Some big names in energy and finance have found a new way to invest in the U.S. natural gas and power industries, putting together $2.1 billion to tap into the infrastructure side of the business through real estate investment trusts (REIT).
Hunt Power L.P., Marubeni Corp., John Hancock Life Insurance (USA), TIAA-CREF and OPTrust Private Markets Group announced Monday they have agreed to form two REITs, the Electric Infrastructure Alliance of America (EIAA) and the Gas Infrastructure Alliance of America (GIAA). The REITs will invest up to $2.1 billion to develop and acquire electricity and gas transmission, storage and distribution assets, primarily in Texas, the Great Plains and the desert Southwest.
These will be the first REITs of their kind in the electricity and gas transmission and distribution sector. Subsidiaries of Hunt Power will manage the REITs and will invest up to $322.5 million in cash and assets in the alliance, Marubeni will invest up to $500 million, John Hancock will invest up to $450 million, TIAA-CREF will invest up to $450 million, and OPTrust will invest up to $400 million.
"This is an innovative direct investment alliance, leveraging the expertise and active participation of the members, within a new REIT structure that will help to mobilize capital to invest in the electricity and gas transmission and distribution sectors," said Kirk Baker, chairman and president of both EIAA and GIAA, and senior vice president of Hunt Power, part of an affiliation of privately held companies, which are wholly owned subsidiaries of Hunt Consolidated, Inc., directed by Ray L. Hunt.
The projects, four years in the planning stages, "have already cleared all of the hurdles," including the Internal Revenue Service, the Federal Energy Regulatory Commission and the Public Utility Commission of Texas, said Jeanne Phillips, senior vice president of corporate affairs and international relations for Hunt Power.
Baker said the venture had been structured as a REIT, rather than a master limited partnership (MLP) because "the electricity infrastructure and certain components of the gas infrastructure delivery system wouldn't directly qualify for an MLP. For instance [local distribution companies] do not qualify for MLP treatment."
In focusing on the Southwest the REITs will be looking for investments "in the prime renewable generation sector of U.S., where demographic growth is very positive," Baker said. Also, there are a lot of natural gas infrastructure possibilities in Texas. There is no plan on how allocate capital between the REITs. "It depends on what projects are available first for either one of them."
Possible future acquisitions by EIAA could significantly expand the group's activities into other regions of the United States.
While the REITs could joint venture with infrastructure partners, "preferably, we would acquire the entire LDC," Baker said. "The structure gives us the ability to wed long-term capital players with operators of assets, so we could acquire the assets of an energy delivery company and lease those assets back to the operator on a long-term basis."
For Marubeni Power International, Inc. "this investment provides a strong platform for growth in the U.S. transmission and distribution sector," said Toshi Fukumura, senior vice president.
"EIAA and GIAA are actively seeking to partner with utilities, co-ops, municipalities and local distribution companies seeking expertise and capital to upgrade and expand their infrastructure systems," said Jerry Hanrahan, managing director, John Hancock Power and Project Finance.
As part of this transaction, EIAA will acquire an interest in Sharyland Distribution and Transmission Services (SDTS), an affiliate of Hunt Power in the western Texas Panhandle. SDTS will own five line segments and four substations that have been proposed as part of the Competitive Renewable Energy Zone (CREZ) transmission buildout in the Electric Reliability Council of Texas (ERCOT). The facilities will be built by Sharyland Utilities, L.P., and once completed will form a loop in the Texas Panhandle and South Plains that will bring wind power to major load centers in Texas while enhancing reliability.
Applications for regulatory approval have been filed with the Public Utility Commission of Texas for all five segments, with final decisions expected by May 2011. Construction is expected to be completed in 2013. There will be no changes from an operational perspective, as Sharyland Utilities will continue to operate the assets as a utility under state regulation.
Hunt Power and its affiliate SDTS own the electric transmission and distribution assets currently operated by Sharyland Utilities, a Texas-based public electric utility privately owned by Hunter L. Hunt and other members of the family of Ray L. Hunt. In addition, a subsidiary of Hunt Power, Hunt Transmission Services, L.L.C., provides support services to Sharyland Utilities and is actively working with Sharyland Utilities in identifying, analyzing and negotiating new growth opportunities, either through acquisition of existing assets or through new incremental construction projects.
Marubeni is a Japanese trading house headquartered in Tokyo, with more than 7,600 MW of net capacity in its global IPP portfolio. The company owns utilities in Jamaica and Grand Bahama Island, transmission lines in Australia, and has an investment in Atlantic Wind Connection. Marubeni will look for further expansion and investment opportunities in the U.S.
John Hancock Financial is a unit of Manulife Financial Corp., a leading Canadian-based financial services group serving millions of customers in 22 countries and territories worldwide. The company operates as Manulife Financial in Canada and in most of Asia, and primarily as John Hancock in the United States, where it is one of the largest life insurers.
TIAA-CREF is a national financial services organization with $434 billion in combined assets under management and provides retirement services to the academic, research, medical and cultural fields.
OPTrust manages one of Canada's largest public pension plans, serving more than 82,000 members and pensioners, and has more than C$12 billion ($US11.7 billion) in assets under management. Within the infrastructure portfolio, the group has considerable experience in sourcing, executing and managing businesses across a variety of sectors globally, including renewable power, conventional power generation, regulated utilities, transportation and social infrastructure at various stages of development.
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