2
Why You Should Just Enjoy Dinner
Shary-who?
Sugarland?
“Aren’t you a co-op?”
What exactly have you done?
Prior to last July:
Sharyland Utilities was the smallest Investor Owned Utility in
North America
Peak load of 22 MW
15 miles of 138kV line
Aren’t you the guys who traded silver?
3
Why Maybe it’s Worth Listening (a little)
Hunt has been around the energy business since 1934 Hunt Oil founded in 1934; operations have spanned 6 continents; 2 LNG plants
Hunt Refining founded in 1946
Hunt Power founded in 1998
Sharyland Utilities was the first Start-up T&D utility since Reedy Creek was formed in the late 1960s Received CCN in June 1999, energized grid in Feb 2000
First commercial-sized HVDC interconnection along the US-Mexico border PUCT CCN filing in Nov 2003, granted in April 2005
CFE approval sought in early 2005, granted in Dec
Energized in Oct 2007, just over 5 years from inception
We acquired CapRock Energy in July 2010 305-mile 138kV transmission loop and approximately 12,000 miles of distribution
Expanded Sharyland Utilities to 29 counties in Texas
We are the “REIT” guys
4
We are wrong a lot; we just adjust faster
What has gone wrong for us in electricity?
Texas De-Reg bill ironically killed our business model
Effectively prohibited the creation of another “Sharyland Utilities”
We had hoped to replicate model across ERCOT
Timing
Economic downturn post-9/11 slowed development in our service territory
What has gone right in electricity?
Focus on reliability
Focus on stakeholders
No surprises for policymakers and regulators
We’ll talk to anyone anytime anywhere
Industry structure is sound and encourages investment
Hunt’s Approach to Risk
5
Respect the heritage
Know who you are and are not
Realize we are standing on the shoulders of those who came before us
Understand the model
Focus on customers (reliability, customer care)
Control costs
Maintain extensive dialogue with stakeholders
Avoid conflicts of interest
Earn a regulated return
Adhere to core values
Excellence – strive to be first in every metric
Teamwork – work together with customers and stakeholders
Respect for Individual – respect inherent worth of employees and customers
Innovation – build 21st century grid using new technologies and management techniques
Humility – We are entrusted with managing our portion of the grid. We will approach all stakeholders with respect, openness, and our awareness of our obligation to provide customers with the best service possible
Our Core Beliefs
7
CREZ: The Long and Winding Road
2006 2007 2008 2009
Aug 2, 2005:
SB 20 signed into law
Designated renewable energy zones
Established “need”; eliminated
transmission “chicken and egg”
on building out to wind farms
Nov 6, 2007:
PUCT ruled on
CREZ areas
Feb 15, 2007:
CREZ nominations
due
Apr 2, 2008:
ERCOT files Study
For four scenarios
May 15, 2009:
TSP selected
by PUCT
May 13, 2008:
TSP qualifications
2010
8
Competitive Renewable Energy Zones
CREZ Development
Areas of concentrated
wind energy
Some wind better than
others
Diversity of wind quality
(timing compared to need)
Grouped according to
electricity generation
capability (4000 MW)
Interest to Developers
Not all areas of wind were
selected
9
Panhandle Loop Proposal
From idea on November 30, 2006 to filing on February 15, 2007
Partners were Occidental, Celanese, Airtricity, Babcock & Brown
Problem: multi-fuel, not wind-only
Sharyland Utilities filed a proposal with the PUC of Texas in February 2007 to build an 800-mile 345kV electric transmission loop in the Panhandle of Texas (cost $1.5 billion)
Open access, and could enable more than $10 billion in potential generation projects
The Loop coupled the environmental benefits of wind with the constant power availability provided by coal and natural gas, which resulted in a more efficient and cost-effective system
10
Capacity of New CREZ Wind by Scenario (MW)
Wind Zone Scen 1 Scen 2 Scen 3 Scen 4
Panhandle A 1,422 3,191 4,960 6,660
Panhandle B 1,067 2,393 3,720 0
McCamey 829 1,859 2,890 3,190
Central 1,358 3,047 4,735 5,615
Central West 474 1,063 1,651 2,051
Total* 12,053 18,456 24,859 24,419
* Assumes 6,903 MW of existing wind capacity
CREZ Transmission Plan
12
Facilities Designated to Sharyland Utilities
Designated four collection stations and five line segments
15
The Sharyland Team
Office Established in Amarillo
Sherry Kunka – Manager of Community & Regulatory Affairs
Owner’s Engineer (Design)
Black & Veatch - Denver
Environmental & Routing
PBS&J – Austin
Surveying & Mapping
SAM, Inc. – Austin
Land / ROW Acquisition
Coates Field Services – Amarillo / Oklahoma City
16
Ongoing Activity
Sharyland will continue to process interconnection requests from wind developers.
Work will continue on finalizing designs for towers, substations, and communication and control systems.
An Operations Center will be established in the Amarillo area.
Additional Sharyland project personnel will be re-located to Amarillo mid-2011.
Delivery of construction materials to begin mid-2011.
Estimated Construction Timetable
Hereford to White Deer – mid-2011 start date.
Silverton to Cottonwood – third quarter 2011 start date.
Hereford to Nazareth/Nazareth to Silverton – third quarter 2011 to first quarter 2012 start date.
White Deer to Silverton – Second quarter 2012 start date.
Substation construction – third quarter 2011 (site clearing will begin earlier).
A Look Ahead
17
Responding to landowner inquiries along proposed routes related to
survey permissions and activities as they begin surveying the routes
Continuing correspondence with State, County and City officials in the
areas impacted by the routes to keep them informed about the project’s
progress
Updated the Sharyland website with revised route information as the
CCNs are approved
Conducted meetings with landowners affected by the approved routes
Continue to represent Sharyland at community events in the Panhandle
and South Plains
Public Affairs & Stakeholder Management
18
Hundreds of millions of dollars in new infrastructure investment in region
Increased tax base for counties and schools
New jobs related to construction and support services
Wind Farms
Manufacturing
Operation
Maintenance
Sub-contracting opportunities for local resources
Right-Of-Way Agents
Community support services (housing, restaurants, emergency
services)
Project Benefits to Texas Panhandle & South Plains
19
EIAA & GIAA
Two new innovative investment vehicles that will bring in new capital in both the electricity and gas transmission and distribution service sectors Formed as privately-held Real Estate Investment Trusts (REITs)
REITS will be investors in property companies that own eligible assets
Electric Infrastructure Alliance of America (EIAA) Created to develop and acquire electricity transmission and
distribution assets
First of its kind in electricity sector
Gas Infrastructure Alliance of America (GIAA) Created to develop and acquire natural gas transmission
and distribution assets Includes storage and LDCs
Alternative to Master Limited Partnerships (MLPs)
Initial equity commitment of $2.1 billion for EIAA & GIAA: Hunt Power - $322.5 million
Marubeni Corporation - $500 million
John Hancock Life Insurance - $450 million
TIAA-CREF - $450 million
OPTrust Private Markets Group – $400 million
Managed by an affiliate of Hunt
20
Electricity Trans Alliance
LP
Transmission and Distribution
Company LLC
Sharyland DTS, LLC
(Property Partnership)
Sharyland Utilities
100%
Member
Member
Electricity Trans Alliance
LLC
GPLP
Sharyland Projects, LLC
(Project Finance Sub)
SDTS FERC
(FERC Sub)
SU FERC
(FERC Sub)
Lease
Hunt EIAA, LLC
Transmission and Distribution Company LLC
Sharyland DTS, LLC
(Property Partnership)
Sharyland Utilities
100%
Member
Member
Electric Infrastructure
Alliance of America, LLC
John Hancock
Sharyland Projects, LLC
(Project Finance Sub)
SDTS FERC
(FERC Sub)
SU FERC
(FERC Sub)
Lease
Periodic Rent
Managed by:
Energy Infrastructure Alliance
of America, LLC
Hunt Employees
Electric Infrastructure
Alliance of America, LP
OPTrust TIAA-CREFMarubeni
EIAA Structure
21
How does a REIT work?
Historically used for traditional real property holdings that produce rental income
apartment buildings
shopping centers
office space
hospitals
REIT owns the property
Rental income is paid by operator of property to REIT
To qualify, REIT must meet certain qualifications:
Income Test – 75% must be rents from real estate assets
Asset Test – 75% of assets must be real estate assets
100 or more shareholders
90% of taxable income must be distributed to investors on an annual basis
If qualification rules are not met, REIT is taxed as a regular corporation
REIT receives a deduction for dividends paid
22
Regulatory Approval
June 2007 - Private Letter Ruling from Internal Revenue Service Approved definition of real property to include electric transmission and
distribution assets
July 2008 – Public Utility Commission of Texas Docket No. 35287 Signed order approving restructuring of Sharyland Utilities assets into
Lessor/Lessee structure
March 2009 – Private Letter Ruling from Internal Revenue Service Approved definition of real property to include natural gas storage and delivery
systems
June 2010 – Federal Energy Regulatory Commission Docket No. EC10-53 Signed order approving acquisition of NewCorp Resources Electric Cooperative,
Inc. (“NewCorp”)
July 2010 – Public Utility Commission of Texas Docket No. 37990 Signed order approving acquisition of Cap Rock Energy Corporation (“Cap Rock
Energy”) Assets moved into Lessor/Lessee structure
Employees and operations transferred to Sharyland Utilities, L.P.
23
Sharyland Utilities’ Existence: Threatening or Beneficial?
Underserved markets
In need of investment and innovation
Stakeholder support required
Challenge drives innovation that benefits all, including incumbents
Established Player(s) New Entrant(s)
Microsoft Google, Facebook
Disney Pixar
Cable TV Satellite
“Big Oil” Chesapeake, EOG
AT&T Verizon
23