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Sharyland Retail Customers To Become Oncor Customers, Served Under Oncor Tariff, Under Proposed Asset Swap

Sharyland Customers To See Significant Delivery Rate Reductions

Interim Reduced Sharyland Rates Expected Within 60 Days

July 24, 2017

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

Oncor Electric Delivery Company LLC has announced an agreement with Sharyland Utilities, L.P. ("Sharyland") and Sharyland Distribution & Transmission Services, L.L.C. ("SDTS") to swap assets in a transaction valued at approximately $400 million.

After successful close of the transaction, SDTS will receive approximately 258 miles of 345 kV transmission lines from Oncor, and Oncor will receive Sharyland's distribution network and retail delivery customers.

"This proposed transaction means that Sharyland's approximately 54,000 retail distribution customers will become Oncor customers and, as a result, will see significantly reduced regulated retail delivery rates," Sharyland said

Specific details of the proposed transaction include:

• Sharyland and SDTS will transfer to Oncor their retail distribution assets and retail distribution operations located in their Stanton, Brady, and Celeste (SBC) service territories, as well as their McAllen service territory.

• Oncor will transfer to SDTS transmission lines of similar value located in West and Central Texas, which Sharyland will operate on behalf of SDTS.

• Along with the assets transferred by Oncor, Sharyland and SDTS will retain their transmission system in the Texas Panhandle and their transmission assets and substations in the Stanton and McAllen service territories.

• Once all required approvals are obtained and the transaction closes, after a brief transition period Sharyland's retail distribution customers in all of its service territories will transfer to Oncor and Oncor's tariff schedule.

• Sharyland's retail distribution customers in its SBC territories will receive a significant reduction in their regulated delivery rates.

• For Sharyland's retail distribution customers in its McAllen territory, this transaction will prevent the anticipated rate increases that were proposed in Sharyland's pending rate case.

• In the interim, Sharyland will reduce its base distribution rates by approximately 10 percent for its residential customers in its SBC service area. This interim rate relief for residential customers will reflect a $3 million decrease in Sharyland's retail distribution revenue requirement on an annualized basis. Sharyland is seeking regulatory approval for the interim rate relief and hopes that it will take effect in the next 60 days and remain in effect until customers are transitioned to Oncor after the transaction closes.

• Upon closing of the transaction, the rate case for Sharyland and SDTS will be dismissed.

• Going forward, Sharyland will operate transmission assets and substations and will serve as a transmission service provider.

In addition, Sharyland has contributed $150,000 to a charitable fund that will be administered by The Dallas Foundation to provide financial assistance during the interim period for churches and places of worship of all denominations in Sharyland's SBC service area that are billed on a demand basis, until they are transitioned to Oncor.

InfraREIT, Inc., parent of SDTS, said that the transaction would result in a, "significant reduction in retail delivery rates for all of Sharyland's retail distribution customer classes."

In connection with the asset swap, InfraREIT said that it has reached a settlement with parties to dismiss Sharyland's current rate case

Sharyland and SDTS entered into an agreement with certain parties to the rate case under Docket No. 45414, which, if approved by the PUCT, would result in the dismissal of the rate case upon the closing of the transaction with Oncor. A new rate case is required to be filed in 2020 with a test year ending December 31, 2019. Until the next rate case, Sharyland and SDTS will continue to operate under their existing regulatory structure and currently approved regulatory parameters.

Under the definitive agreement with Oncor, SDTS will exchange approximately $400 million of distribution assets for approximately $380 million of transmission assets located in west and central Texas and approximately $20 million in cash from Oncor. Sharyland will lease these assets from SDTS and operate the assets under an amended certificate of convenience and necessity. Upon closing, SDTS will continue to own and lease certain substations related to its distribution assets but Sharyland will exit the retail distribution business.

The closing of this transaction will be subject to a number of closing conditions, including approval by the PUCT of the transaction, the rate case dismissal, and Oncor's rate case settlement, in each case on terms consistent with those proposed by the relevant parties. The closing of the transaction is also contingent upon Oncor's parent company obtaining consent of the U.S. Bankruptcy Court for the District of Delaware, as well as other customary closing conditions. Sharyland, SDTS and Oncor expect to jointly file the Sale-Transfer-Merger application with the PUCT no later than August 4, 2017. If the required approvals are obtained, Sharyland expects that the transaction will close in the fourth quarter of 2017.

"We're always looking for new opportunities to grow our business. This transaction allows us to acquire new customers and continue to expand our growing and vibrant service territory," said Oncor CEO Bob Shapard. "Oncor will be welcoming thousands of new customers, many of which are located in areas that have seen significant load growth, like the Permian Basin."

PUCT Staff is a signatory to the settlements, and the agreement was lauded by PUCT Executive Director Brian Lloyd. News releases also suggest (although are not explicit) that OPUC is a signatory as well.

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