Re-Energize the Americas & Border Energy Forum XVIII

As Goes the Border,…

Hunter L. Hunt October 26th, 2011

2

Disclaimers

Family of failed farmers

77 year old family business that has drilled dry holes on 6 continents

Newest most “inexperienced” utility in the country

I speak Spanish like I play golf

3

As Goes the Border,…

The Three “Megatrends” Driving Growth

Implications for Infrastructure

Amber Lights

4

Megatrend #1: Border Demographics

Source: U.S. Census Bureau, Population Estimates Program Source: INEGI. Censos de Población y Vivienda

1.00

1.05

1.10

1.15

1.20

1.25

1.30

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Ind

exed

Gro

wth

Population Growth in US Border States 2000 - 2010

Arizona

Texas

New Mexico

California

United States

0

0.5

1

1.5

2

2.5

Gro

wth

Rate

Growth Rate in Mexican Border States 2005-2010

5

Demographics – Hispanic Population Growth

- 2 4 6 8

10 12 14 16

California Arizona New Mexico Texas

Po

pu

lati

on

Millio

ns

Hispanic Population Growth 2000 - 2010

2000

2010

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

California Arizona New Mexico Texas

Po

pilati

on

Millio

ns

Total Population Change in US Border States 2000 - 2010

Non-Hispanic

Hispanic Growth

Source: U.S. Census Bureau, 2010 Census and Census 2000

6

Voting With Your Feet

7

Reasons for Migration

US Migration to the Southwest and Texas

Warmer Weather

Economic Opportunities

Retirees on Both Sides of the Border

8

Megatrend #2: Cross Border Industry NAFTA accounts for nearly one-third of the total US exports

Mexico and the United States traded more than $1 billion worth of

goods each day in 2010, a 4-fold increase since1994 Mexico spent $163 billion on US goods in 2010 NAFTA-related trade with Mexico (since 1994) added 1.7 million US jobs Nearly 50,000 small and medium-size U.S. businesses export to Mexico,

collectively selling $41 billion in goods to Mexico 22 states count Mexico as the No. 1 or No. 2 export market; 14 more count

Mexico as a top-five market

The Unites States provides up to 50% of all input for Mexico’s maquiladora manufacturing and assembly firms – more than $41 billion in annual sales

Sources: U.S. Department of Commerce, U.S. Food and Produce Association

9

Cross Border Industrial Growth

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Maquiladoras

Boost US population, employment and output growth

A 10% increase in maquiladora output leads to an increase in the adjacent US city as follows: 0.5-0.9% increase in total employment 0.7-0.8% increase in manufacturing 0.13% to a 0.20% increase in wages

Foster cross-border retail activity as maquiladora worker spend a

significant portion of their income in US border cities

Have brought input suppliers from the Midwest to locate along the border for just-in-time supply chains

Source: Cañas, Jesús et al. Federal Reserve Bank of Dallas. Impact of the Maquiladora Industry on US Border Cities

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Megatrend #3: Renewable Energy

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Tamaulipas Operating/Construction: 161 MW – 1 project

Oaxaca Operating/Construction: 1258 MW – 14 projects Under development: 3169 MW – 16 projects

Nuevo Leon Under development: 22 MW – 1 project

Baja California Operating/Construction: 10 MW – 1 project Under development: 4686 MW – 7 projects

Wind Projects in Mexico

Projects in operation or under construction Projects under development

Jalisco Under development: 124 MW – 2 projects

Chiapas Under development: 39 MW – 1 project

Operating/Construction: 1430 MW – 16 projects

Under Development: 8040 MW – 27 projects

Source: Asociación Mexicana de Energía Eólica

13

Renewable Energy Potential - Solar

And it does not

stop at the

Mexican Border!

14

Solar Projects in USA Operating/Construction: 2,800 MW – 90 projects

Under Development: 28,487 MW – 200 projects

2x

2x

5x

California Operating/Construction: 1424 MW – 29 projects Under development: 18,417 MW – 91 projects

Nevada Operating/Construction: 163 MW – 5 projects Under development: 4767 MW – 18 projects

Arizona Operating/Construction: 649 MW – 11 projects Under development: 2455 MW – 22 projects

Colorado Operating/Construction: 68 MW – 8 projects Under development: 478 MW – 7 projects

New Mexico Operating/Construction: 105 MW – 4 projects Under development: 348 MW – 4 projects

Texas Operating/Construction: 106 MW – 3 projects Under development: 390 MW – 4 projects

Florida Operating/Construction: 137 MW – 6 projects Under development: 622 MW – 8 projects

Projects in operation or under construction Projects under development

Source: Solar Energy Industries Association

15

Renewable Energy Potential - Geothermal

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In Summary

Three major trends continue unabated Demographic growth, both indigenous and migrants Industrial growth, on both sides of the border Renewable energy development

The critical requirement to support these trends:

INFRASTRUCTURE

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A Simple Case Study: Sharyland Plantation 1998

2008

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A Simple Case Study: Sharyland Plantation 6,000-acre mixed-used master planned development between Mission and

McAllen, TX developed by Hunt Realty

Almost 1,850 residential homes, prices ranging from $160K-$1M Almost 4 million sq. ft. of industrial Class A space in business park

Black & Decker Corning GE Motorola Panasonic T-Mobile

Market value of land ~$14 MM in 1998 ~$980 MM in 2010

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A Simple Case Study: Sharyland Utilities Created in 1999 to serve the Sharyland Plantation in South Texas

Energized first customer in February 2000 Currently serving ~2,500 customers in the Valley Have grown to serve 42,000 customers in 29 counties throughout Texas

150 MW High Voltage Direct Current (HVDC) Interconnection to Mexico Energized in 2007 to support reliability and commercial activity Actively used by market participants in Texas and Mexico Currently seeking expansion to 300 MW

20

Bullish on Future Energy Infrastructure

NV CA UT

CO

KS

OK

NE

AZ NM

TX

IA

MO

IL

Mexico

Tucson

Nogales

Hernandez

Sante Fe

Chicago

Juarez

7 1

9

2

8

NV CA UT

CO

KS

OK

NE

AZ NM

TX

IA

MO

IL

Mexico

Brownsville

McAllen

Verde Transmission

Project

Southline Transmission Project

AZ to Sonora Interconnection

LRGV Interconnection

SU Interconnection - HVDC Expansion

Cross Valley Transmission Line

NM to Chihuahua Interconnection

CREZ

Proposed Sharyland Utilities/Hunt Power Transmission Projects

21

Bullish on Future Transportation Infrastructure

Donna – Rio Bravo International Bridge Built in 2010

Anzalduas International Bridge Built in 2010

San Ysidro $500 million Modernization Project

San Luis, AZ – San Luis, Sonora Commercial Crossing Built in 2010

Nogales – Mariposa Port of Entry $200 million Modernization Project

I-35 Expansion TX-DOT announced expansion in 2010

I-69 Extension Planned to connect three different border crossings in Texas to connect with northern crossings.

Guadalupe – Tornillo Bridge Replace the Fabens-Casita with $10 million new bridge

Union Pacific Rail station $400 MM

22

California

Solar +4,800 MW Wind +8,800 MW

Arizona

Solar +800 MW Wind +1,900 MW

New Mexico

Solar +300 MW Wind +4,300 MW

Texas

Solar +700 MW Wind +41,000 MW

Bullish on Renewable Energy Projects

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Bullish on Energy Entrepreneurship

Relationship With Other Universities

Emerging Solar

Technologies

Upgrading Heavy

Crude Oil

Indigenous to North and Central America

Using sunlight to

convert CO2 and natural

gas to liquid fuels

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Amber Lights

Politics Cartel Violence Cultural Missteps

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Amber Lights: Politics

Q: What do you do with a demographic group that is: Pro-God Pro-Family Pro-Small Business Risk takers investing in their children’s future Fastest growing demographic group in the country, will be a majority in

Texas in ~15 years?

A: Dream demographic for Republicans (?) A: Equal seat at the table for Democrats (?)

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Amber Lights: Politics

A History of Failure Immigration Reform DREAM Act Border Security

The Demographics of the Border are Inevitable – And Exciting!

Other countries could only dream of this human capital gift

We must not let fear or patronage destroy a beautiful future

27

Amber Lights: Cartel Violence

This trend is fueling the unhealthy political debate

Despite Mexican economy growing at over 4%, this dominates the news

Plenty of blame to go around

BOTH SIDES NEED TO FOCUS ON STOPPING THIS DANGEROUS SITUATION

Source: 2011 Trading Economics

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Amber Lights: Cultural Missteps The border area is different

Dominated by Hispanics and Native Americans Both have incredibly rich cultures and heritages Yet stereotypes still pervade

The area needs investment, not lecturing Hunt / Sharyland Utilities Approach

Core values matter Respect for the Individual Humility

Know you are guest; strive to be a partner

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As Goes the Border,…The Future is Bright

The region is growing and will continue to do so

The future of both countries is tied to our

collective success

With the right mix of people and investment, it is a very bright future!