nogales, Arizona.

Through extensive contact with the Mexican government, Maestros Group was ultimately advised in January 2004 that under no circumstances would Mexico entertain a 25 year bid from a power plant on the US side of the border.

The Mexican government also made it clear that any wastewater treatment facility providing cooling water for the power plant had to be located within the fence of the power plant and be an integral part of the power plant. Thus, use of any treated wastewater from the NIWTP was ruled out.

However, the Mexican government also suggested that as an alternative, Maestros Group could consider a "self supply" project whereby instead of selling energy direct to CFE, the power plant could sell direct to state and local governments in Mexico and to private industries, with CFE providing the wheeling.

Maestros Group then pursued the "self supply" alternative to the point of proving that alternative was also viable.

As part of this effort, Maestros identified a power plant site in Nogales, Sonora, and verified the feasibility of constructing an advanced wastewater treatment plant adjacent to the proposed power plant. This treatment plant would not only provide cooling water for power generation, it would also provide potable water supplies to Nogales, Sonora. The cooling water would be derived from wastewater generated in Nogales, Sonora in excess of the 9.9 mgd treaty limit--thus solving the problem of excess flows into Arizona and providing funding for treatment of the excess flows (by selling the treated water to the power plant) such that Nogales, Sonora would not be burdened with the capital cost for the wastewater treatment.

Maestros Group also had extensive discussions with potential customers in Sonora to verify that a "self supply" project was feasible. And it is.

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Ultimately what transpired is our grand unified solution has been split into several individual pieces. Our goal for local generation in Nogales, Arizona has been picked up by the City of Nogales. That city is now actively pursuing a local generation facility in tandem with the Nogales International Wastewater Treatment Plant (NIWTP).

The goal of assuring a continued flow of the 9.9 mgd of treated effluent from the NIWTP into the Santa Cruz River is now being pursued by a working alliance of the state of Arizona, the state of Sonora, and Ambos Nogales.

And a power plant which will utilize the wastewater flows in excess of the 9.9 mgd and which will benefit the people of northern Sonora (and eliminate the need for a huge transmission line through southern Arizona) is being actively discussed within the highest levels of the Mexican government.

WHERE ARE WE NOW?

The "Agua Prieta II" CFE bid continues to be delayed. A major issue with this bid--if and when it is ever issued--will be if an alternative delivery point is established in Nogales, Sonora. Maestros Group has actively promoted the idea of establishing an alternative delivery point in Nogales, Sonora for two reasons--(1) to assure there is a competitive bid for CFE so that the company with a power plant in Agua Prieta is not the sole bidder for this contract, and (2) to open the door for Nogales, Sonora to benefit from power generation and to solve their wastewater treatment problem.

In the event the CFE bid process fails to open the door for power generation in Nogales, Sonora the "self supply" effort will undoubtedly be pursued. A central issue in the "self supply" modality will be the degree to which CFE opts to encourage or discourage a "self supply" solution.

As 2004 came to a close, it was our understanding that considerable discussion was going on within the Mexican government over the many issues raised--and most importantly the relationship with wastewater management and treatment and power generation in border cities.

Our effort has been fundamentally oriented to maximizing the benefits of both wastewater treatment and power generation to create an economic and environmental "win-win" in our border region.

Like virtually all efforts in both Mexico and the United States, seeking multiple levels of benefits from projects involves multiple agencies within the governments--with different agencies having different agendas and rules. Thus there are often jurisdictional obstacles that have to be resolved. This is also true when multiple corporate entities have to be woven together to move a project like this forward--including natural gas suppliers, transportation of the gas, wastewater treatment, and the power plant and all of its elements.

What is clear at this juncture is that a power plant in Nogales, Sonora with a tandem wastewater treatment plant is absolutely feasible. How this will resolve itself is yet to be determined as the ball is in Mexico's court to decide whether or not they desire this multiple benefit solution to be sited in Nogales, Sonora.

What role Maestros Group will play in the future is equally unclear at this point.

Having proven the viability of this project through both governmental and private sectors, there is nothing proprietary about our role. If the Mexican government opens the door for power generation in Nogales, Sonora, this project likely will proceed without any further role for us.

Or maybe we'll be invited into participation of the implementation of the project.

What will be constant, regardless of any role we play in implementing a power plant/wastewater treatment plant combination in our region,  is that the criteria we established is absolutely essential for the project--both for its public acceptability and for its long-term environmental enhancement.

The Mexican government has again delayed the publication of the bid announcement for a 25 year purchase contract from a new power plant entitled CC Agua Prieta II.

The formal bid notification will be published by the Comision Federal Electricidad (CFE) in Diario on January 13, 2005.

SEE MAESTROS GROUP PRESENTATION