BEFORE THE NEW MEXICO PUBLIC REGULATION ......Case No. 13-Direct Testimony of Alice K. Jackson-UT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 applications before the New Mexico

BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION

IN THE MATTER OF SOUTHWESTERNPUBLIC SERVICE COMPANY’SAPPLICATION FOR. APPROVALSASSOCIATED WITH THE ASSETPURCHASE AGREF, MENT BETWEENSPS AND SHARYLAND I)ISTRIBUTION& TRANSMISSION SERVICES, L.L.C.,AND THE REGULATORYACCOUNTING TREATMENT OF THEGAIN ON SALE

SOUTHWESTERN PUBLIC SERVICECOMPANY,

APPLICANT.

)))))))))))))))

CASE NO. 13- OOiC~0 -UT

DIRECT TESTIMONY

ALICE K. JACKSON

on behalf of

SOUTHWESTERN PUBLIC SERVICE COMPANY

April 29, 2013

TABLE OF CONTENTS

GLOSSARY OF ACRONYMS AND DEFINED TERMS ..............................................iiiLIST OF ATTACHMENTS ...............................................................................................ivI. WITNESS IDENTIFICATION AND QUALIFICATIONS ............................................5II. ASSIGNMENT AND SUMMARY OF RECOMMENDATIONS ................................8III. DESCRIPTION ()F SIPS AND PRIOR TRANSACTIONS RELATED TO THETRANSMISSION ASSETS SPS IS SELLING TO SHARYLAND ................................ 11

A. OVERVIEW OF XCEL ENERGY AND SPS .................................................................. 1 1B. TRANSACTIONS INVOLVING SPS, CAP ROCK, AND SHARYLAND ............................ 13

IV. DESCRIPTION OF THE PROPOSED TRANSACTION .........................................17

V. SPS’S REQUEST FOR REGULATORY APPROVALS OF SALE AND GAIN ONSALE 21A. SALE OF ASSETS .....................................................................................................22B. TREATMENT OF GAIN ON ~;ALE ...............................................................................24

C. SPS’s REQUEST FOR RELIEF ................................................................................... 33VI. CONCLUSION ...........................................................................................................36

APA

Cap Rock

CCN

Cirrus

Commission

ERCOT

FERC

kV

MW

NSPM

NSPW

OEVC

Oxy

PSA

PSCo

Acronym/Defined Term

GLOSSARY OF ACRONYMS AND DEFINED TERMS

Meaning

Asset Purchase Agreement BetweenSouthwestern Public Service Company andSharyland Distribution & TransmissionServices L.L.C., Dated as of’March 29, 2013

Cap Rock Energy Corporation and Cap RockElectric Cooperative, Inc.

Certificate of Convenience and Necessity

Cirrus Wind 1, LLC

New Mexico Public Regulation Commission

Electric Reliability Council of Texas

Federal Energy Regulatory Commission

Kilovolt

Megawatt

Northern States Power Company, aMinnesota corporation

Northern States Power Company, aWisconsin corporation

Occidental Energy Ventures Corporation

Occidental Petroleum Corporation

Power Sales Agreement

Public Service Company of Colorado, aColorado corporation

iii

LIST OF ATTACHMENTS

Attachment Description

AKJ-1 Asset Purchase Agreement between SPS andSharyland Distribution and Transmission Services,L.L.C

AKJ-2 Transaction, Legal, and Indemnification Costs

iv

Case No. 13-Direct Testimony

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1. WITNESS IDENTIFICATION AND QUALIFICATIONS

Please state your name and business address.

My name is Alice K. Jackson. My business address is 600 S. Tyler Street,

Amarillo, Texas 79101.

On whose behalf are you testifying in this proceeding?

I am filing testimony on behalf of Southwestern Public Service Company, a New

Mexico Corporation ("SPS") and electric utility subsidiary of Xcel Energy Inc.

("Xcel Energy’"). Xcel Energy is a registered holding company and owns several

electric and natural gas utility operating companies.~

By whom are you employed and in what position?

I am employed by SPS as Regional Vice President, Rates and Regulatory Affairs.

Please briefly outline your responsibilities as Regional Vice President, Rates

and Regulator).’ Affairs.

I am responsible for providing leadership, direction, and technical expertise related

to regulatory processes and functions for SPS. My duties include the design and

implementation of SPS’s regulatory strategy and programs, and direction and

supervision of SPS’s regulatory activities, including oversight of rate case

I Xcel Energy is the parent company of the following four wholly owned utility operatingcompanies: Northern States Power Company, a Minnesota corporation ("NSPM"); Northern States PowerCompany, a Wisconsin corporation ("NSPW"); Public Service Company of Colorado, a Coloradocorporation ("PSCo"); and S, PS. Xcel Energy’s gas pipeline subsidiary is WestGas InterState, Inc.


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applications before the New Mexico Public Regulation Commission

("Commission"), the Public Utility Commission of Texas ("PUCT"), and the

Federal Energy Regulatory Commission ("FERC"). I am also responsible for

administration of regulatory tariffs, rules, and forms; regulatory case direction and

administration; compliance reporting; complaint response; and collaboration with

regulatory stafti~ and agencies. In carrying out my responsibilities regarding these

matters, I have become familiar with the Commission’s rules and the New Mexico

statutes governiing public utilities.

Please describe your educational background.

I graduated from Texas A&M University in 2001, receiving a Bachelor of

Business Administration degree with a concentration in information and operations

management.

Please describe your professional experience.

I have been employed in the energy industry for over 10 years. In 2001, I was

employed by Enron Energy Services, where I provided application design and

support to a variety of departments within that company.

In December 2001, I began working as a contract employee for Oxy

Services, Inc., a subsidiary of Occidental Petroleum Corporation ("Oxy"), and

transitioned to permanent employee status in January 2002. I held positions of

increasing responsibility as a software programmer supporting Occidental Energy

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Marketing, Inc., the trading organization within Oxy, where I designed, developed

and implemented an application used by Oxy for the operations of its Retail

Electric Provider ("REP") in the Electric Reliability Council of Texas ("ERCOT").

In June of 2004, I accepted a promotion to work for Occidental Energy

Ventures Corp. ("OEVCY) as Manager, Texas PEP. In this position I was

responsible four front- (p, rocurement, monitoring, and regulatory), mid- (data

processing and billing) and back-office (accounting and reporting) operations of

Oxy’s wholly owned RE’,]? in the ERCOT region. In 2010, I became Director

Energy for OF.VC and was responsible for the regulatory activities of Oxy’s

facilities located within the New York Independent System Operator, the

Southwest Power Pool (’~’SPP"), and ERCOT. My responsibilities for these

jurisdictions included: (1) direction and administration of utility cases at both state

and federal lew,’Is; (2) direction and participation in federal initiatives impacting

Oxy’s business (e.g., FERC Notices of Proposed Rulemaking); (3) maintenance of

regulatory filings required of Oxy’s PEP and generation assets at the state and

federal level; (4) administration of Occidental Power Marketing, L.P. as a

registered North American Electric Reliability Corporation Load Serving Entity in

the SPP; and (5) evaluation of, and participation in, rule and protocol updates,

revisions and additions before State Commissions, Regional Independent System

Operators, and ]Regional Transmission Organizations ("RTOs").

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In May 12011, I accepted a position with Xcel Energy Services Inc. ("XES")

as Director, Regulatory Administration, and the position was transferred to SPS

effective January 1, 2012. I was subsequently promoted to Regional Vice

President, Rates and Regulatory Affairs.

Have you testified before any regulatory authorities?

Yes. I have testified before the Commission, and I have filed testimony with the

PUCT.

II. ASSIGNMENT AND SUMMARY OF RECOMMENDATIONS

What is your assignment in this proceeding?

I am SPS’s overview witness in this proceeding. I summarize the relief requested

by SPS. I also introduce the other SPS witnesses and describe briefly the subjects

of their testimony. In addition, I:

¯ describe SPS and its service area;

¯ summarize the March 29, 2013 Asset Purchase Agreement ("APA")

between SPS and Sharyland Distribution & Transmission Services, L.L.C.,2

as well as the past transactions between SPS and Sharyland’s predecessors

2 I will refer to Sharyland Distribution & Transmission Services, L.L.C. and Sharyland Utilities,

L.P., collectively as "Sharyland."

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in interest, Cap Rock Energy Corporation and Cap Rock Electric

Cooperative, Inc. (collectively, "Cap Rock");3

¯ demonstrate that the proposed sale of the transmission assets to Sharyland

is in the public interest;

¯ explain SPS’s proposed calculation and regulatory treatment of the gain

that SPS~ will realize from the sale; and

¯ describe the regulatory approvals that SPS is seeking from the Commission

in this proceeding.

Who are the other SPS direct witnesses in this docket and what are their

areas of testimony?

The following witnesses also provide direct testimony supporting SPS’s

application:

Name and ,Job Title Assignment

¯ Describes the transmission assets being sold;John S. Fulton, Manager,Transmission Planningfor SPS ¯ Explains that the sale of the transmission assets to

Sharyland will have no adverse effect on thereliability of SPS’s transmission system; and

¯ Explains the engineering and transmissioninterconnection costs SPS will incur related to the

3 The APA and the Disclosure :Schedules attached to the APA are provided as Attachment AKJ-Ito my testimony.


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Jeffrey S. Sawtge,Vice President andController for SPS andXcel Energy

APA.

¯ Describes the financial accounting treatment of thetransaction; and

¯ Presents a calculation of the estimated net gain onsale reflecting SPS’s proposed regulatoryaccounting treatment of the transaction.

What recommendations ,do you present in your testimony?

I recommend that the Commission find that the sale of assets to Sharyland is in the

public interest for the reasons explained in my testimony and in testimony of the

other SPS witnesses. I also recommend that the Commission approve SPS’s

proposal to calculate the net gain on sale, to allocate that gain among SPS’s three

jurisdictions (i.e., New Mexico retail, Texas retail, and wholesale), and to share the

gain between c~astomers and shareholders.

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III. DESCRIPTION OF SPS AND PRIOR TRANSACTIONS RELATED TOTHE TRANSMISSION ASSETS SPS IS SELLING TO SHARYLAND

A. Overview of Xcel Energy and SPS

Q. Please provide an overview of Xcel Energy.

A. Xcel Energy is an integrated electric and gas utility holding company composed

principally of tbur operating utility companies: SPS, PSCo, NSPM, and NSPW.

Xcel Energy’s operations are vertically integrated in all eight states where it

provides electric service.4 Xcel Energy has divested its unregulated generation and

almost all of its non-utility businesses and has focused its corporate priorities on

the gas and electric utility business and on its utility customers.

Q. Please describe SPS.

A. Headquartered in Amarillo, Texas, SPS is a fully integrated generation,

transmission, and distribution electric utility that serves approximately 376,000

customers in a 52,000 square-mile area the comprises not only eastern and

southern New Mexico but also the Panhandle and the South Plains areas of Texas.

SPS’s service area extends approximately 400 miles from north to south and 200

miles from east to west.

As shown in Attachment JSF-1 to Mr. Fulton’s testimony, SPS is uniquely

located relative to the electrical grids of North America. It is a member of the SPP

a The eight states are: New Mexico, Texas, Colorado, Michigan, Minnesota, North Dakota, SouthDakota, and Wisconsin.

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RTO and is synchronously connected to the eastern grid through six inter-ties with

other members of the SPP. SPS is also connected to the western grid through three

high voltage direct-current back-to-back converters. Mr. Fulton describes the

interconnections to the eastern grid and the western grid in his testimony. SPS also

operates adjacent to the ERCOT grid, but it has no direct interconnections with

ERCOT transmission owners.

SPS owns and operates: approximately 4,188 megawatts ("MW") of

generation assets; 6,150 circuit miles of transmission facilities at 69 kilovolts

("kV") and above; 17,854 circuit miles of distribution facilities below 69 kV; and

numerous other types of distribution assets in its service area. SPS also purchases

1,188 MW of firm purchased power capacity.

Please generally describe SPS’s customer base.

SPS serves retail customers in a large portion of eastern and southeastern New

Mexico, although the Texas retail jurisdiction is SPS’s single largest regulatory

jurisdiction. SPS’s service territory in both New Mexico and Texas is primarily

agricultural, wfih large areas of oil and gas production. The agricultural areas are

mostly irrigated by pumping from natural underground water supplies. There is

also a large investment in cattle feeding and, more recently, dairy operations in the

service territory. Recently, the SPS service area has experienced significant

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growth in the oil and gas industries, and SPS has been expanding its infrastructure

to serve these customers.

Wholesale sales have historically been a significant business segment for

SPS. Because SPS operates in interstate commerce, SPS’s wholesale sales and the

transmission of wholesale power are regulated by the FERC pursuant to the

Federal Power Act. SPS sells firm and economy wholesale power in interstate

commerce to rural electric cooperatives, municipal utilities, and other utilities

within and outside of SPS’s control area. SPS currently sells wholesale power to

four electric cooperatives in eastern New Mexico:

* Central Valley Electric Cooperative, Inc.;

¯ Farmers’ Electric Cooperative, Inc.;

¯ Lea County Electric Cooperative, Inc.; and

¯ Roosew.qt County Electric Cooperative, Inc.

SPS also sells to three wholesale customers located in Texas: Golden

Spread Electric Cooperative, Inc.; West Texas Municipal Power Agency; and

Sharyland, although Sharyland will cease being an SPS wholesale customer at the

end of 2013.

Transactions Involving SPS, Cap Rock, and Sharyland

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Please describe the origin of the contractual arrangement between SPS and

Sharyland.

In July 1991, SPS and Siharyland’s predecessor in interest, Cap Rock, signed a

Power Sales Agreement ("PSA") in which SPS agreed to provide full requirements

service to Cap Rock for a period of approximately 20 years. The term of that

agreement ends; on December 31, 2013.

Did SPS build any transmission lines to deliver power to Cap Rock under the

PSA?

Yes. SPS constructed two transmission lines to facilitate the delivery of power to

the Cap Rock system. One of those lines extends from SPS’s Grassland Substation

in Lynn County, Texas to the SPS Borden Substation in Borden County, Texas

(the "Grasslandl-Borden Line"). The other line extends from SPS’s substation near

Hobbs, New Mexico to the SPS Midland Substation near Midland, Texas (the

"Hobbs-Midla~d Line").

Did SPS obtain Certificates of Convenience and Necessity ("CCN") to build

those lines?

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1 A. Yes. The Commission granted SPS a CCN to build the New Mexico portion of the

2 Hobbs-Midland Line.5 SPS also obtained a CCN from the PUCT to construct the

3 Texas portions of the lines.6

4 Q. When did SPS complete construction of the Grassland-Borden Line and the

5 Hobbs-Midland Line?

6 A. SPS began construction of the lines in 1993 and completed construction of them in

7 1994. Those lines, which are depicted in Attachment JSF-2 to Mr. Fulton’s direct

8 testimony, are currently used to deliver wholesale power to Sharyland under the

9 PSA.

10 Q. Was the PSA and between SPS and Cap Rock subsequently terminated?

11 A. Yes. On December 3, 2008, SPS provided notice to Cap Rock that SPS would

12 terminate the PSA effective December 31, 2013.

13 Q. How did ShaMland succeed to Cap Rock’s rights under the PSA?

14 A. In late 2009, Sharyland e.r~tered into an agreement to purchase Cap Rock’s assets,

15 including its rights under the PSA. The PUCT approved the transaction in Docket

~ In the Matter o.)~ the Application of Southwestern Public Service Company for a Certificate ofConvenience and NecessiO~ ./’or the Construction of a 345 kV Line. Approval of Location, and for aDetermination of Right-of.Way Width, Case No. 2432, Final Order Approving Recommended Decision(June 15, 1992).

6 Application of Cap Rock Electric Cooperative, Inc. for a Certificate of Convenience and

Necessity for a Proposed 7’ransmission Line Within Howard, Borden, Martin and Midland Counties; andApplication of Southwestern Public Service Company for a Certificate of Convenience and Necessity for aProposed Transmission Line Within Lynn, Borden, Gaines, Andrews, Ector, and Midland Counties, DocketNo. 11248, Order at 1-2 (Sept. 14, 1993).

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No. 37990, a case in which SPS participated.7 As part of the stipulation that

resolved that docket, Sharyland recognized the termination of the PSA between

SPS and Cap Rock, and Sharyland agreed that it would not seek to extend the PSA

or claim any right to continued power purchase service from SPS aider December

31, 2013.

7 Joint Report and Application of Sharyland Utilities, LP, Sharyland Distribution & Transmission

Services, LLC, Hunt Transmission Servi,:es, LLC, Cap Rock Energy Corporation, and NewCorp ResourcesElectric Cooperative, Inc. fi)r Regulatory Approvals’ Pursuant to PURA §§ 14.101, 37.154, 39.262, and39.915, Docket No. 37990, Order (July 8, 2010).

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IV. DESCRIPTION OF THE PROPOSED TRANSACTION

Please describe briefly the background of the transaction that led to the APA?

As part of the ~ettlement in which the PUCT approved Sharyland’s acquisition of

Cap Rock, Sharyland agreed to study the feasibility of moving part of the Cap

Rock system from the SPP into ERCOT. Sharyland subsequently determined that

it was feasible, and it is scheduled to disconnect from the SPP and interconnect

with ERCOT by the end of 2013. Sharyland also undertook certain commitments

to SPS if it decided to move the Cap Rock system to ERCOT, including the

construction of a loop between SPS’s Borden Substation and Midland Substation.

Sharyland ultimately determined, however, that it would be more advantageous to

purchase portions of the Hobbs-Midland Line and Grassland-Borden Line and to

move those assets into EF’~COT. Accordingly, Sharyland and SPS negotiated the

terms of sale, which are reflected in the APA.

What transmission assets has SPS agreed to sell to Sharyland under the APA?

As noted earlier, SPS has agreed in the APA to sell Sharyland portions of the

Grassland-Borden Line and the Hobbs-Midland Line, subject to regulatory

approval and certain other conditions. SPS is also proposing to sell Sharyland the

Borden Substation, the Midland Substation, and the land rights associated with the

conveyed assets, among other assets described in the APA.

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Please describe the portion of the Grassland-Borden Line that SPS is

proposing to sell to Sha~land.

As I testified earlier, the Grassland-Borden Line extends from the Grassland

Substation located in Lyrln County, Texas, to the Borden Substation in Borden

County, Texas, but SPS is not proposing to sell the entire span of the line to

Sharyland. Under the APA, SPS will sell Sharyland a segment of the line starting

at Structure 6.4, which is approximately ten miles south of the Grassland

Substation, and ending at the Borden Substation. SPS will retain the segment from

the Grassland Substation to Structure 62. In addition, SPS will dismantle Structure

63 and remove the line spans from Structure 63 to Structures 62 and 64.

Why is SPS proposing to retain the segment from the Grassland Substation to

Structure 62?

Structure 62 i~:lcludes a tap at which a wind generating facility, Cirrus Wind 1,

LLC ("Cirrus") is intercc, nnected. As explained by Mr. Fulton, Cirrus has an

interconnection agreemen! with SPS and SPP, and SPS must maintain a physical

connection between Cirrus and the SPP to fulfill that agreement.

Please describe the portion of the Hobbs-Midland Line that SPS is proposing

to sell to Sharyland.

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Although the Hobbs-Midland line extends from Hobbs, New Mexico to Midland,

Texas, SPS is proposing to sell Sharyland only the portion of the line that begins at

the Midland Substation and ends at Structure 350 in Andrews County, Texas.

What will SPS do with the remainder of the Hobbs-Midland Line?

SPS proposes 1o dismantle the portion of the line from Structure 350 to Structure

197, which is located in Texas near the Texas-New Mexico border. As explained

by Mr. Fulton, that stretch of line will no longer be needed after the sale to

Sharyland of the segmervl from Structure 350 to the Midland Substation. Mr.

Fulton also discusses the work necessary to dismantle the line and the estimated

cost.

Does the APA involve the sale of any other assets to Sharyland?

Yes. As noted earlier in my testimony, the APA also includes the sale of both the

Borden Substation and Iviidland Substation to Sharyland, except for certain

excluded asset’s. The excluded assets, which are the 230kV autotransformers

located in each substation, are described in Schedule 2.2 of the Disclosures to the

APA.

Is the transaction between SPS and Sharyland expected to give rise to a gain

on sale?

Yes. As discussed by Mr. Savage, the sale price agreed to between SPS and

Sharyland for all of the assets being conveyed is $37 million, contingent upon

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certain regulatory outcomes. SPS’s original investment in these transmission

assets was $1.4,147,517, although approximately $5,702,742 million of that

amount will have been recovered through depreciation as of December 31, 2013.

Thus, at this ti~nae, SPS is expecting a gross gain on sale of approximately $28.56

million on a tolal company basis upon the closing of the transaction. However, the

actual net gain on sale will[ not be known until after all dismantling and transaction

costs are known. I will discuss in the next section of my testimony SPS’s

proposed charges against the gross gain on sale, the allocation of the net gain on

sale among SPS’s rate jurisdictions, and the sharing of the New Mexico retail

jurisdiction net gain on sale between customers and shareholders.

When does SPS expect that the transaction with Sharyland will close?

The anticipated closing date of the transaction is on or before December 31, 2013.

Is there significance to the December 31, 2013 date for closing?

Yes. December 31, 2013 is the termination date for the PSA between Sharyland

and SPS.

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1 V. SPS’S REQUEST FOR REGULATORY APPROVALS OF SALE AND GAIN2 ON SALE

3 Q. What statutes govern the sale of utility-owned assets in New Mexico?

4 A. Section 62-6-12(A) of the Public Utility Act ("PUA") provides that "[w]ith the

5 prior express authorization of the [C]ommission, but not otherwise, . . . . (4) any

6 public utility may sell, lease, rent, purchase or acquire any public utility plant or

7 property constituting an operating unit or system or any substantial part thereof

8 .... " Section 62-6-13 of the PUA states that "unless the [C]ommission ... [finds]

9 that the proposed transaction is unlawful or is inconsistent with the public interest,

10 it shall give its consent and approval in writing."

11 Q. Does the APA contemplate that SPS and Sharyland will seek Commission

12 approval of the APA?

13 A. Yes. Section 6.3(d) of the APA states that SPS will make a filing before this

14 Commission within 30 days of the date on which the APA was executed to secure

15 regulatory approval. The APA also provides for similar requests for approval from

16 FERC and the PUCT. SPS is currently seeking approval from those regulatory

17 authorities, in addition to the approval requested from the Commission.

18 Q. Please describe the types of regulatory approvals that SPS seeks from the

19 Commission in this proceeding.

20 A. SPS is requesting that the Commission find that:

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1. The sale of the transmission assets to Sharyland is consistent with the

public interest and not unlawful;

2. For regulatory accounting purposes, SPS’s proposed deductions from the

sales proceeds for the costs related to the transactions are just and

reasonable; and

3. SPS’s proposed methodologies for allocating the net gain among

jurisdictions and figr sharing the New Mexico retail jurisdiction net gain

between ratepayers and shareholders are reasonable.

I will discuss each of these requests separately in the following subsections.

Sale of Assets

Is SPS’s sale of transmission assets to Sharyland consistent with the public

interest and not unlawful?

Yes. From the perspective of SPS and its customers, the sale serves the public

interest in two ways. First, it reduces SPS’s transmission-related revenue

requirement for its New Mexico retail customers because SPS will be disposing of

part of its transmission rate base and because the sale avoids the need for SPS to

pay Sharyland for transmission service. Second, the sale will have no material

effect on the reliability ofthe SPS transmission system.

Please discuss the first reason you identified--that the sale will reduce SPS’s

transmission-related revenue requirement.

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The sale of the, assets will reduce SPS’s transmission rate base by approximately

$11.6 million on a total company basis. Thus, customers will no longer be paying

a return of and on that amount, and associated expenses such as depreciation and

property taxes.

Will there be other cost: savings as a result of the sale of the transmission

assets to Sharyland?

Yes. As part of the re, solution of the PUCT docket in which Sharyland’s

acquisition of Cap Rock was approved, SPS and Sharyland agreed that, upon

request by SPS,. Sharyland would provide transmission facilities to close the loop

between SPS’s Borden Substation and Midland Substation if Sharyland decided to

move its transmission system into ERCOT, which Sharyland has now decided to

do. If Sharyland were to provide those facilities to close the loop, SPS would have

to pay Sharyland to use them. SPS and Sharyland did not formally agree to an

amount that would have been paid by SPS to Sharyland for the use of the

Sharyland facilities, but SPS’s preliminary cost estimates were $1.7 million

annually (total company). By selling the transmission assets to Sharyland, SPS no

longer owns the Borden and Midland Substations, and therefore SPS avoids the

cost of paying Sharyland to connect them.

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Turning to your second reason that the transaction is consistent with the

public interest and not unlawful, please explain why the sale will not lead to

deterioration of reliability or safety for SPS’s customers.

At the time the, Grassland-Borden Line and the Hobbs-Midland Line were built,

they served a dual purpose. Not only did they allow SPS to transmit the power

sold to Cap Rock, but they also enhanced reliability in southeastern New Mexico,

which was largely dependent on generating plants located in Texas. Since that

time, however, a considerable amount of new generation has been built in SPS’s

New Mexico service area, including the Lea Power Project near Hobbs. Therefore,

the transmission path through the Grassland-Borden Line and Hobbs-Midland Line

has become much less important for maintaining reliability in New Mexico. Mr.

Fulton discusses this topic in more detail in his testimony.

Will the sale of assets to Sharyland require any transfer or amendment of

SPS’s New Mexico CCN?

No. The sale will not affect the portion of the Hobbs-Midland Line that is located

in New Mexico.

Treatment of Gain on Sale

Has SPS calculated the actual gain on sale that will result from the sale of

assets to Sharyland?

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No. The actual gain on sale will depend on a number of contingencies, such as the

cost of dismantling the portion of the Hobbs-Midland Line, the costs that SPS

incurs to separate its system from Sharyland’s system, and the costs that SPS

incurs in connection with the sale transaction and regulatory approvals. Therefore,

SPS will not know the final gain-on-sale amounts until sometime in the second

half of 2014. However, SPS has calculated an estimated gain-on-sale amount,

which appears in Attachrnent JSS-2 to Mr. Savage’s testimony.

What is SPS asking the Commission to approve in this case regarding the gain

on sale?

SPS is asking the Commission to approve: (1) the deductions from the gross gain

on sale; (2) the methodology to allocate the gain on sale among SPS’s

jurisdictions; and (3) the sharing of the New Mexico retail portion of the gain

between New Mexico retail customers and SPS.

How did SPS calculate the gross gain on sale?

SPS subtracted the undepreciated balance of the assets being sold to Sharyland,

which is approximately $8.44 million, from the $37 million sales price. Thus, the

gross gain on sale is approximately $28.56 million.

Please describe the category of costs that SPS proposes to deduct from the

gross gain on sale.

SPS proposes to charge five categories of cost against the gross gain on sale:

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(1) the costs incurred to dismantle the portion of the Hobbs-Midland Line

between Structure 350 and Structure 197,8 and to prepare and file

documents relinquishing easements along the sections of dismantled line,

as necessary;

(2) the net book value of the segment of transmission line between the

Grassland Substation and Structure 62 on the Grassland-Borden Line (to

reduce the net book value to zero);

(3) the costs incurred by SPS to remove the autotransformers at the Borden and

Midland Substations, to install dead-end structures where SPS’s lines

terminate, and to remove the span of line from Structure 62 to Structure 64

on the Grassland-Borden Line;

(4) the costs that SPS incurs in connection with the asset sale transaction and

the regulatory approvals; and

(5) the indemnification percentage outlined in the APA.

! will discuss each of those, proposed deductions in more detail.

Why will SPS dismantle a portion of the Hobbs-Midland Line?

As explained more fully by Mr. Fulton, the segment of the Hobbs-Midland Line

from Structure 1350 to Structure 197 will not provide looped service after the sale

8 The dismantlement also will result in a charge against the net gain to reduce the net book value of

the dismantled facilities to zero.

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of the transmission assets ~Io Sharyland, and there is no need for SPS to operate and

maintain a radial line in that area.

Why should the costs of dismantling the line be subtracted from the gross

gain on sale?

The sale of assets to Sharyland is the only reason that SPS is dismantling the

transmission lines, and customers will realize the benefit of that dismantling

through a reduced cost of service for the transmission function. Therefore, it is

appropriate for the cost of dismantling the lines to be subtracted.

Does SPS know what the cost of dismantling the line segments will be?

No, not at this time. Mr. Fulton has estimated that the cost of dismantling the

segment of the Hobbs-Midland Line will be approximately $2.1 million, but the

actual costs will not be known until SPS completes the dismantling, which should

occur sometime in the third quarter of 2014.

Please explain why SPS is proposing to reduce the gross gain on sale by the

net book value of the segment of the Grassland-Borden Line from the

Grassland Substation to Structure 62.

As explained by Mr. Fulton, the only purpose of that segment will be a generation

interconnection to Cirrus after the sale of assets to Sharyland, and the costs

allocated to generation interconnection lines cannot be recovered from retail

customers. Because Cirrus cannot be required to pay additional interconnection

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costs, the costs associated with the segment of line will be stranded. Therefore, it

is appropriate :tbr SPS to reduce the gain on sale by the net book value of those

assets. Mr. Savage testifies that the net book value of those assets as of December

31, 2013 is approximately $0.9 million (total company).

What engineering and construction costs does SPS propose to dednct from the

gross gain on sale to account for removal of transformers and installation of

dead-end structures?

The estimated cost of removing the transformers is $695,500. The estimated cost

of constructing dead-end structures and of dismantling the portion of the

Grassland-Borden Line between Structures 62 and 64 is approximately $1.43

million. Mr. Fulton explains why it is necessary for SPS to incur those costs.

What is SPS’s estimate of the costs related to the sales transaction?

As shown on Attachment AKJ-2, SPS has estimated that the outside legal and

transaction costs will be approximately $350,000.

Has SPS taken~ steps to minimize the sales transaction costs?

Yes. SPS has primarily used Xcel Energy employees to negotiate the APA and

related agreements, although SPS used outside legal counsel to review the

transaction documents. SPS will use a combination of Xcel Energy employees and

outside legal resources to file and process the required regulatory proceedings.

SPS expects thee cost of outside counsel on the regulatory proceedings in New

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Mexico, Texas, and FERC to be approximately $177,000. SPS will not assign any

company labor expenses to the transaction, although SPS has estimated it will

incur roughly $;123,000 in employee expenses.

Why is SPS proposing to charge one percent of the sale price against the gross

gain to account for indemnification obligations?

Consistent with SPS’s and Xcel Energy’s previous asset sales, SPS is proposing to

charge one percent of the sale price, which is $370,000, to cover any pre-closing

liabilities described in the indemnification provisions in Article 10 of the APA.

The one percent charge is the same practice SPS and Xcel Energy have followed in

previous asset sales, and ensures that a fund exists to pay for indemnification

obligations.

After taking those deduc.tions into account, what is the estimated net gain on

sale available to be allocated among jurisdictions and shared with customers?

From a New Mexico retail jurisdiction perspective, the estimated total company

pre-tax net gai:n on sale before allocation among the jurisdictions and sharing is

$21.1 million. The $21.1 million reflects the unblending adjustment that Mr.

Savage discusses in his testimony. The unblending adjustment reflects that each of

SPS’s rate jurisdictions establishes different depreciation rates and, thus, the net

book value of assets will be stated differently in each jurisdiction

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ofAlice K. Jackson

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How does SPS propose to allocate the $21.1 million net gain among its three

jurisdictions?

SPS proposes to use the actual 12 coincident peak ("12 CP") transmission demand

allocator calculated based on calendar year 2012 data to derive the jurisdictional

shares of the gain. That: 12 CP allocator allocates: 15.46 percent to the New

Mexico retail jurisdiction; 44.33 percent to the Texas retail jurisdiction; and 40.21

percent to the FERC wholesale jurisdiction.

Why is SPS using the 12 CP transmission demand allocators from calendar

year 2012?

SPS is using the 12 CP al]!ocators from calendar year 2012 because that is the last

full year in whdch customers were paying the rates that include the transmission

assets sold to Sharyland. In 2013, Sharyland will gradually begin reducing its

usage under the PSA, and Sharyland will have departed the system altogether by

2014. Therefore, SPS has used the 2012 allocators.

How does SPS propose to share the New Mexico retail net gain on sale

between customers and SPS?

SPS proposes to allocate to New Mexico retail customers the percentage of the

gain that is equivalent to the percentage of the asset that has been depreciated. As

shown on Mr. Savage’s Attachment JSS-2, that percentage is 44.96 percent.

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How will SPS reflect the sale of assets to Sharyland in SPS’s current base rate

case, Case No. 12-00350-UT?

Assuming the transaction closes before the Commission decides SPS’s rate case,

the assets conveyed to Sbaryland would not be in SPS’s rate base in the test year,

which is calendar year 2014. Therefore, the sale would affect SPS’s revenue

requirement for the test year. SPS proposes to calculate that effect and provide the

calculations to the parties in the rate case when it provides its comprehensive list

of revisions under the procedural schedule.

It is also possible, however, that the transaction will not close. The closing

is contingent on approwl of the transaction from the NMPRC, the PUCT, and

FERC. If any one of those regulators denies approval of the transaction, or places

conditions on the approval that either SPS or Sharyland find to be unacceptable, it

unlikely the transaction will close. And in any event, it is possible that one or

more of the regulators will not have acted on the application for approval by the

time SPS’s rate. case is scheduled to go to hearing. Therefore, it may be necessary

for the parties in Case No. 12-00350-UT to provide a cost of service under two

alternative scenarios - one in which the transaction closes, and one in which it

does not.

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SPS is willing to work with the Hearing Examiner, the Commission’s

Utility Division Staff, and the Intervenors in Case No. 12-00350-UT to determine

an acceptable way to consider this contingent event in the rate case.

Does SPS propose to reduce its revenue requirement in Case No. 12-00350-UT

by the amount: of the gain on sale from the Sharyland transaction?

No. The gain on sale amount will not be known until the portion of the Hobbs-

Midland Line between Structure 350 and Structure 197 is dismantled. SPS’s

current estimate is that the: dismantling will not be complete until sometime in the

third quarter of 2014. Therefore, SPS will not know the actual gain on sale amount

before the concl usion of the currently pending rate case.

When does SPS propose to give the gain on sale amount to New Mexico retail

customers?

SPS proposes that customers receive the benefit of the gain on sale upon

implementatio~ of rates :in the first base rate case SPS files after it finishes

dismantling the portion of the Hobbs-Midland Line. Thus, the amounts would

likely be returned to customers through rates set in a 2015 or 2016 rate case.

Why is SPS proposing to wait until the first rate case after it has final costs to

begin returning the customers’ portion of the gain on sale?

As noted earlier, SPS plan,’~ to update the estimated costs that cannot be determined

until after the sale closes; and after the dismantling of the Hobbs-Midland Line

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between Structure 350 and Structure 197. That update, which SPS assumes will

occur in a 201.5 or 2016 base rate case, will replace current cost estimates with

actual cost amounts for the costs of dismantling the line, the costs of moving the

autotransformers and installing dead-end structures, and the legal and transactional

costs associated with the sale and regulatory approvals.

Is SPS willing to entertain other proposals to distribute the gain on sale to

customers?

Yes. SPS’s proposal is based on the assumption that customers will want to know

the actual costs of dismantling the portions of the Hobbs-Midland Line and the

transaction costs before the final gain-on-sale amounts are calculated. If customers

prefer to approach the issue differently, SPS is receptive to other proposals.

Is SPS proposing to accrue interest on the New Mexico retail customers’

portion of the gain on sale until such time as it is remitted?

Yes. SPS is proposing to .accrue interest on the customers’ behalf according to the

Commission’s customer-deposit rate until such time as the New Mexico retail

portion of the gain on sale is remitted to New Mexico retail customers.

SPS’s Request for Relief

Please summarize the relief SPS is requesting from the Commission.

SPS requests that the Commission find that:

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the sale of assets; from SPS to Sharyland is consistent with the public

interest ,and not unlawful;

SPS’s proposed deductions from the gross gain on sale are reasonable,

including:

(a) the costs incurred to dismantle the portion of the Hobbs-Midland

Line between Structure 350 and Structure 197, and the net book

value of that segment of the Hobbs-Midland Line;

(b)

(c)

(d)

(e)

the net book value of the segment of transmission facilities between

the Grassland Substation and Structure 62 on the Grassland-Borden

Line;

the engineering and construction costs incurred by SPS to remove

the autotransformers at the Borden and Midland Substations, to

!install dead-end structures where SPS’s lines terminate, and to

dismantle the portion of the Grassland-Borden Line between

Structures 62 and 64;

the costs that SPS incurs in connection with the asset sale

transaction and the regulatory approvals; and

the indemnification percentage outlined in the APA.;

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SPS’s methodology for allocating costs among its three jurisdictions is

reasonable;

SPS’s proposed sharing of the New Mexico retail jurisdictional portion of

the net gain on sale between customers and SPS is reasonable; and

SPS’s proposal to provide the final calculation of the New Mexico retail

net gain, using the formula and methodology SPS has presented in this

case, in the first SPS rate case after actual costs are known is reasonable.

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VI. CONCLUSION

Is AKJ-1 a true and correct copy of the APA and its schedules?

3 A. Yes.

Was Attachment AKJ-2 prepared by you or under your direct supervision?

Yes.

6 Q. Does this conclude your pre-filed direct testimony?

7 A. Yes.

36

VERIFICATION

STATE OF TEXAS

COUNTY OF POTTER

Alice K. Jackson, first being sworn on ib_er oath, states:

I am the witness identified in the preceding testimony. I have read the testimony and theaccompanying attachments and am tiamiliar with their contents. Based upon my personalknowledge, the facts stated in the direct testimony are true. In addition, in my judgment andbased upon my professional experience.., the opinions and conclusions stated in the testimony aretrue, valid, and accurate.

SUBSCRIBED AND SWORN TO before me this ~ day of April 2013.

My Commission Expires:

Attachment AKJ-1Page 1 of 67

ASSET PURCHASE AGREEMENT

Bet~veen


As Seller

And

SIIARYLAND DISTRIBUTION & TRANSMISSION SERVICES, L.L.C.

As Purchaser

Dated as of. ,i~Z4a~_,g~, 2013

Attachment AKJ-IPage 2 of 67

ARTICLE 1 DEFINITIONS ......................................................................................................................... 1

1.1 Certain Definitions .............................................................................................................1

1.2 Other Definitional Provisions ............................................................................................6

ARTICLE 2 PURCHASE AN D SALE OF ACQUIRED ASSETS ............................................................7

2.1 Purchase of tlne Acquired Assets ........................................................................................7

2.2 Excluded Assets .................................................................................................................8

2.3 Assumed Liabilities and Retained Liabilities ....................................................................8

2.4 Simultaneous Deliveries and Actions ................................................................................8

2.5 Transfer Fees ......................................................................................................................8

ARTICLE 3 PAYMENT OF CONS IDERATION ......................................................................................8

3.1 Purchase Price .............................i ......................................................................................8

3.2 Payment .............................................................................................................................9

3.3 Purchase Price Allocation ..................................................................................................9

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER .................................................9

4.1 Organizati on,_Powe~_din_0g ..........................................................................................9

4.2 Valid and Binding__A~a_~nt .........................................................................................I0

4.3 No C6nflict; Third Party C_onsents ..................................................................................10

4.4 Government AuthoriU_ .....................................................................................................10

4.5 Real Property.; Tangible Personal Property; Land Contracts ........................................... 10

4.6 Litigation ..........................................................................................................................11

4.7 Compliance w’ith Law and Permits ..................................................................................1

4.8 Environmental ..................................................................................................................1

4.9 Brokers ..............................................................................................................................I 1

4. l0 No Additional Representations and Warranties ...............................................................11

ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER ......................................

5.1

5.2

5.3

5.4

5.5

5.6

5¯7

5.8

Orj~anization,_Power, Stand_ in_.0.g ........................................................................................12

Valid and Bin :ting_6_~_e_e~3_ent ..............................................................................12

No Conflict; Third Party C, onsents ..................................................................................12

Government Authority_ ..........................................................: ...... .....................................12

Litigation ...........................................................................................................................12

Sufficiency o:~" Funds ......................................................................................................... 12

Brokers...: ...........................................................................................................................12

Due Diligence and Independent Investigation .................................................................13

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Attachment AKJ- 1Page 3 of 67

5.9

ARTICLE 6

6.1

6.2

6.3

6.4

6.5

6.6

6.7

6.8

6.9

6.10

6.11

6.12 Further Assurances ...........................................................................................................1

ARTICLE 7 CONDITIONS TO CLOS1NG ..............................................................................................1

7.1 Conditions to Each Party~.~Obligations ...........................................................................

No Additional Representations and Warranties ...............................................................13

COVENANTS AND AGRE[’;MENTS OF SELLER AND PURCHASER .........................13

Conduct of the Business ..................................................................................................13

Notice of Developments and Access to Acquired Assets and Records ........................... 14

Consents and Authorizations; Regulatory Filings ...........................................................14

Confidentiality_ .................................................................................................................16

Non-Solicitalion ................................................................................................................16

Public Announcements .....................................................................................................16

Payment of~,ll Taxes Resulting From Sale of Assets by Seller ......................................16

Pro Rated Items .................................................................................................................17

Access to Tax Information after the Closing Date ...........................................................17

Title Commitmelqt and Title Search .................................................................................17

Risk of Loss .......................................................................................................................18

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7.2 Conditions to Obligations of Seller ..................................................................................19

7.3 Conditions to.Obligations of Purchaser .......- ...................................................................19

ARTICLE 8 CLOSING .............................................................................................................................20

8. l Closing ................................................................ ..............................................................21

8.2 Seller’s Deliveries ............................................................................................................21

8.3 Purchaser’s Deliveries .....................................................................................................21

ARTICLE 9 TERMINATION AND AMENDMENT ..............................................................................22

9. I Termination ......................................................................................................................22

9.2 Effect of Termination .......................................................................................................22

ARTICLE 10 SURVIVAL A’!qD INDEMNIFICATION ..........................................................................23

10.1 Survival of Rep_rese_ntatiorg;, Warranties and Covenants ................................................. 23

10.2 Seller’s Oblig;ation to Indemnify_ .....................................................................................23

10.3 Limitations on Indemnification Obligations ....................................................................23

10.4 Claims by Purchaser for Third Part5, Claims. i .............................................24

10.5 Survival of the Representations, Warranties and the Covenants of Purchaser ................25

10.6 Obligation of Purchaser to Indemnify ..............................................................................25

10.7 Claims by Selller for Third 1 arty Clmms ............ ..............................................................26

10.8 Exclusive Remedy, ............................................................................................................26

10.9 Adjustments to Purchase ’"F~ce .........................................................................................26

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ARTICLE 1

11.1

11.2

11.3

11.4

11.5

11.6

11.7

11.8

11.9

11.10

11.11

11.12

11.13

1 MISCELLANEOUS ...........................................................................................................26

Communications ..............................................................................................................26

Succession and Assignment .............................................................................................27

Governing Law ................................................................................................................28

Consent to Jurisdiction .....................................................................................................28

WAIVER OF JURY TRIAL ............................................................................................28

Entire Agreement .............................................................................................................28

Severability ......................................................................................................................29

No Third Parle, Beneficiaries ...........................................................................................29

Exhibits, Appendices and Schedules ............................................................................... 29

Counterparts .....................................................................................................................29

Headings ...........................................’ ...............................................................................29

No Rule of Construction ..................................................................................................29

Expenses ..........................................................................................................................29

EXHIBITS

Exhibit AExhibit BExhibit CExhibit DExhibit E-1Exhibit E-2

SCHEDULES

Schedule 2.1bSchedule 2. I cSchedule 2.1 dSchedule 2.2Schedule 4.3Schedule 4.4Schedule 4.5aSchedule 4.5bSchedule 4.5fSchedule 4.7Schedule 5.3Schedule 5.4Schedule 6.8

Form of Assignment .and Assumption AgreementForm of Bill of SaleDescription of Grassland-Borden LineDescription of Hobbs-Midland LineForm of Warranty DeedForm of Land Contract Assignment

SubstatioasOwned Real PropertyLand ContractsExcluded .AssetsNo Conflict; Third Pat~y Consents of SellerGovermnental Authority of SellerEncumbrancesTangible Personal PropertyNotices Regarding Title DefectsPermitsNo Confliict; Third Par’ty Consents of PurchaserGovernmental Authority of PurchaserPayment :for Public Improvements

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Attachment AK]-IPage 5 of 67

PURCHASE AGREEMENT

THIS PURCltAS~’, AGREEMENT (together.’,xith t,he Schedules and E,,x, hibits r.eferenc_e,~ h.ere, iaand attached hereto, tiffs "P__,.ga~_~n_ent"), dated as of/~!~_, 2013 (the Executlon..D.ate ), is oyand between Sharyland Dish,ibution & Transmission S’erviees, LL.C., a Texas limited liability company("Purchaser"), and Southwestern Public Service Company, a New Mexico corporahon ( Sell~e ).

WITNESSETH:

WHEREAS, Seller wishes to sell and assiga~ to Purchaser, and Purchaser wishes to purchase andassume fi’om Seller, certain :assets and certain liabilities of Seller described herein, subject to the termsand conditions set forth herein.

NOW, THEREFORE, in consideration of-the foregoing premises, the mutual covenants andaga’eements contained herei~, and other good and valuable consideration, the receipt and sufficiency ofwhich are hereby ackamwledged, tile Parties hereto agree as follows:

ARTICLE 1DEFINITIONS

1.1below:

Certafl~ Definitions. As used herein, the following terms have tile meanings set forth

"Acquired Assets" h.~s tile meaning set forth in Section 2.1.

"Affiliate" (and, witk a correlative rfieaning, "affiliated") means, with respect to any Person, anyother Person thai directly, or tlu’ough one ,or more intermediaries, controls or is controlled by or is undea"common control with such Person, including any Subsidiary of such Person. As used in this definition,"control" (and, with con’elative meanings, "controlled by" and "under common control with") meanspossession, dh’eetly or indirectly, of power to direct or cause the di~’ection of management or policies(whether tlu’ough ownerslaJp of securities or other ownership flxterests, by contract or otherwise).

"_Agreement" shall have the meaning as defined in the preamble to this Agreement.

".Allocation Schedule" shall have the meaning as defined in Section 3.3.

"Asset Material Adv.,_e.rse Effect" means any change, effect, event or conditio~t, individually or inthe aggregate, that has had, or, with the passage of time, would reasonably be expected to have a materialadverse effect on the ownership, condition, or operation of fl~e Acquired Assets as they are operated ha theOrd inary Course of Busi~aess.

"Assignment and As_~ion___~A~yeement" means the assignment and assumption agreementsubstantially in the form of Exhibit A.

"Assumed Envh-omn!tntal_____Li___abilities" shal| have the meaning as defined in Section 2.3a.

"Assnmed Liabilities" shall have the lneaning as def’med in Section 2.3_.

"Basket" shall have the men,ring set forth in Section 10.3a,

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"Bill of Sale" means the bill of sale transferring to Purchaser the Acquired Assets (excluding theReal Property) in the form of Exhibit B.

"Borden Substation" means Seller"s 230kv to 138kv transforming substation located in BordenCounty, Texas.

"Business Day" means any day, excluding: (i) Saturday; (ii) Sunday; and (iii) any day on whichbanks in Amarillo, Texas, are authorized or required by law or other governmental action to close.

"Claim Deadline Date" shall have t!he meaning set forth in Section 10.1.

"Claim Reduction Pay_ment" shall have the meaning set forth in Section 10.3d.

"Closing" shall have the meaning a’s defined in Section 8.1.

"Closing Date" shall have the meaning as defined in Section 8.1.

"Closing Encumbrance" shall haw; the meaning as defined in Section 6. [0.

"Code" means the Internal Revenue Code of 1986, as amended from time to time. Sectionreferences to the Code are to the Code as in effect (and as amended) as of the Execution Date.

"Commercially Reasonable Effort.,;" shall mean efforts that a reasonable person would use tofulfill a covenant contained herein or satisfy a condition to, or otherwise assist in the consummation of,the transactions contemplated by this Agreement.

"Confidential Information" has the meaning ~et forth in Section 6.4.

"Consent" means any approval, consent, ratification, waiver, clearance or other authorizationfrom any Person.

"Contract" means any written or oral contract, agreement, indenture, note, bond instrument, lease(including any real property lease), license., or other document or arrangement, undertaking, practice orauthorization that is binding on any Person or property under applicable Law, including the LandContracts.

"Damages" means the amount or" any actual liability, loss, cost, expense, claim, award orjudgment incurred or suffered by any Indemnified Party arising out of or resulting from the indemnifiedmatter, whether attributable to personal injury or death, property damage, contract claims, torts orotherwise, including reasonable fees and expenses of attorneys, consultants, accountants or other agentsand experts reasonably incident to matters indemnified against, and the costs of investigation and/ormonitoring of such matters, and the costs of’ enforcement of the indemnity.

"Deed" shall have the" meaning as defined in Section 8.2b.

"Disclosure Schedule.,;" means the Disclosure Schedules executed and delivered by Seller toPurchaser as of the Execution Date.

"Encumbrances" means charge, liens, mortgages, security interests, pledges, proxies, shareholderagreements, voting agreements or trusts, olgtions, rights of first refusal, easements, mortgages, deeds oftrust, rights-of-way, restrictions, encroachments, licenses, leases, purchase right or options, or any otherencumbrances, claims and other restrictions or limitations of any kind.

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"Entitled Real Proper_ty_" shall have the meaning as defined in Section 2.1 e.

"Excluded Assets" shall have the meaning as defined in Section 2.2.

"Execution Date" shall have the me, aning as defined in the preamble to this Agreement.

"FERC" means the Federal Energy Regulatory Commission or any successor agency thereto.

"FERC Approval" sh~ll have the meaning as defined in Section 6.3c.

"GAAP" means United States generally accepted accounting principles (as such term is used inthe American Institute of Certified Public: Accountants Professional Standards) as of the date of anyapplicable financial statement or calculation, as applied on a consistent basis.

"Governmental Body" means any: (i) nation, state, county, city, town, village, district, or otherjurisdiction of any nature; (ii) federal, state, local, municipal, foreign, or other government;(iii) governmental or quasi-Governmental Body of any nature (including any government agency, branch,department, official, or entity and any cou~-t or other tribunal); (iv) multi-national organization or body; or(v) body exercising, or entitled to exerci~.e, any administrative, executive, judicial, legislative, police,regulatory, or taxing authority or power of any nature.

"Governmental Order" means any Law, order, judgment, injunction, decree, stipulation ordetermination issued, promulgated or entered by or with any Governmental Body of competentjurisdiction, or by any arbitrator, in each ca,.~e, whether preliminary or final.

"Grassland-Borden Line" means the approximately 40.2-mile segment of Seller’s line K48extending from the Borden S~:~bstation to a point of termination approximately 10 miles south of Seller’sGrassland substation, as depicl:ed and more particularly described on Exhibit C.

"Hobbs-Midland Lir, e" means the approximately 36.4-mile segment of Seller’s line K71extending from the Midland Substation to a point of termination approximately located near theintersection of the Oncor 138kV line in Andrews County, as depicted and more particularly described onExhibit D.

"Indemnified Party" means a Seller’ Indemnified Person or a Purchaser Indemnified Person.

"Independent Accoun~ting Firm" shall have the meaning as defined in Section 3.3.

"Land Contracts" shall have the meaning as defined in Section 2.1 d.

"Land Contract Assignment" shall have the meaning as defined in Section 8.2b.

"Law" means any law, statute, rule, regu.lation, ordinance and other pronouncement having theeffect of laws of the United States of A~erica, any foreign country or any domestic or foreign state,county, city or other political s’,ubdivision or of any Governmental Body.

"Midland Substation’" means Seller’s 230kv to 138kv transforming substation located in MidlandCounty, Texas.

"NMPRC." shall have the meaning as defined in Section 6.3d.

"Notice" shall have the meaning as defined in Section 11.1.

3


"Ordinary Course of Business" means the ordinary course of business of Seller (including theoperation and maintenance of the Transmission Lines and Substations) consistent with past custom andpractice (including with respect to quantity and frequency).

"Owned Real Property." shall have ’the meaning as defined in Section 2. l c.

"Partz" means Seller or Purchaser and "Parties" means, collectively, Seller and Purchaser.

"Permits" means any permits, licenses, franchises, approvals, certificates, certifications, consents,emissions allowances, waivers, concessions, registrations or other authorizations required by anyGovernmental Body or Law.

"Permitted Encumbrances" mean.,;: (i) Encumbrances for Taxes not yet due or which are beingcontested in good faith by appropriate proce, edings, provided that adequate reserves, with respect to Taxeswhich are being contested are maintained on the books of Seller in conformity with GAAP; (ii) withrespect to the Real Property, any imperfections of title or Encumbrances that could be identified by eitheror both a commitment for title insurance or a survey of the Real Property in question (provided that, if,pursuant to Section 6.10c, Purchaser identifies any such imperfection of title or Encumbrance identified inthis clause (ii) as a Closing Encumbrance, then such Closing Encumbrance will thereafter no longerconstitute a Permitted Encumbrance for purposes of this Agreement, unless waived pursuant to Section6.10e i0~); (iii) with respect to the Real Property, any Encumbrances to which such Real Property issubject that do not currently materially interfere with the operation of that portion of the Acquired Assetscurrently conducted in the Orclinary Course of Business; and (iv) easements, rights-of-way, restrictionsand other similar Encumbrances which, in the aggregate, do not materially interfere with the OrdinaryCourse of Business of the Transmission Lines and the Substations.

"Person" means any individual, joint venture, corporation, general partnership, limitedpartnership, limited liability company, trust, unincorporated organization, Governmental Body or anyother legally recognize.d entity..

"Proceeding" means any action, arbitration, audit, hearing, investigation, litigation or suit(whether civil, criminal, administered or inf(rred), commenced, brought, conducted or heard by or before,or otherwise involving, any Governmental Body or arbitrator.

"PUC Approval" shalll have ~he meaning as defined in Section 6.3d.

"PUCs" shall have the: meaning as defined in Section 6.3d.

"PUCT" shall have the meaning as defined in Section 6.3d.

"Purchase Price" shall have the meaning as defined in Section 3.1.

"Purchaser" shall haw: the meaning as defined in the preamble to this Agreement.

"Purchaser’s Knowledg.~" means the actual knowledge of Mark E. Caskey (Senior Vice President- Operations), Ralph Goodlet (Senior Vice: President - Regulatory) or Benjamin D. Nelson (Senior VicePresident, General Counsel and Secretary), or any knowledge that would have been acquired by any suchPersons upon reasonable inquiry.

"Purchaser Indemnified Person" shall have the meaning as defined in Section 10.2a.


"Purchaser Material Adverse Effect" means any change, effect, event or condition, individuallyor in the aggregate, that has had, or, with the passage of time, would reasonably be expected to have, amaterial adverse effect on the business, assets, properties, condition (financial or otherwise), results ofoperations, prospects or customer, supplier c)r employee relationships of Purchaser, taken as a whole.

"Purchaser Required Consents" shall have the meaning as defined in Section 6.3b.

"Real Property" shall have the meaning as defined in Section 2.1e.

"Required Consents" :;hall have the meaning as defined in Section 6.3d.

"Retained Liabilities" shall have the meaning as defined in Section 2.3b.

"Seller" shall have the meaning as defined in the preamble to this Agreement.

"Seller Indemnified Person" shall have the meaning as defined in Section 10.6a.

"Seller Material Adverse Effect" means any change, effect, event or condition, individually or’inthe aggregate, that has had, or, with the pas:sage of time, would reasonably be expected to have, a materialadverse effect on the business,, assets, properties, condition (financial or otherwise), results of operations,prospects or customer, supplier or employe.e relationships of Seller, taken as a whole.

"Seller Required Consents" shall have the meaning as defined in Section 6.3a.

"Seller’s Knowledge" means the actual knowledge of Alan Bellinghausen (Director, RegionalSubstation O&M), Cory Wood (Manager, Transmission Line Construction and Maintenance), ScanFredricksen (Supervisor, Siting and Land Rights), Dean Metcalf (Manager,’Environmental Services) andAlice Jackson (Regional Vice President, Rates and Regulatory Affairs) or any knowledge that would havebeen acquired by any such Persons up~a reasonable inquiry. The representatives included in thisdefinition of "Seller’s Knowledge" inclui]eone or more individuals that is/are knowledgeable withrespect to proceedings covered by Section 4.6 and with respect to the Land Contracts.

"Sharyland Utilities" means Sharyland Utilities, L.P.

"Subsidiary" means with respect to any Person, any corporation, limited liability company, orother Person of which securities or other interests having the power to elect a majority of thatcorporation’s or other Person’:~ board of directors or similar governing body, otherwise having the powerto direct the business and policies of that corporation or other Person (other than securities or otherinterests having such power only upon the happening of a contingency that has not occurred) are held bythe Person or one or more of its Subsidiarie:s.

"Substations" shall have the meaning as defined in Section 2. lb.

"Tax" or "Taxes" (and with correlative meanings "Taxable" or "Taxing") means with respect toany Person, all U.S. federal state, local, provincial, foreign or other income, gross receipts, sales, use,franchise, payroll (including fL’deral and state income tax withholding, backup withholding, FICA, FUTAor other payroll taxes), environmental, excise, property, value-added, net worth, or any other materialtaxes and any interest, penalties and additions imposed with respect to such amounts, which shall include,without limitation, any transferee liability for any of the foregoing types of taxes.

Attachment AKJ- IPage 10 of 67

"Taxing Authority" means any government or subdivision, agency, commission or authoritythereof, or any quasi-governmental or priwate body having jurisdiction over the assessment, determinationor collection or other imposition of Taxes.

"Tax Return" means all U.S. federal, state, local, provincial and foreign returns, declarations,claims for refunds, forms, statements, reports, schedules, information returns or similar statements ordocuments, and any amendments thereof (including, without limitation, any related or supportinginformation or schedule attached thereto) required to be filed with any Taxing Authority in connectionwith the determination, assignment or collection of any Tax or Taxes.

"Texas Courts" shall have the meaning as defined in Section 11.4.

"Third Party_ Claim" shall have the meaning as defined in Section 10.4a.

"Transaction Documents" means: (a) this Agreement; (b) the Bill of Sale; (c)the Assignment andAssumption Agreements; (d) tihe Deeds; (e) the Land Contract Assignments; and (f) all other agreements,instruments and documents to be executed by the Parties in connection with this Agreement.

"Transactions" means the transactions contemplated by this Agreement and all of the TransactionDocuments.

"Transfer Fees" shall ihave the meaning as defined in Section 2.5.

"Transmission Lines" ,shall have the meaning as defined in Section 2.1 a.

1.2 Other Definitional Provisions

a. The terms defined in the neuter or masculine gender shall include the feminine,neuter and masculine genders, unless the context clearly indicates otherwise.

b. The calculation of time within which or following which any act is to be done orstep is to be taken pursuant to this Agreement excludes the date that is the reference day incalculating such period.

c. Unless specified otherwise, whenever anything is required to be done or anyaction is required to be taken hereunder on or by a day that is not a Business Day, then such thingmay be validly done and such action may be validly taken on or by the next succeeding day thatis a Business Day.

d. Accounting terms not otherwise defined herein have the meanings assigned tothem in accordance with GAAP. Wherever in this Agreement reference is made to a calculationto be made in accordance with GAAP, such reference shall be deemed to be to GAAP from timeto time applicable as at the date on which such calculation is made or required to be made inaccordance with GAAP.

e. As used in this Agreement, reference to dollar amounts, unless otherwisespecifically indicated, means the lawful money of the United States of America.

f. The terms "include,,," "includes" and "including" mean including without limitingthe generality of any description preceding such term, and, for purposes of this Agreement, the

6


rule of ejusdem generis shall not be applicable to limit a general statement that follows anenumeration of specific matters, te matters similar to the matters specifically enumerated.

g. All references to Articles, Sections, Subsections, appendices, exhibits orschedules in "this Agreement are. to Articles, Sections, Subsections, appendices, exhibits orschedules of or to this Agreement ~anless otherwise specified.

ARTICLE 2PURCHASE AND SALE OF ACQUIRED ASSETS

2.1 Purchase of the Acquired Assets. Upon the terms and subject to the conditions of thisAgreement, at and as of the Closing, Seller’ shall sell, transfer, convey, assign and deliver to Purchaser andPurchaser shall purchase and accept from Seller, all right, title and interest of Seller in, to and under theAcquired Assets (i) free and clear of any Encumbrances, other than Permitted Encumbrances, and (it) intheir present condition, "AS IS" and "WHERE IS," with all faults and without warranty, whether express,implied, statutory or otherwise, except as provided in this Agreement, including the representations andwarranties contained in Article 4 (including the related portions of the Disclosure Schedule hereto)."Acquired Assets" means the following tangible and intangible rights, properties and assets (including,but not limited to all rights, title and interest associated therewith) of Seller as the same may exist at theClosing Date, but excluding the Excluded Assets:

a. All poles, lines, conductors, arms, braces, insulators, structures, facilities orimprovements, fixtures, equipment and other items of tangible personal property comprising theGrassland-Borden Lirte and the Hobbs-Midland Line (collectively, the "Transmission Lines");

b. All transformers, switches, structures, facilities or improvements, fixtures,equipment and other items of tangible personal property comprising the Borden Substation andthe Midland Substation, as further described in Schedule 2.1b of the Disclosure Schedules(.collectively, the "Substations");

c. The real property of Seller listed on Schedule 2.1c of the Disclosure Schedules,upon which the Substations are located (collectively, the "Owned Real Property");

d. The easements and rights of way listed on Schedule 2.1d of the DisclosureSchedules (collectively, the "Land Contracts");

e. The property licenses, and other real property entitlements benefiting the OwnedReal Property, the Transmission Lines, the Substations or the Land Contracts (the "Entitled Real~" and, together with the, Owned Real Property and the Land Contracts, the "Real

f. All technical and maintenance books and records relating exclusively to theTransmission Lines, the Substatio~s or the Real Property;

g. Any and all rights under any express or implied warranties provided by thirdparties relating to the Transmission Lines or the Substations or any part or component thereof;and

h. All Permits (to the extent transferable, giving effect to the parties’ obligationshereunder as to the Required Consents) held by Seller or any of its Affiliates that exclusivelyrelate to the Acquired Assets (including the Permits listed on Schedule 4.7).


2.2 Excluded Assets. Notwithstanding anything to the contrary contained herein, all assets ofSeller other than the Acquired Assets shall be retained by Seller and shall be excluded from the sale andpurchase of assets hereunder, including the segments of transmission lines and certain Substationequipment listed in Schedule 2..2 of the Disclosure Schedules (collectively, the "Excluded Assets").

2.3 Assumed Liabilities and Retained Liabilities.

a. At and as of the Closing, Purchaser shall assume (i) all liabilities and obligations,of every kind and nat~:~re, relating to or arising from the acquisition, ownership and operation ofthe Acquired Assets on and after the Closing, (ii) any liabilities and obligations that arise as aresult of any presence or release into the environment of any hazardous materials whether itoccurred prior to Closing or on and after the Closing (the "Assumed Environmental Liabilities")and (iii) all other liabiilities and obligations, of every kind and nature, relating to or arising fromthe acquisition, ownership and operation of the Acquired Assets other than the RetainedLiabilities (collectively, the "Assumed Liabilities").

b. Purchaser shall not assume, and Seller shall retain and pay, perform anddischarge when due, (i) all liabilitiies and obligations, of every kind and nature, owed to thirdparties arising directly from ownership and operation of the Acquired Assets relating to any eventthat occurred prior to the Closing and resulted in circumstances extant prior to the Closing thatconstitute the basis for such liabilily or obligation (for purposes of clarification and pursuant tothe Section 2.1(ii), the liabilities and obligations referred to in this (i) expressly exclude anyliabilities or obligations relating to the condition of the Acquired Assets at the Closing); (ii) allliabilities and obligations relating to Taxes (other than as provided in Sections 2.5 and 6.8) arisingas a result of Seller’s operation or ownership of the Acquired Assets prior to the Closing; and (iii)Seller’s liabilities and obligations pursuant to the Transaction Documents, but, in the case o.f eachof the foregoing (i) -(iii), specifically excluding any Assumed Environmental Liabilities(collectively, the "Retained Liabilities").

2.4 gimultaneous Deliveries and Actions. All deliveries to be made or other actions to i~etaken at the Closing shall be deemed to occur simultaneously, and no such delivery or action shall bedeemed complete until all such deliveries and actions have been completed or the relevant Parties haveagreed to waive such delivery or action.

2.5 Transfer Fees;.. Purchaser shall be liable for any transfer, documentary, registration,stamp, and other similar fee and sales Tax, if any, payable .to the State of Texas or any of its politicalsubdivisions in connection wilh the transfer of the Real Property (collectively, the "Transfer Fees"). Inthe event that Seller intends to file any Tax Return or any other report with a Governmental Body relatedto any such Taxes under this Section that Purchaser is obligated to pay, or intends to pay any such Taxesand seek reimbursement from Purchaser, Seller shall not make any such filing or payment without theprior review and written consent of Purchaser (not to be unreasonably withheld or delayed). Seller shallbe responsible for payment of all other Taxes applicable as a result of the Transactions, including but notlimited to Transfer Fees or Taxes payable in the State of New Mexico or any of its political subdivisionsin conn~ction with the transfer of the Acquired Assets or the Transactions.

ARTICLE 3PAYMENT OF CONSIDERATION

3.1 Purchase Price. At Closing, in consideration for the transfer of the Acquired Assets andassumption of the Assumed Liabilities, F’urchaser shall pay to Seller the aggregate purchase price ofThirty Seven Million Dollars ($37,000,000)plus the amount of any capital expenditures made by Seller


during the period between the Execution Date and the Closing Date which were required to maintain theAcquired Assets in commercially reasonable condition following a force majeure event or casualty orcondemnation loss affecting the Acquired Assets minus any proceeds actually received by Seller from anyinsurance policies covering the Acquired Assets subject to such force majeure event or casualty loss orany proceeds received or to be received by Seller as a result of any condemnation loss (the "PurchasePrice_"); ~, however, the foregoing amount of deduction to account for insurance proceeds shall bedecreased by the amount of reasonable out-of-pocket expenses incurred by Seller in pursuit of suchproceeds. In any such event., Seller shall make Commercially Reasonable Efforts to (a) pursue anyreasonable claim on any applicable insurance policies to the fullest extent of their coverage amount or (b)seek remuneration from any applicable condemnation proceeding.

3.2 _~.yment. At Closing, Purchaser shall pay to Seller by wire transfer of immediatelyavailable funds an aggregate amount equal to the Purchase Price.

3.3 Purchase Price Allocation. Within 60 days after the Closing Date, Purchaser shall deliverto Seller a schedule allocating the Purchase Price (including any Assumed Liabilities treated asconsideration for Tax purposes) to and among the Acquired Assets (the "Allocation Schedule"). Sellershall provide in a timely manner any information that Purchaser reasonably requests to prepare theAllocation Schedule. The Allocation Schedule shall be prepared in accordance with Section 1060 of theCode. The Allocation Schedule prepared by Purchaser shall be deemed final unless Seller notifiesPurchaser in writing that Seller objects to one or more items reflected in the Allocation Schedule within15 days after delivery of the Allocation Schedule to Seller. In the event of any such objection, Purchaserand Seller shall negotiate in good faith to resolve such dispute; ~, however, that if Purchaser andSeller are unable to resolve any dispute with respect to the Allocation Schedule within 15 days after thedelivery of the Allocation Schedule to Seller, such dispute shall be resolved by a mutually acceptable andnationally recognized independent accounting finn (such firm, the "Independent Accounting Firm"). Thedecision of the Independent Accounting Firm shall be final and binding upon Seller and Purchaser, andthe decision of the Independent Accounting Firm shall constitute an arbitral award that is final, bindingand non-appealable and .upon which a judgqnent may be entered by a court having jurisdiction thereover.In the event any such digpute is submitted Io the Independent Accounting Firm for resolution, Seller andPurchaser shall each pay their own costs and expenses incurred under this Section 3.3 and one-half of thefees and costs of the Independent Accounting Firm. Seller and Purchaser agree to file their respectiveIRS Forms 8594 (if required) and all fi~deral, state and local Tax Returns in accordancewith theAllocation Schedule. Neither Seller nor Purchaser shall take any position (whether in audits, Tax Returnsor otherwise) tlnat is inconsistent with the Alllocation Schedule unless required to do so by applicable Law.

ARTICLE 4REPRESENTATIONS AND WARRANT! ES OF SELLER

Except as set forth on the Disclosure Schedules, the section numbers of which are numbered tocorrespond to the section numbers of this Agreement to which they refer, Seller hereby represents andwarrants to Purchaser that the statements contained in this Article 4 are true and correct as of theExecution Date and will be true and correct as of the Closing Date.

4.1 Organization, .Power, Stand_in_.g. Seller is a corporation duly formed, validly existing andin good standing under the Laws of the State of New Mexico. Seller has all requisite power andauthority, as the case may be, to own, operate or lease the Acquired Assets as presently operated and, asapplicable, to enter into the Transaction Documents and to consummate the Transactions. Seller is dulyauthorized to conduct busines:~ and is in good standing in each jurisdiction where such authorization isrequired to conduct its busines.s as current’.ly conducted by it, except where the failure to so qualify or bein good standing would not reasonably be expected to have a Seller Material Adverse Effect.


4.2 Valid and Binding A~eement. The execution, delivery and performance of TransactionDocuments by Seller have been duly and validly authorized by all necessary corporate action. ThisAgreement has been duly executed and delivered by Seller and constitutes the valid and bindingobligation of Seller, enforceable in accordance with its terms. Each Transaction Document, to whichSeller will become a party, wlnen executed and delivered by Seller, will constitute the valid and bindingobligation of Seller.

4.3 No Conflict; Third Party Qonsents. Except as set forth on Schedule 4.3 of the DisclosureSchedules, the execution and ,.delivery of this Agreement does not, and the execution and delivery of theother Transaction Documents will not, and the consummation of the Transactions will not: (a) violate orconflict with the provisions of the organizational documents of Seller; (b) result in the imposition of anyEncumbrance (other than a Permitted Enc,ambrance) upon any of the properties or assets of Seller; (c)cause the acceleration or material modifica’fion of any obligation under, create in any Person who is not aParty the right to terminate, constitute a material default or material breach of, or violate or conflict, inany material respect, with the terms, conditions or provisions of, any material note, bond, mortgage,including deed of trust, license, contract, undertaking, agreement, lease or other instrument or obligationto which Seller is a p~irty or by which Seller or any of its Affiliates is bound (whether with notice, lapse oftime or both); or (d) result in a breach or v:iolation by Seller of any of the terms, conditions or provisionsof any Law or Governmental Order.

4.4 Government Authorit.2. Except as set forth in Schedule 4.4 to the Disclosure Schedules,the execution, delivery and performance of this Agreement and the other Transaction Documents bySeller, and the consummation, of the Transactions will not require on the part of Seller obtaining or filingany Governmental Order or any other filing with or notification to any Governmental Body.

4.5 Real Propert_~(" T~Tg_angible Personal Property; Land Contracts.

a. Seller owns in fee, subject to the Permitted Encumbrances, the Owned RealProperty. Except as :set.forth on Schedule 4.5a of the Disclosure Schedules, Seller has good andmarketable title to all of’its Owned Real Property, free and clear of all Encumbrances (other thanPermitted Encumbrances). Upon consummation of the transaction contemplated by thisAgreement, Purchaser shall receive from Seller good and marketable title to the Owned RealProperty free and clear of all Encumbrances except (i) Encumbrances described in Schedule 4.5aand (ii) Permitted Encumbrances.

b. Schedule 4.5b to the Disclosure Schedules sets forth a list, as of the date refle.ctedthereon, of the tangible personal p:;operty owned by Seller located at the Real Property as of theClosing Date. Seller has good and marketable title to all tangible and intangible personalproperty that make-up the Acquired Assets, including the Transmission Lines and theSubstations, free and clear of all Encumbrances except (i) Encumbrances described in Schedule4.5b and (ii) Permitted Encumbrances.

c. Each Land Contract is legal, valid, binding and in full force and effect. Seller hasprovided Purchaser with a true, correct and complete copy of each Land Contract (including allamendments and modifications thereof) in Seller’s possession. Schedule 2. l d lists all of the LandContracts.

d. To Seller’s Knowledge, Seller is not in breach or default under any LandContract and, to Seller’s Knowledge, no other party to any Land Contract is in breach or default(nor has any event occurred which, with notice or the passage of time, or both, would constitutesuch breach or default under any Land Contract), except to the extent any such breach would not

10


constitute an Asset Material Adverz~e Effect. To Seller’s Knowledge, Seller enjoys peaceful andundisturbed possession under all Re.al Property.

e. All of" the rights, title and interest in the Acquired Assets constitute all of theproperty, assets and real property entitlements, and all right, title and interests related thereto,owned by Seller or its Affiliates exclusively related to the Transmission Lines and Substations,other than the Excluded Assets.

f. Except as set forth on Schedule 4.5f, Seller has not received written notice fromany Person within the three years preceding the Execution Date of this Agreement asserting thatSeller does not have the right, as a result of title defects or title failures, to use or occupy anyportion of the Real Property.

4.6 Litigation. To Seller’s Knowledge, there is no pending, or threatened, Proceeding thatchallenges, that may have the effect of preventing, delaying, making illegal, or otherwise interfering with,or would reasonably be expec~Ied to have any of the foregoing effects on, any of the Transactions.

4.7 Compliance with Law and Permits. Seller has operated, and is operating as of the datehereof, the Acquired Assets i~n. compliance in all material respects with the Laws generally applicable tothe Acquired Assets, except where such non-compliance could not reasonably be expected to have anAsset Material Ad’verse Effect. Seller has not received any written or, to Seller’s Knowledge, other, noticefrom any Governmental Body of any audit, review or investigation of Seller or the Acquired Assets oralleging any material violation of Law by Seller, in each case, with respect to the Acquired Assets.Schedule 4.7 lists all of the Permits held by Seller and its Affiliates exclusively related to the ownershipand operation of the Acquired Assets.

4.8 Environmental. Seller has received no notice of any claim in respect of the AcquiredAssets from any Person (including any Governmental Body), alleging potential liability arising from thepresence or release into the environmen.t ot~ any hazardous materials. Since January i, 2010, to Seller’sKnowledge, there has not been any presence or release of any hazardous materials on or near theAcquired Assets or the real property they occupy, the liability for which, individually or in the aggregate,would reasonably be expected to result in a Seller Material Adverse Effect, an Asset Material AdverseEffect, or a Purchaser Material Adverse Effi~ct.

4.9 Brokers.. No I:,roker or finder has acted for or on behalf of Seller or any Affiliate of Sellerin connection with this Agreement or the Transactions contemplated by the Transaction Documents. Nobroker or finder is entitled to any brokerage or finder’s fee, or to any commission, or to any othercompensation based in any way on agreements, arrangements or understandings made by or on behalf ofSeller or any Affiliate of Seller ~br which Purchaser has or will have any liability or obligation(contingent or otherwise).

4.10 No Additional Representations and Warranties. Except for the representations andwarranties contained in this Article 4 (including the related portions of the Disclosure Schedule hereto),neither Seller nor any of :.its representatives has made or m’ake~ any other express or impliedrepresentation or warranty, either written or oral, on behalf of Seller, including any representation orwarranty as to the accuracy or completer~ess of any information regarding Seller furnished or madeavailable to Purchaser and it.,; representatives, or any representation or warranty arising from statute orotherwise in Law. The Acquired Asset.,; are being conveyed and sold to Purchaser in their presentcondition, "AS IS," "WHERI-’! IS" and wi~h any faults, except as otherwise expressly provided in thisAgreement, including the representations and warranties contained in this Article 4 (including the relatedportions of the Disclosure Schedule hereto).

ll


ARTICLE 5REPRESENTATIONS AND WARRANTIES OF PURCHASER

Except as set forth on the Disclosure Schedules, the section numbers of which are numbered tocorrespond to the section numbers of this Agreement to which they refer, Purchaser hereby represents andwarrants to Seller that the statements contained in this Article 5 are true and correct as of the ExecutionDate and will be true and correct as of the Closing Date.

5.1 Organizatio_~n _Powe_r S_,._~!~targt_j~_g. Purchaser is a limited liability company duly formed,validly existing and in good standing under the Laws of the State of Texas. Purchaser is duly authorizedto conduct business and is in good standing in each jurisdiction where such authorization is required toconduct its business as currently conducted by it, except where the failure to so qualify or be in goodstanding would not reasonably be expected to have a Purchaser Material Adverse Effect.

5.2 Valid and Binding Agreement. The execution, delivery and performance of theTransaction Documents by P~archaser have been duly and validly authorized by all necessary companyaction. This Agreement has been duly executed and deliverett by Purchaser and constitutes the valid andbinding obligation of Purchaser, entbrceable in accordance with its terms. Each Transaction Document,to which Purchaser will become a party, when executed and delivered by Purchaser, will constitute thevalid and binding obligation of Purchaser.

5.3 No Conflict; Third Party Consents. Except as set forth on Schedule 5.3 of the DisclosureSchedules, the execution and delivery of tln~is Agreement does not, and the execution and delivery of theother Transaction Documents will not, and the consummation of the Transactions will not: (a) violate orconflict with the provisions of’ the organizational documents of Purchaser; (b) result in the imposition ofany Encumbrance (other than a" Permitted Encumbrance) upon any of the properties or assets ofPurchaser; (c) cause the acceleration or material modification of any obligation under, create in anyPerson the right to terminate, constitute a material default or material breach of, or violate or conflict, inany material respect, with the terms, conditions or provisions of, any material note, bond, mortgage,including deed of trust, license, contract, underfaking, agreement, lease or other instrument or obligationto which Purchaser is a party or by which Purchaser is bound (whether with notice, lapse of time or both);or (d) result in a breach or violation by Purchaser of any of the terms, conditions or provisions of any Lawor Govermnental Order.

5.4 Government Authorit2. Except as set forth in Schedule 5.4 to the Disclosure Schedules,the execution, delivery and Ferformance 0f this Agreement and the other Transaction Documents byPurchaser, and the consummation of the Transactions will not require on the part of Purchaser anyGovernmental Order or any filing with or notification to any Governmental Body.

5.5 Litigation. To Purchaser’s Knowledge, there is no pending, or threatened, Proceeding,that challenges, or that may have the effect of preventing, delaying, making illegal, or otherwiseinterfering with, or that would reasonably be expected to have any of the foregoing effects on, any of the

¯ Transactions.

5.6 Sufficiency of Funds. Purchaser will have available on the Closing Date sufficient cashon hand or other sources of immediately available funds to enable it to make payment of the PurchasePrice to Seller and consummate the Transactions.

5.7 Brokers. No broker or finder has acted for or on behalf of Purchaser or any Affiliate ofPurchaser in connection with this Agreement or the Transactions contemplated by the TransactionDocuments. No broker or f]m:ler is entitled to any brokerage or finder’s fee, or to any commission, or to

12


any other compensation based in any way on agreements, arrangements or understandings made by or onbehalf of Purchaser or any Affiliate of Purchaser for which Seller has or will have any liability orobligation (contingent or otherwise).

5.8 Due Diligence and Independent Investigation. Purchaser is knowledgeable about theelectric transmission and distribution utility business and of the usual and customary practices ofcompanies engaged in the electric transmission and distribution utility business. Purchaser has had accessto the Acquired Assets and sufficient opportunities to discuss relevant information regarding the AcquiredAssets with Seller’s appropriate employees, agents, representatives and Affiliates. Purchaser hasconducted its own independen! investigation of the Acquired Assets and is relying, in its decision to enterinto this Agreement and cons~mmate the Transactions, exclusively on (a) such investigation and (b) therepresentations and warranties made in Article 4.

5.9 No Additional Representations and Warranties. Purchaser acknowledges that, except forthe representations and warranties contained in Article 4 (including the related portions of the DisclosureSchedule hereto), (a) the Acquired Assets are being conveyed and sold to, and accepted by, Purchaser intheir present condition, "AS IS," "WHEP, E IS" and with any faults, except "as otherwise expresslyprovided in this Agreement an~d (b) neither Seller nor any of its representatives has made or makes herebyany other express or implied representation or warranty, either written or oral, on behalf of Seller,including any representation or warranty arising from statute or otherwise in Law. Purchaser furtheracknowledges that none of Seller, any Affiliate of Seller or any other Person has, directly or indirectly,made any representations or warranties regarding any pro-forma financial information, financialprojections or other f~rward-looking statements of with respect to the Acquired Assets.

ARTICLE 6COVENANTS AND AGREEMENTS’OF SELLER AND PURCHASER

6.1 Conduct of the Business. From the Execution Date until the Closing Date, except withthe written consent of Purchaser:

a. Seller will conduct its business with respect to the Acquired Assets only in, andwill not take any action except in, the Ordinary Course of Business and in accordance in allmaterial respects with applicable Law and Governmental Orders, and maintain the AcquiredAssets consistent with the Ordinary Course of Business, including any regularly scheduledmaintenance (reasonable wear and tear excepted);

b. Seller shall not create, incur, assume or suffer to exist any Encumbrance (otherthan Permitted Encumbrances) upon any Acquired Asset;

c. Seller’ shall not enter into, assign, amend, relinquish or waive any material rightsunder, or renew, extend or terminate any Land Contracts, ~ th__h.~at such consent shall not beunreasonably withheld or delayed;

d. Seller shall continue to pay all fees, expenses and any other amounts payable" ordue in respect of any Real Property, whether public or private, or any Permit in respect of theAcquired Assets or under any Land Contract;

e. Other than in the ,Ordinary Course of Business, Seller shall not amend in anymaterial respect, breach in any material respect, terminate or allow to lapse, become subject todefault in any material respect or fail to apply for any renewal of, any Permit material to theAcquired Assets, other than as required by Law;

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f. Seller will not cancel or terminate its current insurance policies relating to theAcquired Assets or alIIow any of the coverage thereunder to lapse, unless simultaneously withsuch termination, cancellation or lapse, Seller obtains and maintains replacement policiesproviding coverage eq!ual to or greater than the coverage under the canceled, terminated or lapsedpolicies for substantially similar premiums as such policies currently in effect; and

g. Seller shall not make any commitment to take any of the actions prohibited bythis Section 6.1.

6.2 Notice of Developments and Access to Acquired Assets and Records.

a. Each Party will promptly notify the other Party of any emergency or othermaterial change with respect to the status of the Acquired Assets or the Transactions or thecommencement or threat of any Proceeding that could have a Seller Material Adverse Effect, aPurchaser Material Adverse Effe:ct or an Asset Material Adverse Effect. Each Party willpromptly notify the other Party in writing if such notifying Party should discover that anyrepresentation or warranty made by it in this Agreement was at the time of making, "hassubsequently become or will be on the Closing Date, untrue in any respect or the occurrence ofany event that would prevent the satisfaction of any conditions to Closing set forth in Article 7.No disclosure pursuant to this Section 6.2 will be deemed to amend or supplement the DisclosureSchedules or to prevent or cure any inaccuracy, misrepresentation, breach of warranty or breachof agreement.

b. From and after the Execution Date and until the Closing Date, Seller shall permitPurchaser and its representatives to have, on reasonable notice and at reasonable times, (i)reasonable access to al! employees, and books, papers and r6cords to the extent that theyreasonably relate to the operation, maintenance, obligations, liabilities and validity of Seller’sownership of and interests in the Acquired Assets, (ii) permit Purchaser to make reasonableinspections thereof as; Purchaser may reasonably requ.est, and (iii) furnish Purchaser with suchoperating data and other information with respect to the Acquired Assets as Purchaser may fromtime to time reasonably request; 1;~’ovided, however, that (x) such access shall not unreasonablyinterfere with the operation of Seller’s business, (y) Seller shall not be required to take any actionwhich would constitute or result in a waiver of the attorney-client privilege and (z) Seller shallnot be required to supply Purchaser with any information which Seller is under a legal obligationnot to supply. All documents or information furnished by Seller or obtained by Purchaserhereunder shall be subject to Section 6.4.

6.3 Consents and Authorizations; Regulatory_ Filings.

a. Seller’ shall use its Commercially Reasonable Efforts, at its expense, to (i), otherthan as described in Section 6.3c and d__ below, obtain all Consents described in Section 4.3(collectively, the "Seller Required Consents"), within a reasonable period of time after theExecution Date; and (ii) use Commercially Reasonable Efforts to cooperate with Purchaser withrespect to the taking of all necessary steps to transfer title of the Acquired Assets that require aspecific act or document to transfer title to Purchaser at the Closing (or to evidence any suchtransfer). Purchaser shall reasonably cooperate with Seller to the extent necessary to obtain theSeller Required Consents. Seller shall keep Purchaser reasonably advised of the status ofobtaining the Seller Required Consents.

b. Purclnaser shall use its Commercially Reasonable Efforts to obtain, within areasonable period of time after tl~,e Execution Date, all Consents (other than as described in

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Section 6.3c and d below) described in Section 5.3 (the "Purchaser Required Consents"). Sellershall reasonably cooperate with Purchaser to the extent necessary to obtain the PurchaserRequired Consents. Purchaser shall keep Seller reasonably advised of the status of obtaining thePurchaser Required Consents.

c. Within 30 calendar days after the Execution Date, Seller will submit, or cause tobe submitted, to FERC an application pursuant to Section 203 of the Federal Power Act seekingauthorization as necessary for the Transactions (the "FERC Approval"). Purchaser shallcooperate with Seller in the preparation and filing of such application, and Seller shall considerall reasonable comments, if any, submitted by Purchaser with respect thereto. The Parties shallrespond promptly to any requests for additional information made by FERC, and Seller shall useits Commercially Reasonable Efforts to cause regulatory approval to be obtained at the earliestreasonable date after the date of filling. Each Party will bear its own costs of the preparation andprosecution of any such filing.

d. Within 30 calendar days after the Execution Date, Seller and Purchaser willsubmit, or cause to be.. submitted, the applications, forms or reports required by the Public UtilityCommission of Texas (the "PUCT") and the New Mexico Public Regulation Commission (the"NMPRC") (collectively, the "PUCs") to be filed with respect to the Transactions, whichapplications, forms or reports shall request approval from the PUCs of(i) the sale (the PUCT andthe NMPRC) and purchase (the P1JCT only) of the Acquired Assets pursuant to the terms andconditions of this Agreement, (ii) with respect to each of the PUCs, any other aspect of theTransactions which must be expressly approved by such PUC, (iii) with respect to the PUCT, afinding that the Trans~ctions are in the public interest with respect to both Seller and Purchaser inaccordance with Section 14.101 of the Public Utility Regulatory Act (Title I1 of the TexasUtilities Code), as amended, and (iv) with respect to the NMPRC, a finding under Sedtions 62-6-12 and 62-6-13 of the New Mexico Statutes Annotated 1978, as amended, that the Transactionsare consistent with the public interest with regard to Seller, and an order giving the NMPRC’sconsent and approval to Seller’s participation in the Transactions. The approvals by the PUCs ofthe matters set forth in the preceding sentence, which mus’t be to Seller’s and Purchaser’sreasonable satisfaction., is referred to herein as the "P._UC Approval" and, together with the SellerRequired Consents, the Purchaser Required Consents and the FERC Approval, the "R__~quiredConsents." The Parties shall reasonably cooperate and each shall use its CommerciallyReasonable Efforts in connection with obtaining the PUC Approval.

e. In the.. event that any of the Required Consents are not obtained and the Closingproceeds without such Required Consents having been obtained, the Pat~y responsible for anysuch Required Consents shall, or shall cause its agents to, use all Commercially ReasonableEfforts to assist the ether Party in obtaining or making any such Required Consents after theClosing Date until such time as such Required Consents have been obtained; ~, however,that Seller shall not be liable to Purchaser in the event that Purchaser and Seller are unable tosecure any such Seller Required Consents.

f. Within 30 Business Days following the Closing Date, Seller shall file andPurchaser, prior to m~d following: the Closing, shall cooperate and take all reasonable actionsnecessary to permit Seller to file all notices required to be filed with any Governmental Body inconnection with the T~ansactions.

g. At all times prior to the Closing, the parties hereto shall cooperate and coordinatewith each other, as appropriate, with respect to filings and notifications to Governmental Bodiesin connection with obtaining or making the Required Consents. In particular, representatives of

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Purchaser and Seller will confer with each other on a regular basis to report matters relating to thestatus of all filings and notices made with or to Governmental Bodies hereunder.

6.4 Confidentialit.y.. Each Party shall hold, and shall use its Commercially ReasonableEfforts to cause its Affiliates (and, for purposes of this Section 6.4, in the case of Purchaser, includingSharyland Utilities, L.P.), and their respective officers, directors, employees, representatives and agents tohold, in strict confidence from any Person, unless (a) compelled to disclose by judicial or administrativeprocess (including in connection with obl:aining the necessary approvals of this Agreement and theTransactions from relevant (3overnmental Bodies) or by other requirements of Law, (b) disclosure toGovernmental Bodies when such disclosure is deemed reasonably necessary by Seller or Purchaser, asapplicable, in connection with obtaining the FERC Approval or the PUC Approval, or (c) disclosed in aProceeding brought by a Pa~ in pursuit of its rights or in the exercise of its remedies hereby, alldocuments and information concerning the’, other Party or any of its Affiliates furnished to it by the otherParty or such other Party’s ot~5cers, directors, employees, representatives and agents in connection withthis Agreement or the Transactions, except to the extent that such documents or information can be shownto have been (i) in the public domain (either prior to or after the furnishing of such documents orinformation hereby) through :r~o fault of such receiving party or (ii) previously known by the receivingparty or later acquired by the receiving party from another source, in each case, if the receiving party isnot aware that such source is under an ,obligation to the other Party to keep such documents andinformation confidential. In ~he event the Transactions are not consummated, t, pon the request of theother Party, each Party shall, and shall cause its Affiliates to, promptly (and in no event later than 30 daysafter such request) redeliver or’ cause to be redelivered all copies of documents and information furnishedby the other Party in connection with this. Agreement or the Transactions and destroy or cause to bedestroyed all notes, memoranda, summaries, analyses, compilations and other writings related thereto orbased thereon prepared by the Party that furnished such documents and information or its officers,directors and agents.

6.5 Non-Solicitatiion. Until the: date that is one (1) year from the Execution Date, Purchasershall not, directly or indirectly~, ~olicit for ernployment or hire any employee of.Seller or its Affiliates withwhom Purchaser had contact or who became known to Purchaser, in each’case, in connection withPurchaser’s consideration of the Transacti’.ons; ~, howeve~r, that the foregoing provision will notprevent Purchaser from emplc, ying any such Person who contacts Purchaser on his or her own initiativewithout any direct or indirect :solicitation or encouragement from Purchaser or who contacted Purchaser inresponse to a general advertisement (whether by mass media or through a search service).

6.6 Public Announcements. Neither Seller nor Purchaser shall, without prior written consentof the other Party, issue any press release ,or make any public statement with respect to this Agreementand the Transactions, except (i) as may be required to disclose by judicial or administrative process(including in connection with obtaining the necessary approvals of this Agreement and the Transactionsfrom relevant Governmental Bodies); (ii) required by applicable Law or (iii) required under any listingagreement with a national sec~,~rities exchange or quotation system; ~, however, prior to any suchcompelled statement, the compelled Party. will consult with and provide the other Party a reasonableopportunity to review and make reasonable comment upon such press release or public statement.

6.7 Payment of All Taxes Resulting From Sale of Assets by Seller. Other than as provided inthe first sentence of Section ’.2.5 and Secti_on 6.8, Seller will pay in a timely manner all Taxes resultingfrom or payable in connection with the sale of the Acquired Assets pursuant to this Agreement, regardlessof the Person on whom such Taxes are imposed by Law. Seller shall indemnify Purchaser from andagainst and in respect of any and all Darnages incurred by Purchaser related to any of the Taxes whichSeller has agreed to be responsible under this Agreement (including Damages related to any Taxes thatcreate a Permitted Encumbrance). The indemnity obligation set forth in this Section 6.7 shall survive the

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Closing indefinitely and shall not be subje(a to any restrictions or limitations. Seller and Purchaser will(a) each provide the other with such assistance as may reasonably be requested by any of them inconnection with the preparation of any Return, audit or other examination by any taxing authority orjudicial or administrative proceedings relating to liability for Taxes, (b) each retain and provide the otherwith any records or other information that may be relevant to such Return, audit or examination,proceeding or determination, and (c) each provide the other with any final determination of any such auditor examination, proceeding or determination that affects any amount required to be shown on any Returnof the other for any period.

6.8 Pro Rated Items. All property and ad valorem Taxes, leasehold rentals and othercustomarily proratable items :relating to the Real Property and the Acquired Assets payable or accruedprior to or subsequent to the C.Iosing Date and relating to a period of time both prior to and subsequent tothe Closing Date will be prorated as of the Closing between Seller and Purchaser, such that Seller isresponsible for any such payments that are payable or relate to a period prior to the Closing Date andPurchaser is responsible for any such payment that is payable or relates to a period begirming on theClosing Date and thereafter. Seller shall deliver a statement to Purchaser at or before the Closing statingSeller’s prorated portion to the extent not previously paid. If the actual amount of any such item is notknown as of the Closing Date, such proration will be based on the previous year’s assessment of suchitem and the Parties will adjust such proration and pay any underpayment or reimburse for anyoverpayment within 30 days after the actual amount becomes known. Except as set forth in Schedule 6.8of the Disclosure Schedules, $;eller shall pay, on or before the Closing Date, all assessments for publicimprovements levied, pending or deferred against the Real Property as of the Closing Date. Purchasershall pay and be liable for all assessments imposed or levied on the Real Property after the Closing,provided that, if any such assessment resulted from conditions, events or activities that arose prior to theClosing Date, such assessmenll shall be borne by Seller.

6.9 Access to Tax Information after the Closing Date. Purchaser, on the one hand, andSeller, on the other hand, wiill make available to the other, as reasonably requested, all information,records or documents relating to the Taxes of the Acquired Assets for periods ending on or prior to theClosing Date and will otherwise reasonably cooperate with respect to Tax matters, incruding with respectto audits, inquiries, assessments, or similar proceedings. Until the expiration of 120 days after theapplicable statute of limitations period (including extensions thereof), Purchaser and Seller shall retain allpertinent Tax and accounting records necessary or useful for determining the Tax liability of the AcquiredAssets for periods prior to and through the (;losing Date.

6..10 Title Commitment and Title Search.

a. At Seller’s sole cost and expenses, Seller shall provide to Purchaser, within 90days following the Execution Date, a commitment to issue title insurance insuring fee simple titleto the Owned Real Property, subject: to the exceptions to title noted therein, and containing anyreasonable endorsements as Purchaser may identify prior to the Closing. Purchaser shall besolely responsible for any title premiums required to be paid to issue the title insurance reflectedin such commitment. Within 20 days after Purchaser’s receipt of such title commitment,Purchaser shall make any reasonable objections it may have to the contents thereof (mattersreflected therein and not objected to within such period shall be deemed PermittedEncumbrances).

b. Purchaser may, at its sole cost and expenses, not later than 90 days following theExecution Date, conduct a title search on the easements and rights of way covered by the LandContracts and present to Seller, within 20 days of Purchaser’s receipt thereof, a list of exceptionsto the title related thereto..

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c. Any objections to the title commitment relating to the Owned Real Property orexceptions relating to the Land Contracts that are so identified by Purchaser pursuant to (a) and(b) of this Section 6.10 constitute a "Closing Encumbrance" for purposes hereof.

d. Seller shall have 30 days after receipt of notice of any Closing Encumbrancesidentified by Purchaser’ to deliver notice to Purchaser (the "Cure Notice") identifying the ClosingEncumbrances, if any, Seller intends to cure, at its discretion, which such cure shall be effected atSeller’s sole cost and expense prior’ to the Closing; ~, howeve~r, (i) Seller shall have noobligation with respect to any Closing Encumbrances not contained in the Cure Notice and (ii)failure to cure any Closing Encumbrance not listed in the Cure Notice shall constitute neither (A)a breach of any of Seller’s covenants contained herein, including the covenant contained inSection 6.1, nor (b) a fi~ilure by Seller to comply with its obligations under this Agreement withrespect to Section 9, I bi~.

e. lfany Closing Encumbrances are not cured prior to the Closing, Purchaser willhave the option (which shall be its .sole remedy with respect thereto) to (i) terminate thisAgreement or (ii) waive such objections and proceed to consummate the Closing; ~,however, if Purchaser proceeds to consummate the Closing, any Closing Encumbrances not curedshall be deemed Permitted Encumbrances for the purposes of this Agreement.

6.11 Risk of Loss. Subject to and without limiting the effect of Section 3.1, the risk of anyloss, damage, impairment, co~fiscation or condemnation of any of the Acquired Assets from any causewhatsoever shall be borne by Seller at all times prior to the Closing, and by Purchaser at all timesthereafter. If any such loss, damage, impairment, confiscation or condemnation occurs prior to Closing,Seller shall promptly notify Purchaser of any such event, and Seller and Purchaser shall discuss andmutually agree on a course of action to repair, replace or restore such Acquired Assets. In the event("Casualty Event") of any damage or destruction to the Acquired Assets which would result in the non-satisfaction of a condition precedent to Purchaser’s obligation to consummate the Transactions,Purchaser, at its option, may proceed to close the Transactions on the Closing Date, in which event Sellershall pay or assign to Purchaser any proceeds from any insurance policies covering Acqui’red Assetssubject to the Casualty Event to the extent such proceeds are actually received by Seller and have notbeen used in or committed to the restoration or replacement of Acquired Assets subject to the CasualtyEvent as of the Closing Date.

6.12 Further Assurances. At an), time or from time to time after the Closing Date, Seller shall,at the request of Purchaser and at the expense of Purchaser, as applicable, execute and deliver any furtherinstruments or documents and take all such further a~tion as Purchaser may reasonably request in order toconsummate and make effective the Transactions contemplated by this Agreement.

ARTICLE 7CONDITIONS TO CLOSING

7.1 Conditions te Each Party_’s Obligations. The respective obligations of each Party toc̄onsummate the Transactions. shall be subject to the conditions that, at the Closing (unless waived inwriting by each Party):

a. No ln~unction. There shall be no Governmental Order or Action pending by orbefore any Governmental Body to obtain a Governmental Order, to the effect that theTransactions may not be consummated as herein provided or otherwise seeking to prohibit orrestrict the consummalion of the Transactions.

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b. No Threat of Injunction. No Party shall have received a written notice of aGovernmental Order from any Governmental Body indicating an intent to restrain, prevent,materially delay or restructure the Transactions.

c. Req,uired Consents. Each of the FERC Approval and the PUC Approval shallhave been obtained, in a form that is acceptable to Seller and Purchaser in their reasonablejudgment, and be in full force and effect.

7.2 Conditions to Obligation.,; of Seller. The obligation of Seller to consummate theTransactions shall be subject 1:o the fulfillment on or prior to the Closing Date of each of the followingconditions (unless waived in writing by Seller, in its absolute and sole discretion):

a. CIosin,~ Deliveries. Purchaser shall have tendered or delivered to Seller the itemslisted in Section 8.3.

b. R_~presentations and Warranties of Purchaser. Each of the representations andwarranties of Purchaser set fbrth in Article 5 shall be true and correct as of the Execution Date,and shall be true and correct in all material respects at and as of the Closing Date with the sameforce and effect as though newly made as of that date.

c. Covenants of Purchaser. Purchaser shall have performed in all material respectsall of its obligations under this Agreement that by the terms of such obligations are to beperformed on or before the Closing Date.

d. Purchaser Material Adverse Effect. No Purchaser Material Adverse Effect shallhave occurred and not be cured within 30 days following such occurrence.

e. Officer’s Certificate.

(i) Seller shall have received a certificate duly executed by a genior officerof Purchaser, in a form reasonably satisfactory to Seller, to the effect that each of theconditions specified in Sections 7.2b and 7.2c have been satisfied.

(ii) Seller shall have received a certificate duly executed by an authorizedofficer of Purchaser to wl~3ch is attached: (A) true, correct and complete copies of theorganizational documents of Purchaser; (B) true, correct and complete copies of theresolutions of Purchaser respectin’g the transactions contemplated by this Agreement andthe other Transaction Documents; and (C) a schedule respecting the incumbency and truesignatures of the officers of Purchaser who execute this Agreement and the otherTransaction Documents on behalf of Purchaser. The certificate required pursuant to thisSection 7.2 e(ii3 shall certify that the documents referred to in (A) and (B) above andattached thereto are true, correct and complete copies, have been duly and validlyadopted and have not been amended or altered except as reflected therein.

Required Consents. Each Seller Required Consent and each Purchaser RequiredConsent shall have been obtained and be in full force and effect and be in a form satisfactory toSeller (which approval of Seller shall not be unreasonably withheld, conditioned or delayed).

7.3 Conditions to ’Obligations of Purchaser. The obligations of Purchaser to consummate theTransactions shall be subject to the fulfillment on or prior to the Closing Date of each of the followingconditions (unless waived in writing by Purchaser in its absolute and sole d.iscretion):

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a. Closin.a Deliveries. On or prior to the Closing Date, Seller shall have deliveredto Purchaser the items set forth in Section 8.2.

b. R_~resentations and Warranties of Seller. The representations and warranties ofSeller set forth in ArtMe 4 shall be; true and correct in all material respects as of the ExecutionDate, and shall be true and correct at and as of the Closing Date with the same force and effect asthough newly made as of that date.

c. Covenants of Seller. Seller shall have performed all of its obligations under thisAgreement that by the terms of such obligations are to be performed on or before the ClosingDate.

d. Good Standing. Purchaser will have received certificates dated as of a date notearlier than the seventh 13usiness Day prior to the Closing as to the good standing of Seller andpayment of all applicable state Taxes by Seller, executed by the appropriate officials of the Stateof Delaware and each jurisdiction in which Seller is licensed or qualified to do business as aforeign limited liability company.

e. Relea:ses. Purchaser will have received releases of all Encumbrances (other thanPennitted Encumbrances) as required to be provided in Section 8.2f.

E Officer’s Certificates.

(i) Purchaser shall have received a certificate duly executed by Seller, in aform reasonably satisfactory to Purchaser, to the effect that each of the conditionsspecified in ~_.’ction 7.3b, Section 7.3c and Section 7.3e have been satisfied.

(ii) Purchaser shall have received a certificate duly executed by anauthorized officer of’ Seller to which is attached: (A) true, correct and complete copies ofthe organizational documents of Seller; (B) true, correct and complete copies of theresolutions of Seller respecting the transactions contemplated by this Agreement and theother Transaclion Documents; and (C) a schedule respecting the incumbency and truesignatures of the officers of Seller who execute this Agreement and the other TransactionDocuments on behalf of Seller. The certificate required pursuant to this Section 7.3f(ii)shall certify that the documents referred to in (A) and (13) above and attached thereto aretrue, correct and complete copies, have been duly and. validly adopted and have not beenamended or altered except as reflected therein.

g. Required Consents.. Each Purchaser Required Consent and each Seller RequiredConsent shall have been obtained, be in full force and effect and be in a form satisfactory toPurchaser (which approval of Purchaser shall not be unreasonably withheld, conditioned ordelayed).

h. ’ Material Adverse Effect. Neither (i) a Seller Material Adverse Effect or (ii) anAsset Material Adverse Effect shall have occurred and not be cured within 30 days followingsuch occurrence.

ARTICLE 8CLOSING

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8.1 Closing. The consummation of the Transactions (the "Closing") shall take place at suchdate as may be mutually agreed upon by Purchaser and Seller (the "Closing Date"). The Closing will beeffective as of 12:01 a.m. on the Closing Date.

8.2 Seller’s Deliveries. At or prior to the Closing, Seller shall deliver to Purchaser theAcquired Assets, free and clear of all Encumbrances (other than Permitted Encumbrances), and thefollowing:

a. Bill of Sale. The Bill of Sale duly executed by Seller.

b. Real Pro e~2. For each parcel of Owned Real Property included in the AcquiredAssets, a recordable special warranty deed subject to the Permitted Encumbrances (each, a"Deed") substantially in the form of Exhibit E-l, executed by Seller, with all appropriatenotarizations and certifications as required by the applicable Governmental Body, and for eachLand Contract, a recordable assignment and assumption, subject to the Permitted Encumbrances(the "Land Contract Assi~_ment"), substantially in the form of Exhibit E-2, executed by Seller,with all appropriate notarizations and certifications as required by the applicable GovernmentBody.

c. Assig!~ment and A:ssumption Agreement of Leased Property. Assignments andassumptions or other appropriate documents for any Acquired Assets under lease accompanied byestoppel certificates i~z form and substance acceptable to Purchaser, duly executed by Seller andany other appropriate parties.

d. Assig!amentofAcquiredAssets. Assignments of the Acquired Assets, dulyexecuted by Seller, together with olher agreements, instruments, certificates and other documentsnecessary to assign al]i of Seller’s rights and interests in and to the Acquired Assets to Purchaser

e. FIRPTA. A non-foreign affidavit of Seller (and/or its tax-paying parent if Selleris a disregarded entity under the Code) dated as of the Closing Date in form and substance asrequired under the Treasury regulations issued pursuant to Section 1445 of the Code.

f. Release of Encumbrances. Duly executed copies of all agreements, instruments,certificates and other .ctocurnents necessary or appropriate, to release any and all Encumbrancesagainst the Acquired Assets, other than Permitted Encumbrances.

g. Other Instruments. To Purchaser, such other" endorsementg, assignments,certificates, documents and instruments as may be reasonably requested by Purchaser toconsummate the Transactions, each in form and substance reasonably satisfactory to Purchaser.

8.3 Purchaser’s rleliveries. At or prior to the Closing, Purchaser shall deliver to Seller orsuch other Persons as set forth below:

a. Purchase Price. To Seller, the Purchase Price by immediately available funds viawire transfer pursuant to instructions provided by Purchaser prior to the Closing Date.

b. Assi.gnment and Assumption Agreement and Land Contract Assigmnent. ToSeller, Assignment a~c~d Assumption Agreements pertaining to the Assumed Liabilities and theLand Contract Assignments, in each case duly executed by Purchaser.

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c. Other Documents and Instruments. To Seller, such other endorsements,assignments, assumptions, certificates, instruments and documents as may be reasonablyrequested by Seller to consummate the Transactions, each in form and substance reasonablysatisfactory to Seller.

ARTICLE 9TE RMINATION AND AMENDMENT

9.1 Termination. This Agreernent may be terminated at any time prior to Closing:

a. by the: mutual written consent of Seller and Purchaser;

b. by Seller in the event:

(i) Purchaser breaches any representation, warranty or agreement containedin this Agreement, which breach has not been cured within sixty (60) days after receivingwritten notice ’from Seller;

(ii) the Transactions will not have been consummated on or beforeDecember 31, 2013, effective immediately upon receipt of notice to Purchaser, whichnotice may be served at Seller’s election, in its sole discretion and without furtherexplanation; provided, ~z~vever, that Seller will not be entitled to terminate thisAgreement pursuant to this Section 9.1b(ii) if Seller’s failure to comply fully with itsobligations under this Agreement has prevented the consummation of the Transactions;or

(iii) a Law or (3overnmental Order will have been enacted, entered, enforced,promulgated, issued or deemed applicable to the Transactions by any GovernmentalBody that prohibits the Closing.

c. by Purchaser in the event:

(i) Seller breaches any representation, warranty or agreement contained inthis Agreement, which breach has not been cured within thirty 30 days after receivingwritten notice from Purchaser;

(ii) the Transactions will not have been consummated on or beforeDecember 31,2013, effective immediately upon receipt of notice to Seller, which noticemay be served at Purch~ser’s election, in its sole discretion and without furtherexplanation; ~Trovided, ho~_vever, that Purchaser will not be entitled to terminate thisAgreement pursuant to this Section 9.1c(ii) if Purchaser’s failure to comply fully with itsobligations under this Agreement has prevented the consummation of the Transactions;or

(iii) a Law or Governmental Order will have been enacted, entered, enforced,promulgated, issued or deemed applicable to the Transactions by any GovernmentalBody that prohibits the Closing.

9.2 Effect of Termination. If this Agreement is terminated pursuant to Section 9.1, thisAgreement shall become void and of no fi,~rther force or effect (except for the provisions of Section 6.4,Article 9, Article 10 and Article I , all of which shall continue in full force and effect).

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ARTICLE 10SURVIVAl_, AND INDEMNIFICATION

10.1 Survival of Re:~g., Warranties and Covenants. The representations, warranties,covenants and agreements of the Parties; in this Agreement shall survive the Closing for a periodbeginning on the Closing Date and ending on the date that is twelve (12) months after the Closing Date(such period or such longer period as set forth in the following sentence, the "Claim Deadline Date").Notwithstanding the preceding sentence, (a) the representations and warranties contained in Sections 4.1and 4.~2 and Sections 5.1 and 5._~_2, (b) any indemnification claims based on fraud or intentionalmisrepresentation shall surviw.’ the Closing indefinitely, (c) the covenants and agreements related to theRetained Liabilities and the Assumed Liabilities, and the indemnification obligations of the Parties withrespect thereto, shall survive the Closing indefinitely, and (d) the indemnification obligations set forth inSection 6.7 shall survive as set forth in such section. No indemnification shall be payable pursuant to thisArticle 10 after the applicable: Claim Deadline Date, except with respect to claims made prior to suchClaim Deadline Date, but not then resolved (such representation, warranty, covenant or agreementsurviving with respect to such claim solely until resolution of such claim). Notwithstanding theforegoing, i4" a claim notice with respect to recovei’y under the indemnification provisions hereof is givenin accordance with the terms hereof prior to the applicable Claim Deadline Date, the claim shall continueindefinitely until such claim is finally resolved in accordance with the terms of this Agreement.

10.2 Seller’s Obligation to lndemnifg.

a. Subject to the terms and conditions set forth in this Article 10, Seller shallindemnify and hold harmless Purchaser. and its Affiliates (collectively, the "PurchaserIndemnified Person") from and against any and all Damages suffered or incurred by anyPurchaser Indehmified Person based upon, arising out of or otherwise in respect of:

(i) any breach of any representation or warranty of Seller contained inArticle 4 of this Agreement:;

(ii) any breach of any covenant or agreement of Seller in this Agreement;

(iii) any claims based on fraud or intentional misrepresentation by Seller inconnection with the Transactions or pursuant to this Agreement or the other TransactionDocuments; and

(iv) any claims related to the Retained Liabilities and/or the Excluded Assets.

10.3 Limitations on Indemnification Obligations.

a. Indemnity Basket. Notwithstanding anything to the contrary contained herein,Seller shall not have any obligation to indemnify any of Purchaser Indemnified Persons pursuantto Section 10.2a(i) and Section 10.2a(ii) (subject, in any case, to the succeeding sentence with anybreach of Section 6.7), unless and until Purchaser shall have incurred, on a cumulative basis,aggregate Damages in an amount exceeding Three Million Seven Hundred Thousand Dollars($3,700,000) (the "Basket"), in which event the obligation of Seller to indemnify shall apply to allDamages incurred above the amount of the Basket. Notwithstanding anything to the contrary inthe preceding sentence, the Basket shall not apply to any Damages related breaches ofSections 4.1,4.2 or 4.5e or to breaches of Section 6.7 (as set forth therein), and the obligation ofSeller to indemnify Purchaser with respect to such matters shall apply to all Damages incurredfrom the first dollar. For purposes of this Article Ten, the amount (but not the existence) of any

23


Damages for which a Purchaser Indemnified Person is entitled to indemnification shall bedetermined, in each case, as if any qualifications or exceptions contained therein based onmateriality (including any qualifications related to the presence or absence of a Material AdverseEffect and any usages of "material," "in all material respects," "in any material respect," "wouldnot be material," "would not reasonably be expected to be material," or similar qualifiers) werenot included in any representation, warranty or covenant in this Agreement or in any certificatefurnished by or on behalf of Seller to Purchaser pursuant to this Agreement.

b. Limited to Cal~. Notwithstanding anything to the contrary contained herein, theaggregate amount potentially available for Purchaser Indemnified Persons or Seller IndemnifiedPersons for all Damages owed by Seller or Purchaser, as the case may be, under this Article 10shall not exceed, in the aggregate, the Purchase Price.

c. Limitation on Typ_es of Damages. No Party shall be liable to the other Party forspecial, punitive, exernplary, incidental, consequential or indirect damages, or lost profit or lossescalculated by referenc, e to any mulliple of earnings, or earnings before interest, tax, depreciation(or any other valuatio~q methodology), whether based on contract, tort, strict liability or otherwisefor any matter relatintg to this Agreement and the transactions contemplated herein, ~,however, that if a Parly is held liablIe to a third party for any such damages and the other Party isobligated to indemnil’~ such Party for the matter that gave rise to such damages, then theindemnifying Party shall be liable for, and obligated to reimburse the indemnified Party for, suchdamages.

d. Reduction in Damag.~.. Purchaser shall use Commercially Reasonable Efforts tomitigate any Damages; which it seeks to recover pursuant to this Article 10. With respect to anyclaims related to title with respect ’/o the Real Property, Purchaser shall make a claim against anytitle policy that has been issued in favor of Purchaser before initiating any indemnifiable claimsagainst Seller under this Article 113,. If Purchaser or Seller receives any payment from the titleinsurer related to such Damages .("’Claim Reduction Payment"), prior to Purchaser recoveringamounts from Seller with respect to such Damages pursuant to this Article 10, then such ClaimReduction Payment shall offset any Damages that Purchaser may recover against Seller for suchclaim.

e. S_pecific Limitation. Notwithstanding anything to the contrary herein,Purchaser’s sole remedy and Seller’s sole liabili’ty and obligation with respect to any breach ofSeller’s representatio~ contained in Section 4.5e shall be Seller’s duty, prior to and following theClosing, to transfer to Purchaser any property, assets and real property entitlements and all right,title and interests related thereto necessary to make Seller’s representation contained in Section4.5e true and correct i~n all material respects as of the Closing Date.

10.4 Claims by Purchaser for Third Party_ Claims.

a. If any claim by Purchaser hereunder results from any claim or Proceeding by athird party (including a Governmental Body) (a "Third Part,� Claim"), then Purchaser ghall giveSeller written notice thereof (together with a copy of such Third Party Claim, process or otherlegal proceeding) promptly after becoming aware of such Third Party Claim and in no event laterthan ten (10) Business Days after Purchaser becomes aware of such Third Party Claim; ~,however, that the failure of Purchaser to give such notice shall not impair the rights of Purchaserunder this Article 10, except to the extent that Seller is actually prejudiced by such failure to givenotice. Such notice shall describe .,;uch Third Party Claim in reasonable detail.

24

Attachment AKJ-lPage 29 of 67

b. Seller may elect to defend any Third Party Claim against Purchaser throughcounsel chosen by it (which counsel shall be reasonably acceptable to Purchaser).

(i) If Seller desires to defend a Third Party Claim then, within ten (10)Business Days after receiviing notice from Purchaser of such Third Party Claim, Sellershall notify Purchaser of its intent to do so, and Purchaser shall promptly thereafter makeavailable to Seller such books, records and other documents as well as access torepresentatives of Seller, as in each case is reasonably requested, and shall otherwisecooperate and cause its representatives to cooperate (including providing testimony) inthe defense of such Third Party Claim; provided that pending such notice and assumptionof defense, Purchaser may take such steps to defend against such Third Party Claim as, inPurchaser’s good-faith judgment, are appropriate to protect its interests.

(ii) After notice from Seller to Purchaser of its election to assume thedefense of a Third Party Colaim, Purchaser shall not be entitled to reimbursement of anylegal or other expenses subsequently incurred by Purchaser in connection with thedefense thereof.

(iii) If Seller elects to defend the Third Party Claim, no compromise orsettlement thereof rnay be effected by Seller without the consent of Purchaser (whichshall not be unreasonably withheld, conditioned or delayed) unless the sole reliefprovided is m¢~netary damages.

c. If Seller elects not to defend a Third Party Claim, then Purchaser may defend,compromise, and settle such Third Party Claim; ~, howeve~r, that, Purchaser may notcompromise or settle any such Third Party Claim without the prior written consent of Seller,which consent shall not be unreasonably withheld, conditioned or delayed.

d. All Third Party Claims of Purchaser shall be subject to the limitations describedin Section 10.3.

10.5 Survival of the Re rel~e~tions, Warranties and the Covenants of Purchaser. Therepresentations, warranties, covenants and agreements of Purchaser in this Agreement or any otherTransaction Document shall survive for the period of time beginning with the Closing Date and ending onthe applicable Claim Deadline Date.

10.6 Obligation of Purchaser to Indemnify.

a. Purchaser shall indemnify and hold harmless Seller and its respective members,directors, officers, employees, agenls, Affiliates and assigns (each, a "Seller Indemnified Person")from and against all Damages suflq~red or incurred by any Seller Indemnified Person based upon,arising out of or otherwise in respect of:

(i) any breach or inaccuracy of any representation or warranty of Purchaserin this Agreement or any Transaction Documents;

(ii) any breach of or nonfulfillment of any covenant or agreement ofPurchaser in this Agreemen~ or any Transaction Document;

(iii) any liability for claims based on fraud or intentional misrepresentation byPurchaser in connection with the Transactions; and

25


(iv) otherwise caused by or arising out of or resulting from the ownership,use or operation of the Acquired Assets, including without limitation, the Real Property,after the Closing Date.

10.7 Claims by Seller for Third Party Claims.

a. If any claim for indemnification hereunder by Seller results from any Third PartyClaim, Seller shall promptly notify Purchaser (and in any event within ten (10) Business Daysafter the applicable Seller receives notice of the Third Party Claim) of such claim, ~,however, that the failure to provide such notice shall not release Purchaser from its obligationsunder this Article 10 except to the extent, and only to the extent, Purchaser is prejudiced by suchfailure.

b. Purchaser shall have the right to assume and thereafter conduct the defense of theThird Party Claim with counsel of its choice reasonably satisfactory to Seller; ~, however,that Purchaser shall not consent to the entry of any judgment or enter into any settlement withrespect to the Third Party Claim without the prior written consent of Seller (not to beunreasonably withheld) unless the judgment or proposed settlement involves only the payment ofmoney damages and does not impose an inj unction or other equitable relief upon Purchaser.

c. Pending the assu~nption of defense, Seller may take such steps to defend againstsuch Third Party Claim as, in Seller’s good-faith judgment, are appropriate to protect its interests.

d. In no event will Seller consent to the entry of any judgment or enter into anysettlement with respect to the Third Party Claim without the prior written consent of Purchaser-(not to be unreasonably withheld, delayed or conditioned).

10.8 Exclusive Reined)5 Seller and Purchaser acknowledge and agree that the indemnificationprovisions in this Article 10 shall be the exclusive remedy of Purchaser and Seller with respect to thisAgreement and the other Transaction Documents. Notwithstanding the foregoing, nothing in thisAgreement shall in any way prevent or limit a Party’s claim for intentional fraud or any Person’sremedies for intentional fraud.

10.9 Adjustments to Purchase Price. All indemnification payments paid pursuant to thisArticle 10 shall be deemed adjustments to the Purchase Price.

ARTICLE 11MISCELLANEOUS

11.1 Communications. Any notice, request, instruction, correspondence or other document tobe given hereunder by a Party to another Party (herein collectively called "Notice") shall be in writingand delivered in person or by courier service requiring acknowledgment of receipt of delivery or mailedby certified mail, postage prepaid and retura receipt requested, or by facsimile (confirmed by appropriateanswer back), as follows:

If to Seller, addressed to:

Southwestern Public Service Company414 Nicollet Mall, 7th FloorMinneapolis, MN 55401-1’;)27Attention Paras M. Shah, Director Business Development

26


Facsimile (612) 215-4575

With a copy to:

Southwestern Public Service Company414 Nicollet Mall, 7th FloorMinneapolis, M N 55401 - 1927Attention: Scott Wilensky, Sr. Vice President and General CounselFacsimile (61:21) 2 ! 5-9025

with a copy tct:

Dorsey & Whitney, LLP50 South Sixth Street, Suite 1500Minneapolis, MN 55402Attn: Michael PignatoFacsimile No.: (612) 340-.2643

lfto Purchaser, addressed to:

Sharyland Distribution & Transmission Services, L.L.C.750 N. St. Paul Street, 2000Dallas, Texas 75201Attn.: Benjamin D. Nelson, .Senior Vice President and General CounselFacsimile No.: (972) 590-7701

with a coD,! to:

Sha@and Utilities, L.P.1807 Ross Avenue Suite 460Dallas, Texas 75201Attn: Sharla ]-’renzel, General CounselFacsimile No.:: (214) 978-8810

All notices and other commu~fications required or permitted under this Agreement that are addressed asprovided in this Section 11.1: (i) if delivered personally against proper receipt or by confirmed electronicmail delivery, shall be effective upon delivery; and (ii) if delivered (A) by certified or registered mail withpostage prepaid, shall be effective five (5) Business Days or (B) by an internationally recognizedovernight express mail service, such as Federal Express, UPS, or DHL Worldwide, with courier fees paidby the sender, shall be effective two (2) Business Days, in each case following the date when mailed orcouriered, as the case may be. A Party may from time to time change its address for the purposes ofNotice to such Party by a similar Notice specifying a new address, but r~o such change shall be deemed tohave been given until it is actually received by the Party sought to be charged with its contents.

11.2 Succession and Assignment. This Agreement and all of the terms and provisions hereofshall be binding upon and inure to the benefit of the Parties hereto and their respective successors andpermitted assigns. Neither Purchaser nor Seller may assign this Agreement or any of its rights, interest orobligations hereunder without the prior written approval of the other; provided that, Purchaser may assignto Sharyland Utilities the right to acquire or transfer in its name any Permit that is to be transferred as part

27


of the Transactions which is necessary for the operation and maintenance of the Acquired Assets asdetermined by Purchaser. Any assignments; made in contravention of the terms of this Section 11.2 shallbe void ab initio.

11.3 Governing Law. This Aigeement, the other Transaction Documents, and the legalrelations between the Parties l:ereto shall be governed and interpreted in accordance with the laws of theState of Texas (provided that, the validity and enforceability of all conveyance documents or instrumentsexecuted and delivered pursuant to this Agreement insofar as they affect title to real property shall begoverned by and construed i1~ accordance with the Laws of the jurisdiction in which such property islocated) without regard to principles of conflicts of law, except to the extent that United States bankruptcylaw is applicable.

11.4 Consent to Jurisdiction. Each Party hereby irrevocably submits to the exclusivejurisdiction of the state and fi~deral courts in or for Dallas County in the State of Texas (the "TexasCourts") in any action arising out of or relating to this Agreement or any other Transaction Document,and each such Party hereby irrevocably agrees that all claims in respect of any such action shall be heardand determined in Texas Cour~.s. Each Party, to the extent permitted by applicable Law, hereby expresslywaives any defense or objection to jurisdiction or venue based on the doctrine of forum non conveniens,and stipulates that the Texas Courts shall have in personam jurisdiction and venue over such Party for thepurpose of litigating any dispute or controversy between the Parties arising out of or relating to thisAgreement or any other Transaction Document. In the event that either Party shall commence or maintainany action arising ot~t of or relating to this Agreement or any other Transaction Document in a forumother than Texas Courts, the other Party shall be entitled to request the dismissal or stay of such action,and each Party stipulates for itself that such action shall be dismissed or stayed. To the extent that eitherParty has or hereafter may acquire any immunity from the jurisdiction of Texas Courts or form any legalprocess (whether through service or notice, attachment prior to judgment, attachment in aid of executionor otherwise) with respect to itself or its property, each such Party hereby irrevocably waives suchimmunity.

11.5 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THEFULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO ATRIAL BY JURY 1N RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISINGOUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE. OTHERTRANSACTION DOCUMENTS. EACH PARTY HERETO: (1) CERTIFIES THAT NOREPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,

¯ EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OFLITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER; AND (If) ACKNOWLEDGESTHAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THISAGREEMENT AND THE OTHER TRANSACTION DOCUMENTS, AS APPLICABLE, BY, AMONGOTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.5.

11.6 Entire A~eernent. This Agreement and the other Transaction Documents, each of whichare incorporated herein, embody the entire agreement and understanding between the Parties hereto withrespect to the subject matter hereof and supersede all prior agreements, commitments, arrangements,negotiations or understandings, whether oral or written, between the Parties hereto, their respectiveAffiliates or any representati,~es of any of them with respect thereto. There are no agreements, covenantsor understandings with respect to the subject matter of this Agreement and the other TransactionDocuments, other than those expressly set forth or referred to herein or therein and no representations orwarranties of any kind or nature, whatsoever, express or implied, have been made or shall be deemed tohave been made by the Parties hereto except those expressly made in this Agreement.

28


IN WITNESS WHEREOF, the Parties have executed and delivered this Agreement as of the

Execution Da re.

SELLER:

Southwestern Public Se~wice Company

Name:Title:

PURCHASE_R:

Sh.a~Tland Distribution & TransmissionServices, L.L.C.

By:Name:Title:


IN WITNESS WHEREOF, the Parties have executed and delivered this Agreement as of theExecution Date.

SELLER:

Southwestern Public Service Company

By:Name:Title:

PURCHASER:

Shnryland Distribution & TransmissionServices, L.L.C.

Name: W. Kirk BakerTitle: P~’esident


EXHIBIT A

FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT

THIS AGREEMENT, effective as of ,2013, is by and between SouthwesternPublic Service Company, a New Mexico corporation ("~") and Sharyland Distribution &Transmission Services, L.L.C., a Texas limi~ted liability company ("~").

WHEREAS, Assignor and Assignee: are parties to that certain Asset Purchase Agreementeffective as of ,2013 (the "Purchase Agreement"), pursuant to which Assignor hastransferred to Assignee all of its right, title and interest in and to certain assets (as defined therein, the"Acquired Assets"), and that Assignee will assume certain liabilities (as defined therein, the "AssumedLiabilities"); and

WHEREAS, Assignor is the owner of the entire right, title and interest in, to and under certainintangible assets included in the Acquired Assets, including (a) any and all rights under any express orimplied warranties provided b:y third parties relating to the Transmission 12ines or the Substations or anypart or component thereof, (b) all Permits (to the extent transferable, giving effect to the parties’obligations under the Purchase: Agreement as to the Required Consents) held by Assignor, or any of itsAffiliates, that exclusively relate to the Acquired Assets (including the Permits listed on Schedule 4.7 ofthe Disclosure Schedules to the Purchase Agreement) and (c) any and all other intangible rights attachingto the other Acquired Assets (collectively, the "Assigned Assets").

NOW, THEREFORE, in consideration of the premises, the mutual agreements herein set forthbelow and other good and valuable consideration, the receipt and adequacy of which are herebyacknowledged, the parties agree as follows:

1. Capitalized Terms. Capitalized terms not otherwise defined herein shall have themeaning ascribed to them in the Purchase Agreement.

2. Assignment and Assumption of Assigned Assets. Assignor hereby sells, transfers,conveys, assigns and delivers ~:o Assignee all right, title and interest in, to and under the Assigned Assets.Assignee hereby accepts the assignment of Assignor’s right, title and interest in, to and under theAssigned Assets so assigned, and agrees to perform, observe, keep and comply with all the terms,covenants, conditions, provisions and agreements contained in the Acquired Assets and the AssignedAssets.

3. Assignment and Assumption of Assumed Liabilities. In accordance with Section 2.3(a)of the Purchase Agreement, simultaneously with the assignment, transfer and conveyance of the AcquiredAssets and the Assigned Assels by Assignor, Assignor hereby assigns, and Assignee hereby assumes andagrees to pay, perform or discharge in accordance with their respective terms, the Assumed Liabilities.

4. " Integration with Purchase A_greement Provisions. Nothing contained in this Agreementshall expand, reduce, modify or waive any representations, warranties, covenants, rights or obligations ofthe parties under the Purchase Agreement. In the event that any of the provisions of this Agreement aredetermined to conflict with the terms of the Purchase Agreement, the terms of the Purchase Agreementshall control.

5. Binding Effect. This Agreement shall be binding upon and inure to the benefit of theparties and their respective successors and assigns.


6. Governing Law. This Agreement, and any legal disputes arising hereunder, shall begoverned and interpreted in accordance with the laws of the State of Texas applicable to agreements madeand to be performed entirely within such state, without giving effect to any conflict of laws principle tothe contrary.

7. Counterparts. This Agreement may be executed in one or more counterparts, each ofwhich shall be deemed an original, but all of which, when taken together, shall constitute one and thesame instrument. Any counterpart may be executed by facsimile signature and such facsimile signatureshall be deemed an original.

[Signature Page Follows]

2

Attachment AKJ- tPage 37 of 67

IN WITNESS WHEREOF, the parties herein have executed this Assignment and AssumptionAgreement, effective as of the date set forth in the first paragraph.

Southwest Public Service Company

By:Name:Title:

Sharyland Distribution & Transmission Services,L.L.C.

By:Name:Title:


EXHIB1T B

FORM OF BILL OF SALE

FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which arehereby acknowledged, Southwestern Public Service Company, a New Mexico corporation ("Transferor"),hereby sells, assigns and transfers to Sharyland Distribution & Transmission Services, L.L.C., a Texaslimited liability company ("Transferee"), pursuant to the terms and conditions of that certain AssetPurchase Agreement between Transferor and Transferee, effective as of ,2013 (the"Purchase Agreement"), all of its right, title and interest in and to each and all of the:

(a) poles, lines, c~?nductors, arms, braces, insulators, structures, facilities or improvements,fixtures, equipment and other ]items of tangible personal property comprising the Grassland-Borden Lineand the Hobbs-Midland Line (collectively, a.s defined within the Purchase Agreement, the "TransmissionLines");

(b) transformers, switches, structures, facilities or improvements, fixtures, equipmenI andother items of tangible personal property comprising the Borden Substation and the Midland Substation,as further described in Schedule 2.1 b of the Disclosure Schedules to the Purchase Agreement(collectively, as defined within the Purchase Agreement, the "Substations"); and

(c) all technical and maintenance books and records relating exclusively to the TransmissionLines, the Substations or the Real Property.

All defined terms used but undefined herein have the meaning ascribed thereto in the PurchaseAgreement.

Effective Date: _, 2013


By:Name:Title:


By:Name:Title:


Exhibit CGrassland-Borden Line Segment

"Grassland-Borden Line:" means that certain segment of Seller’s transmission line K48extending from the Borden Substation to a point of termination at and including Seller’sstructure number 64 (Latitude: 33° ~1’38.58"N; Longitude: 101 °4] ’5.43"W), locatedapproximately 10 miles south of Seller’s Grassland substation in Lynn County, as belowdepicted.

4824-3168-6419’~

Attachment AKJ- IPage 40 of 67

Exhibit DHobbs-Midland Line Segment

"Hobbs-Midland Line" means that certain segment of Seller’s transmission line K71extending from the Midland Substation to a point of termination at and including Seller’sstructure number 350 (L.atitude: 32c"10’1.03"N; Longitude: 102°46’57.47"W),approximately located near the inter~,;ection of the Oncor 138kV line in Andrews County,as below depicted.

4~24-3168-6419\3


EXHIBIT E-I

FORM ’OF WARRANTY DEED

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE ORSTRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILEDFOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’SLICENSE NUMBER.

STATE OF TEXAS)

COUNTY OF

WARRANTY DEED

KNOW ALl., MEN BY THESE PRESENTS:

THIS WARRANTY DEE[) is made effective as of ,20_, by andbetween , a ("Grantor") having its principal placeof business at , and _, a ("Grantee"),having a mailing address of

WHEREAS, Grantor and Grantee are parties to that certain Asset Purchase Agreementeffective as of , :!013 (the "pAu_rchase Agreement"), pursuant to which Grantor h~istransferred to Grantee certain assets as described in the Purchase Agreement.

WITNESSETH THAT, Grantor, in consideration of the sum of Ten Dollars ($10.00) andother good and valuable consideration, to it paid by Grantee, the receipt of which is herebyacknowledged, has GRANTEI), SOLD AND CONVEYED, and by these presents does GRANT, SELLAND CONVEY unto Grantee, its successor:; and assigns, the following described real estate in

County, State of Texas, to-wit:

See Exhibit "/\" attached hereto and made a part hereof.

thereto.TO HAVE AND TO HOLD together with all hereditaments and appurtenances belonging

SUBJECT TO:: all Permitted Encumbrances, as defined in the Purchase Agreement.

Grantor does hereby bind itself, its successors and assigns, to Warrant and ForeverDefend, all and singular the said premises unto the said Grantee, its successors and assigns, against everyperson whomsoever lawfully claiming, or to claim the same, or any part thereof.

]Remainder of page left intentionally blank.]


IN WITNESS WHEREOF, Grantor has caused these presents to be signed by its duly authorized officeras of the day and year first above written.

By:

Name:

Its:

ACKNOWLEDGMENT

Witness a

By:Its:Witness

THE STATE OF.TEXASCOUNTY OF

ACKNOWLEDGEMENT

THIS INSTRUMENT was acknowledged before me on the __200__, by , the of

day of

Notary Public, State of

AFTER RECORDING RETURN TO:Dorsey & Whitney LLP50 South Sixth Street, Suite 1500Minneapolis, MN 55402

PREPARED IN THE LAW OFFICE OF:Dorsey & Whitney LLP

50 South Sixth Street, Suite 1500Minneapolis, MN 55402


Exhibit A


EXHIBIT E-2

FOIRM OF LAND CONTRACT ASSIGNMENT

THIS AGREEMENT, effective as of ,2013, is by and between SouthwesternPublic Service Company, a New Mexico co~oration ("~"), and Sharyland Distribution &Transmission Services, L.L.C., a Texas limited liability company ("~").

WHEREAS, Assignor and Assignee are parties to that certain Asset Purchase Agreementeffective as of ,2013 (the "Purchase Agreement"), pursuant to which Assignor hastransferred to Assignee all of its right, title and interest in and to certain assets;

WHEREAS, Assignor is the owner or holder of the right, title and interest in, to and under thebelow described easement and/or right of way evidenced by the instrument attached hereto as Exhibit A(the "Land Contract"):

[DescriptionofEasement and/or Right of Way].

NOW, THEREFORE, in consideration of the premises, the mutual agreements herein set forthbelow and other good and valuable consideration, the receipt and adequacy of which are herebyacknowledged, the parties agree as follows:

1. Capitalized Terms. Capitalized terms not otherwise defined herein shall have themeaning ascribed to them in the Purchase Agreement.

2. Assignment and Assumption of Land Contract. In accordance with Sections 2. l(d) of thePurchase Agreement, Assignor hereby sells, transfers, conveys, assigns and delivers to Assignee all right,"title and interest in, to and under the Land Contract. Assignee hereby accepts the assignment ofAssignor’s right, title and interest in, to and under the Land Contract, hereby assumes all of theobligations of Assignor. under lhe Land Contract so assigned, and agrees to perform, observe, keep andcomply with all the terms, covenants, conditions, provisions and agreements contained in the LandContract on the part of Assignor to be performed, observed, kept and complied with.

3. Integration with Purchase .~5,greement Provisions. Nothing contained in this Agreementshall expand, reduce, modify or waive any representations, warranties, covenants, rights or obligations ofthe parties under the Purchase Agreement. lin the event that any of the provisions of this Agreement aredetermined to conflict with the terms of the Purchase Agreement, the terms of the Purchase Agreementshall control.

4. Binding Effect. This Agreement shall be binding upon and inure to the benefit of theparties and their respective successors and assigns.

5. Governing Law. This Agreement, and any legal disputes arising hereunder, shall begoverned and interpreted in accordance with the laws of the State of Texas applicable to agreements madeand to be performed entirely within such state, without giving effect to any conflict of Jaws principle tothe contrary.

6. Counterparts. This Agreement may be executed in one or more counterparts, each ofwhich shall be deemed an origi hal, but all of which, when taken together, shall constitute one and thesame instrument. Any counterpart may be e.xecuted by facsimile signature and such facsimile signatureshall be deemed an original.


IN WITNESS WHEREOF, the parties herein have executed this Land Contract AssignmentAgreement, effective as of the date set forth in the first paragraph hereof.


By:Name:Title:


By:Name:Title:


EXHIBIT A

LAND CONTRACT INSTRUMENT


DISCLOSURE SCHEDULES

To

ASSET PURCHASE AGREEMENT

Between


As Seller

SHARYLAND DISTRIBUTION & TRANSMISSION SERVICES, I,.L.C.

"As Purchaser

Dated as of ,/~(-4~. a~_._,. 2013


DISCLOSURE SCHEDULES

These Disclosure Schedules (these "Disclosure Schedules") are made and furnished bySouthwestern Public Service Company, a New Mexico corporation ("Seller"), pursuant to theAsset Purchase Agreement between Seller, and Sharyland Distribution & Zransmission Services,L.L.,C,., a Texas limited liability company ("Purchaser"), dated as of ,~.0~ ,a4’~__., 2013(the Agreement"). The Schedule numbers in these Disclosure Schedules con’e~pond to theSection numbers in the Agreement; p2~ovided, however, the inclusion of any matter disclosed inany section of these Disclosure Sched~ales shall be deemed to be disclosed with respect to eachother representation and warranty to which it relates without the necessity of repetitive disclosureor cross-reference, so long: as the applicability of such disclosed matter to another section ofthese Disclosure Schedules is reasonably apparent on its face.

Inclusion of a matter in these Disclosure Schedules shall expressly not be deemed toconstitute an admission by’ Seller or otherwise imply that any such matter is material or creates ameasure for materiality for purposes of the Agreement or of any obligation or liability to anythird party. Seller does not assume any responsibility to any person that is not a patty to theAgreement for the form or’ accuracy of any information herein. The information was notprepared or disclosed with a view to its potential disclosure to others. Subject to applicable law,this information is disclosed in confidence for the purposes contemplated in the Agreement andis subject to the mutual confidentiality provisions of any other agreements entered into by theparties.

Capitalized terms used herein, unless otherwise defined herein, shall have the meaningsascribed to them in the Agreement.

SCHEDULES

Schedule 2, IbSchedule 2.1 cSchedule 2.1 dSchedule 2.2Schedule 4.3Schedule 4.4Schedule 4,5aSchedule 4,5bSchedule 4,5fSchedule 4.7Schedule 5.3Schedule 5.4Schedule 6.8

SubstationsOwned Ileal PropertyLand ContractsExcluded AssetsNo Contlict; Third Party Consents of SellerGovernmental Authc, rity of SellerEncumbrancesTangible Personal PropertyNotices Regarding Title DefectsPermitsNo Conflict; Third Party Consents of PurchaserGovermnental Authority of SellerPayment for Public Improvements


SCHEDULE 2.1b

SubstationsThis Schedule 2.1b include.,; (i) a general description of the Substations included in thetransaction and (ii) a detailed listing of assets comprising those Substations. The detailed listingof Substation assets is the most accurate inventory available, however, the accuracy is limited bypossibilities of data entry and recording ,errors, and the listing may include assets that have beenretired or replaced. Additionally, there may be assets that are not reflected on the attached listingbut are part of the assets being transferred to Purchaser under the Agreement (includingreplacements and additions between the: date of the Agreement and the Closing).

(i) General description of Substations:

Borden SubstationAll transformers, switches, :structures, facilities or improvements, fixtures, equipment and otheritems of personal property comprising Seller’s 230kv to 138kv transforming substation locatedapproximately 2 miles west ,of Veal Moore, TX on highway 1785 in Borden County, TX.

Midland SubstationAll transformers, switches, :structures, facilities or improvements, fixtures, equipment and otheritems of personal property comprising Seller’s 230kv to 138kv transforming substation locatedapproximately 10 miles no~Ih of Midland, TX on highway 158 in Midland County, TX.

Attachment AKJ-!Page 50 of 67

(ii) Detailed listing of assets comprising the Substations:ENG In ServiceA.sset Location Yea..__.£ Utility! Account

Borden Sub-Tran-TX 71111995 0:00

Borden Sub-Tran-TX 7/1/1995 0:00Borden Sub-Tran-TX 2/1/1996 0:00Borden Sub-Tran-TX 7/1/1995 0:00Borden Sub-Tran-TX 7/1/1995 0:00Borden Sub-Tran-TX 7/1/1995 0:00Borden Sub-Tran-TX 711/1995 (]:IX)

Borden Sub-Tran-TX 7/1/1995 0:00Borden Sub-Tran-TX 7/1/1995 0:00

Borden Sub-Tran-TX 7/I/1995 0:00Borden Sub-Tran-TX 7/1/1995 0:00

Borden Sub-Tran-TX 7/I/1995 0:00

Borden Sub-Tran-TX 7/I/1995 0:00Borden Sub-Tran-TX 7/1/I 995 0:00

Borden Sub.Tran-TX 7/1/1995 0:00Borden Sub-Tran-TX 7/1/1995 0:00Borden Sub-Tran-TX 7/1/!995

Borden Sub-Tran-TX 7/]/1995 0:00

Borden Sub-Tran-TX 7/1/1995 0:00Borden Sub-Tran-TX 7/I/1995 0:00Borden Sub-Tran-TX 7/1/1995 0:00Borden Sub-Tran-TX 713011999 0:00

Borden Sub-Tran-TX I/1/1993 0:00Borden Sub-Tran-TX 8/1/1994 0:00

10353000-Transmission Station Equip10353000-Transmission Station Equip

10353000-Transmission Station Equip10353000-Transmission Station Equip10352000-T~ansmission Str & Improve

10353000-Transmission Station Equip10353000-Transmission Station Equip10353000-Transmission Station Equip10352000-T~ansmission Str & Improve

10350001-Titan Land Owned in Fee10353000-Transmission Station Equip10353000-Transmission Station Equip10353000-Transmission Station Equip

10353000-Transmission Station Fxluip10353000-T:ansmission Station Equip19353000-Tr~msmission Station Equip10353000-Transmission Station Equip

10353000-Trtmsmission Station Equip10353000-Transmission Station Equip10353000-Transmission Station Equip10353000-Tnmsmission Station Equip10353000-Transmission Station Eqoip

10353000-Transmission Station Equip10352000-Transmission Str & Improve

Midland Sub-Tran-TX 1/1/1994 0:00Midland Sub-Tran-TX I/]/1994 0:00Midland Sub-Tran-TX 2/I/1996 0:00

Midland Sub-Tran-TX 1/1/1994 0:00

Midland Sub-Tran-TX 1/1/1994 0:00Midland Sub-Tran-TX I/1/1994 0:00Midland Sub-Tran-TX I/]/1994 0:00Midland Sub-Tran-TX I/I/I 994 if:00Midland Sub-q’ran-TX 1/1/]994 0:00

Midland Sub-Tran-TX 12110/2008 0:00Midland Sub-Tran-TX 1/111994 0:00Midland Sub-Tran-TX 1/I/1994 0:00

Midland SuL~Tran-TX I/1/1994 0:00

Midland Sub-Tran-TX 1/I/1994 0:00Midland Sub-Tran-TX 1/I/1994 0:00Midland Sub-Tran-TX I/1/1994 0:00

Midland Sub-Tran-TX I/1/1994 0:00Midland Sub-Tran-TX 11111994 0:00Midland Sub-Tran-TX 1/1/1994 0:00

Midland Sub-Tran-TX 1/I/1994 0:00Midland Sub-Tran-TX I/I/1994 0:00

10353000-Transmission Station Equip10353000-Transmission Station Equip10353000-Trtmsmission Station Equip10353000-Transmission Station Equip

10352000-Transmission Str & Improve10353000-Transmission Station Equip10353000-Transmission Station Equip10353000-I’ransmission Station Equip

10352000-Transmission Str& Improve10353000-Transmission Station Equip

10353000-Transmission Station Equip10353000-Transmission Station Equip10353000-Transmission Station Equip

10353000-Transmission Station Equip!0353000-Tnlnsmission Station Equip10353000-Transmission Station Equip

10353000-Transmission Station Eqnip

10353000-Transmission Station Equip10353000-Transmission Station Equip

10353000-Transmission Station Equip10352000-1"ransmission Str & hnprove

Retirement Unit

Arrester I 15KV

Arrester 230KVAttester DistrBattery Storage StaBldg Sta CtrlCharger Battery Sta

Circuit Breaker 115KVFault Interrupter 230KVFence

Land Owned In Fee (Non Depreciable)Non-classified PropertyPower Line Carrier Sys

Sta CtrlsSta WiringStr Substation Equip and Bus 69KVStr Sobstation Equip and Bus 138KV

Str Substation Equip and Bus DistrSwitch Disconnect ] 15KVSwitch Disconnect DistrSwitch Gang 345KV

Transf Inslr Cur Pot Volt CCVoltTransf Inslr Cur Pot Volt CCVolt

Transf Substation I PH DistrYard Improvemenls

Arrdster 115KVArrester 230KVAttester DistrBattery Storage StaB]dg Sta Ctr]

Charger Battery StaCircuit Breaker ] 15KVFault lntercuptcr 230KVFence

Non-unitizedSta CtrlsSta WiringStr Substation Equip and Bus 69KV

Str Substation Equip and Bus 138KVStr Substaiion Equip and Bus DistrSwitch Disconnect Distr

Switch Gang 115KVSwitch Gang 345KV

Transf lnstr Cur Pot Volt CCVoltTransf Substatio~t 1 PH DistrYard hnprovernents

3

2112

16

I

22

15756l

5390

59731

3I

1

3

632

132II3

39

441213

3I

22

Attachment AKJ- ]Page 51 of 67

SCHEDULE 2.1c

Owned Real Property

1. Borden Substation Properly Des_cription

A tract of land out of Section 12, Block 33, T-3-N, T&P RR. Co. Survey, BordenCounty, Texas, described by metes and bounds as follows:

Beginning at the Southeast corner of the Candace Lou Good Jacobson Tract #2, asdescribed in Exhibit "H’" of a partition deed recorded in Volume 209, Page 247thru 261 of the Borden County Deed Records.

Thence S 76° 37’ 28"W, 700.0 feet along the Noah right of way line of a pavedCounty Road and the South line of said Candace Lou Good Jacobson Tract #2 toa point:

Thence N 15° 07’ 30"W, 400.0 feet to a point,Thence N 76" 37’ 28"E, 7’00.0 feet to a point,Thence S 15‘7 07’ 30"E, 400.0 feet to the place of the beginning, containing 6.42acres of land, more or less.

2. Midland Substation Pro_p_~a_y__.~;cr_q.~ption

A tract of land out of Section 8, Block 40, T-I -S, T&P RR. Co. Survey, MidlandCounty, Texas, described by metes and bounds as follows:

Beginning at the Northwest corner of a 5.13 acre tract of land conveyed toCaprock Electric Co-op, Inc., by John Casselman and Dorothy Casselman asshown in Vol. 1032, Page 494 of the Midland County Deed Records.

Thence N 74° 40’ 14" E, 839.02 feet to a point,Thence N 15~’ ! 9" 46" W, 625.0 feet to a point,Thence S 74" 40’ 14" W, 338.0 feet to a point,Thence S 15° 19’ 46" E, 600.0 feet to a point,Thence S 74° 40’ 14" W, 525.80 feet to a point,Thence S 60° 04’ 49" E, 35.2 feet to the Place of Beginning.

Containing 5.13 acres more or Jess save and except all oil, gas and othe¢ minerals.


SCHEDULE 2.1d

Land Contracts1. Grassland-Borden Segment

a. Borden County:

i. Substation Easement .given by CANDANCE LOU GOOD JACOBSON, partyof the first part, to SELLER, party of the second part, dated August 5, 1993,and recorded as Instrument No. 26952, records of Midland County, Texas;

ii. Easement given by JOE CANON, party of the first part, to SELLER, party ofthe second part, dated May 18, 1992, and recorded as Instrument No. 025036,records of Borden County, Texas;

iii.

iV.

vi.

vii.

VIII.

Easement and Right of Way given by MRS. JESSE JUEL COUCH, party ofthe first part, to SELLER, party of the second part, dated June ]7, 1992, andrecorded as Instrument No. 025130, records of Borden County, Texas;

Easement and Right of Way given by B.W. EDWARDS, party of the firstpart, to SELLER, pan:y of the second part, dated May 4, 1992, and recorded asInstrument No. 024950, records of Borden County, Texas;

Rights-ol~-Way Agreement given by TEXAS-MIDLAND, N.A., TRUSTEE,party of the first part, to SELLER, party of the second part, dated June 8,1992, and recorded as Instrument No.’025128, records of Borden County,Texas;

Rights-of-Way Agreement given by JEFF GOOD, TRUSTEE UNDER THEWILL OF SANDRA G. RAMEY, party of the first part, to ’.SELLER, party ofthe secon, d part, dated June 12, 1992, and recorded as Instrument No. 025126,records of Borden County, Texas;

Easement and Right of Way given by BESSIE ORSON SMITH, party of thefirst part, to SELLER, party of the second part, dated May 4, 1992, andrecorded as Instrument No. 024942, records of Borden County, Texas;

Easement and Right’0f Way given by HOMER W. HANCOCK JR. ANDJUANDA HANCOCK, party of the first part, to SELLER, party of the secondpart, dated May 4, ! 992, and recorded as Instrument No. 024952, records ofBorden County, Texas;


xi.

xii.

Rights-olZ-Way Agreement given by THOMAS JEFFERSON GOOD II, partyof the first part, to SELLER, party of the second part, dated June 17, 1992,and recorded as Instrument No. 025127, records of Borden County, Texas;

Easement and Right of Way given by JOHN BRICE BILLINGSLEY SR.,party of the first part, to SELLER, party of the second part, dated May 4,1992, and recorded as Instrument No. 024943, records of Borden County,Texas;

Easement Agreement given by PATRICIA DEAN BOSWELL, party of thefirst part, to SELLER,. party of the second part, dated June 17, 1992, andrecorded as Instrument No. 025125, records of Borden County, Texas;

Easement and Right of Way given by VERNA OGDEN, party of the first part,to SELLER, party of the second part, dated May 4, 1992, and recorded asInstrument No. 0249.48, records of Borden County, Texas;

xiii. Easement and Right of Way given by JOYCE PEGGY PENN, party of thefirst part, to SELLER,. party of the second part, dated May 12, 1992, andrecorded as lnstrumen~t No. 025003, records of Borden County, Texas;

xiv. Easemenll and Right of Way given by SUSAN LaRHEA MINTER PEPPER,party of the first part:, to SELLER, party of the second part, dated May 4,1992, and recorded as Instrument No. 024945, records of Borden County,Texas;

XV.

xvi.

xvii.

xviii.

xix.

Easement and Right of Way given by MODESTA SIMPSON WILLIAMSAND WADE B. SIMI~SON, party of the first part, to SELLER, party of thesecond part, dated July 1, 1992, and recorded as Instrument No. 025196,records of Borden County, Texas;

Easement and Right of Way given by JAMES E. SMITH, JR., party of thefirst part, to SELLER., party of the second part, dated May 4, 1992, andrecorded as Instrument No. 024154]1, in Vol. 239, Page 327 of the records ofBorden County, Texos;

Easement and Right of Wa3~ given by W.W. STAGGS AND ALDASTAGGS, party of the first part, to SELLER, party of the second part, datedJune 16, 1992, and recorded as Instrument No. 025129, records of BordenCounty, Texas;

Easement and Right of Way given by KATHERINE STEPHENS, party of thefirst part, to SELLER, party of the second part, dated October 13, 1993, andrecorded as Instrument No. 27242, records of Borden County, Texas;

Easement and Right of Way given by MORRIS MILLER, party of the firstpart, to SELLER, party of the second part, dated May 4, 1992, and recorded asInstrument No. 025001 (originally recorded as Instrument No. 024944),records of Borden County, Texas;


xxii.

XXIII.

XXV.

xxvi.

xxvii.

Easement and Right of Way given by LILLIE B. NELSON, party of the firstpart, to SELLER, party of the second part, dated May 4, 1992, and recorded asInstrument No. 024949, records of Borden County, Texas;

Easement. and Right of Way given by MAY STEPHENS, party of the firstpart, to SELLER, party of the second part, dated May 4, 1992, and recorded asInstrument No. 0249~[417, in Vol. 239, Page 339, in the records of BordenCounty, Texas;

Easemenll and Right of Way given by TOM ED VESTAL AND BARBARAANN VESTAL, partly of the first part, to SELLER, party of the second part,dated May 4, 1992, and recorded as Instrument No. 024951, records ofBorden C, ounty, Texas;

Easemen~I and Right of Way given by KAREN ANN WILLIAMS, ET AL,party of the first part:, to SELLER, party of the second part, dated May 12,1992, and recorded as Instrument No. 025002, records of Borden County,Texas;

Easemenll and Right of Way given by H.D. WILLIAMS, party of the first part,to SELLER, party of the second part, dated May 4, 1992, and recorded asInstrument No. 024953, records of Borden County, Texas;

EasemenlL and Right of Way given by PEELER WILLIAMS, party of the firstpart, to SELLER, party of the second part, dated October 12, 1993, andrecorded as Instrument No. 27243, records of Borden County, Texas;

Easemen~I and Right of Way given by SARA MODESTA SIMPSONWILLIAMS, party of the first part, to SELLER, party of the second part,dated Ju[’y 1, 1992, and recorded as Instrument No. 025194, records of B~rdenCounty, Texas; and

Judgmen’t on Award granting Title as to an Easement and Right-of-Wayregarding land owned by JERRY WAYNE STAGGS AND JUDY KAYSTAGGS, whereby Seller obtained such title via Proceeding in EminentDomain No. 1002-C before the 132ND District Court of Borden County,Texas, dated December, 1993.

b. Lynn County:

Easement and Right of Way given by MRS. BERTA LANCASTER, AWINDOW, BILI_JE K. BUTLER AND LANA C. SULLENGER, party ofthe first part, to SELLER, party &the second part, dated JUNE 17, 1992,and recorded in Vol. 303, Page 92, in deed records of Lynn County,Texas;


ii. Easement and Right of Way given by BERTIE JEAN PIRTLE, party ofthe first part, to SELLER, party of the second part, dated JULY 8, 1992,and recorded in Voi. 303, Page 256, in deed records of Lynn County,Texas; (which repllaced to correct that certain Easement and Right of Waygiven by BERTIE JEAN PIRTLE, party of the first part, to SELLER,party of the second part, dated May 6, 1992, and recorded in Voi. 302,Page 672, in deed records of Lynn County, Texas);

iii. Easement and Right of Way given by JOHN SALEH, party of the firstpart, to SELLER., party of the second part, dated JULY 8, 1992, andrecorded in Vol. 303, Page 258, in deed records of Lynn County, Texas;

iv.

No

vi.

vii.

viii.

ix.

xi.

Easement and Right of Way given by GLADYS B. BEACH GARY M.BEACH, PAULA JEAN BEACH THAMES, party of the first part, toSELLER, party of the second part, dated October 27, 1992, and recordedin V()I. 304 Page 403, in deed records of Lynn County, Texas;

Easement and Right of Way given by GLADYS B. BEACH GARY M.BEACH, PAULA JEAN BEACH THAMES, party of the first part, toSELLER, party of the second part, dated October 27, 1992, and recordedin V~I. 304 Page 405, in deed records of’Lynn County, Texas;

Easement and Right of Way given by GLADYS B. BEACH GARY M.BEACH, PAULA JEAN BEACH THAMES, party of the first part, toSELLER, party of the second part, dated May 6, 1992, and recorded inVol. 302 Page 6:52, in deed records of Lynn County, Texas;

Easement and Right of Way given by GLADYS B. BEACH, GARY M.BEACH, PAULA JEAN BEACH THAMES, party of the first part, toSELLER, paity of the second part, dated November 23, 1992, andrecorded in Vol. 304 Page 722, in deed records of Lynn County, Texas;

Easement and Right of Way given by GLADYS B. BEACH GARY M.BEACH, PAULA JEAN BEACH THAMES, party of the first part, toSELLER, party of the second part, dated May 6, 1992, and recorded inVol. 1302 Page 648, in deed records of Lynn County, Texas;

Easement and Right oI" Way given by i3LADYS B. BEACH GARY M.BEACH, PAULA JEAN BEACH THAMES, party of the first part, toSELLER, party of the second part, dated May 6, 1992, and recorded inVol. 302 Page 6.50, in deed records of Lynn County, Texas;

Easement and Right of Way given by R.T. BREWER, party of the firstpart, to SELLER,. party of the second part, dated May 6, ’1992, andrecorded in Vol. 1302 Page 684, in deed records of Lynn County, Texas;

Easement and Right of Way given by MRS. V.O. CASWELL, A WIDOWEXECUTRIX OF THE ESTATE OF V.O. CASWELL, party of the firstpart, to SELLER, party of the second part, dated May 6, 1992, andrecorded in Vol. 302 Page 654, in deed records of Lynn County, Texas;

9


xii. Easement and Right of Way given by FRANCES CHANCY -INDEPENI)ENT EXECUTRIX OF THE BURL AND ELLA MOOREESTATE, party of the first part, to SELLER, party of the second part,dated May 6, 1992, and recorded in Vol. 302 Page 660, in deed records ofLynn County, Texas;

xiii. Easement and Right of Way given by HERMAN CRAWFORD, party ofthe first part, to SELLER, party of the second part, dated August 24, 1992,and recorded in Vol. 303 Page 718, in deed records of Lynn County,Texas;; and

XiV. Easement and Right of Way given by THOMAS E. WOOLAM ANDDENNIS L. WOOLAM, party of the first part, to SELLER, party of thesecond part, dated May 6, 1992, and recorded in Vol. 302 Page 662, indeed records of Lynn County, Texas.

c. Borden and Lynn Counties:

Easernent given by PAT HENSLEY AND JOE HENSLEY, party of thefirst part, to SELLER, party of the second part, dated May 4, 1992, andrecorded as Instrument No. 8054, records of Borden and Lynn Counties,Texas

2. Hobbs-Midland Segment

a. Andrews, Midland and Ector Counties:

Judgrnent granting Title as to an Easement and Right-of-Way regardingland owned by BARBARA FA~;KEN, MELVIN COTTEN, JOHNCASSELMAN, JR., AND H.G. BEDFORD, JR., whereby Seller obtainedsuch title via Proceeding in Eminent Domain No. 13,144 before the 109t~Judicial District Court of Andrews County, Texas, dated May 18, ! 994.

b. Andrews County:

i. Easernent and Right of Way given by ROBERT B. HOLT, party of thefirst part, to SELLER, party of the second part, dated December 28, 1992,and recorded as In~strument No. 924788, records of Andrews County,Texas; and

ii. Easement given big THE UNIVERSITY OF TEXAS SYSTEM BOARDOF REGENTS, party of the first part, to SELLER, party of the secondpart, dated May 3, 2012, and recorded as Instrument No. 8054, records ofAndrews County, Texas.

C. Midland County:

10

Attachment AK.1-1Page 57 of 67

Amended Judgment granting Title as to an Easement and Right-of-Wayregarding land owned by JOHN CASSELMAN, JR., DOROTHYCASSELMAN AND TOM GREEN NATIONALBANK, whereby Sellerobtained such title via Proceeding in Eminent Domain No. 13,588 beforethe County Court ,afMidland County, Texas, dated December 6, 1995.

11


SCHEDULE 2.2

Excluded Assets

One 230kv auto transformer located at the Midland Substation manufactured by ABBPower T&D Company and having serial number LLL5886-I.

One 230kv auto transformer located at the Borden Substation manufactured by ABBPower T&D Company and having serial number LLL5886-2.

12


SCHEDULE 4.3

No Conflicts; Third Party Consents of Seller

1. FERC Approval

2. PUC Approval

3. Indenture, dated Aut~,ust 1, 2011, between Seller and U.S. Bank National Association, asTrustee, and that Supplemental Indenture thereunder, dated August 3,2011

4. The following Land Contracts require prior consent of grantors for valid assignment:

a. Easement given by JOE CANON, party of the first part, to SELLER, party of thesecond part, dated May ~:8, 1992, and recorded as Instrument No. 025036, recordsof Borden Ceunty, Texas; and

bo Easement given by THE UNIVERSITY OF TEXAS SYSTEM BOARD OFREGENTS, party of the tirst part, to SELLER, party of the second part, datedMay 3, 2012, and recorded as Instrument No. 8054, records of Andrews County,Texas

13


1. FERC Approval2. PUC Approval

SCHEDULE 4.4

Governmental Authority of Seller

14

Attachment AKJ- lPage 61 of 67

SCHEDULE 4.5a

Encumbrances

Indenture, dated August 1,2011, between Seller and U.S. Bank National Association, asTrustee, and that Supplemental Indenture thereunder, dated August 3,2011.

15


SCHEDULE 4.5b

Tangible Personal Property

Tangible Personal Property

1. The Transmission Lines; and2. The Substations.

Encumbrances

3. Indenture, dated August 1,201 I, between Seller and U.S. Bank National Association, asTrustee, and that Supplemental hadenture thereunder, dated August 3,2011.

16


None.

SCHEDULE 4.5f

Notices Regarding Title Defects

17


SCHEDULE 4.7

Permits

Hobbs-Midland Segment Crossing Permits

I. Highway Crossing Permit #92-1237, issued to Seller dated May 19, 1992, from TexasState Department of Highways and Public Transportation regarding Control 354, Section6, Hwy. No. SH I 15, Maintenance Section No. 4, Andrews County.

Highway Crossing Permit #92-1238, issued to Seller dated May 19, 1992, from TexasState Department of Highways and Public Transportation regarding Control 1127,Section 2, Hwy. No. 04, Andrews County.

Highway Crossing Permit #92-1239, issued ~o Seller dated May 19, 1992, from TexasState Department of Highways and Public Transportation regarding Control 228, Section5, Hwy. No. US 385,, Maintenance Section No. !, Andrews County.

4. Highway Crossing Permit #92-1240, issued to Seller dated May 19, 1992, from TexasState Depa,~ment of Highways and Public Transportation regarding Control 1718,Section 7, Hwy. No.. FM 1788, Maintenance Section No. 1, Midland County.

Grassland-Borden Segment Crossin~ Permits

Highway Crossing Approval, issued to Seller dated October 13, 1993, from Texas StateDepartment of Highways and Public Transportation regarding Control 295, Section 2,Hwy. No. US 180, Maintenance Section No. 8, Borden County.

Highway Crossing Approval, issued to Seller dated October 13, 1993, from Texas StateDepartment of Highways and Public Transportation regarding Control 1714, Section 2,Hwy. No. FM 1210,. Maintenance Section No. 8, Borden County.

]8


SCHEDULE 5.3

No Conflict; Third Party Consents of Purchaser

PUC Approval

19


1. PUC Approval

SCHEDULE 5.4

Governmental Authority of Purchaser

20


SCHEDULE 6.8

Payment for Public Improvements

None.

.21

Attachment AKJ-2Page 1 of l

Southwestern Public Service CompanyOutside Legal and Transaction Costs

Outside Legal CostsReview of Transaction Documents

Outside Counsel in Regulatory ProceedingsTexasNew MexicoFERC

Total Outside Legal in Regulatory Proceedings Costs

Total Outside Legal Costs

SPS Employee Expenses

$$$$

Total Project

150,000

50,00087,00040,00O

177,000

327,000

23,000

Total Outside Legal and Transaction Costs $ 350,000