DALLAS BAR ASSOCIATIONENERGY LAW SECTION

REVIEW OF OIL & GAS LAW XXIIISEPTEMBER 11-12, 2008

Lisa ChavarriaStahl, Bernal & Davies, LLP

Austin, Texas 78731(512) 652-2947

lisa@sbaustinlaw.com

Overview

State Wide Transmission Plan

Wind Leases & Related Instruments

Transmission

Lack of transmission for wind generated electricity. Transmission in anticipation of wind generation.

Competitive Renewable Energy Zones (CREZ) docket initiated at the PUC in January 2007. Step 1: Identify areas of the State that have:

Significant renewable energy resources/suitable land area.

Sufficient level of financial commitment from wind developers.

Step 2: Transmission Plan Selection

Step 2 Outcome

PUC selected Scenario 2

Scenario 2 will add 11, 553 MW of wind to the ERCOT grid (11,553 MW new wind plus 6,903 MW existing wind).

Estimated cost = $ 4.93B

2,334 miles of new 345-kV construction

Expandable design to Scenario 3

Step 3 Selection of Transmission Service Providers

Who gets to build the transmission?

Hearing Set for December 2008.

Dispatch Priority to be determined

Wind Lease Key Terms

Standard Term Length: Option Period – 5 to 7 years. Transmission

often determines length.

Lease Term - Usually about 30 years in length. If term is longer retain right to renegotiate royalty and other payments.

Wind Lease Key Terms

Economics: Greater of Royalty Payment and Minimum

Payment on an annual basis.Royalty payment is a percentage of “Gross

Revenues” “All revenues received by Grantee from

the sale of electricity generated from turbines located on the Property”

Wind Lease Key Terms

Minimum Payment is a per MW or per turbine payment.

For smaller tracts consider adding a per acre payment if no

turbines installed.Other Common Payments:

Installation FeesSubstationOperations & Maintenance BuildingRemoval Bond

Wind Lease Key Terms

How is electricity sold?

Power Purchase Agreement (PPA) long term contract to sell electricity. More conservative approach.

Spot Market – Day ahead market, more risk with bigger up and down sides.

“Severing” Wind Rights

What is it? A specific interest in the surface of the property.

Common pitfalls: Failure to address who gets what.

Suggest the surface owner retain rights to payments related to surface.

Who signs the lease? (retention of the executive rights) Confusion of terms. Overly vague language (vertical & horizontal

severances)Suggestions:

Convey right to a percentage of royalty payments only. Strike a fair balance.

Wind Deeds

Proceed with caution! Legislation has been discussed in Texas with no action taken.

Consider whether a severance will make the property less desirable for wind development.

Conclusion

-Wind Energy Institute January 21-22, 2009 in Austin

-“Boot Camp on the Basics” - January 20, 2009

- Sponsored by the University of Texas School of Law and the Oil, Gas and Energy Resources Law Section of the State Bar of Texas.

www.utcle.org