1. DALLAS BAR ASSOCIATION ENERGY LAW SECTION REVIEW OF OIL & GAS LAW XXIII SEPTEMBER 11-12, 2008 Lisa Chavarria Stahl, Bernal & Davies, LLP Austin, Texas 78731 (512) 652-2947 lisa@sbaustinlaw.com lisa@sbaustinlaw.com

2. Overview State Wide Transmission Plan Wind Leases & Related Instruments

3. 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.

6. Step 2: Transmission Plan Selection

7. 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

8. Step 3 Selection of Transmission Service Providers Who gets to build the transmission? Hearing Set for December 2008. Dispatch Priority to be determined

10. 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.

11. 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”

12. 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 Fees Substation Operations & Maintenance Building Removal Bond

13. 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.

14. “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.

15. 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.

16. 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