10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number: 001-36822

InfraREIT, Inc.

(Exact name of Registrant as specified in its charter)

Maryland	75-2952822
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)
1807 Ross Avenue, 4th Floor, Dallas, Texas 75201	c/o InfraREIT, Inc. 1900 North Akard Street Dallas, Texas 75201
(Address of Principal Executive Offices, Including Zip Code)	(Mailing Address, Including Zip Code)

(214) 855-6700

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐  (Do not check if a smaller reporting company)	Smaller reporting company	☐
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☒

As of May 1, 2017, 43,778,490 shares of common stock were issued and outstanding.

InfraREIT, Inc.

INDEX

		Page
Glossary of Terms		3
Forward-Looking Statements		4
PART I.	Financial Information	5
Item 1.	Consolidated Financial Statements (Unaudited)	5
	Consolidated Balance Sheets	5
	Consolidated Statements of Operations	6
	Consolidated Statements of Cash Flows	7
	Notes to the Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II.	Other Information	28
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	29
Signatures		30

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GLOSSARY OF TERMS

This glossary highlights some of the industry terms that we use in this Quarterly Report on Form 10-Q and is not a complete list of all defined terms used herein.

Abbreviation	Term
AFUDC	allowance for funds used during construction
CREZ	competitive renewable energy zones, as defined by a 2005 Texas law establishing the Texas renewable energy program
CWIP	construction work in progress
DCRF filing	a distribution cost recovery factor filing with the Public Utility Commission of Texas that updates distribution tariffs to reflect recent capital expenditures, among other matters
distribution	that portion of a power delivery network consisting of an interconnected group of electric distribution lines, towers, poles, substations, transformers and associated assets over which electric power is distributed from points within the transmission network to end use consumers
Footprint Projects	transmission or distribution projects primarily situated within our distribution service territory, or that physically hang from our existing transmission assets, such as the addition of another circuit to our existing transmission lines, or that are physically located within one of our substations; Footprint Projects do not include the addition of a new substation on our existing transmission lines or generation interconnects to our existing transmission lines, unless the addition or interconnection occurred within our distribution service territory
PUCT	Public Utility Commission of Texas
rate base	calculated as our gross electric plant in service under generally accepted accounting principles in the United States of America, which is the aggregate amount of our total cash expenditures used to construct such assets plus AFUDC, less accumulated depreciation, and adjusted for accumulated deferred income taxes
service territory	a designated area in which a utility is required or has the right to supply electric service to ultimate customers under a regulated utility structure
T&D	electric transmission and distribution
T&D assets	rate-regulated electric transmission and distribution assets such as power lines, substations, transmission towers, distribution poles, transformers and related property and assets
TCOS filing	an interim transmission cost of service filing with the PUCT that updates a utility’s transmission cost of service, and therefore its transmission tariff, to reflect recent capital expenditures, among other matters; an interim TCOS filing establishes transmission cost of service until the next rate case or interim TCOS filing
transmission	that portion of a power delivery network consisting of an interconnected group of electric transmission lines, towers, poles, switchyards, substations, transformers and associated assets over which electric power is transmitted between points of supply or generation and distribution
U.S. GAAP	accounting principles generally accepted in the United States of America

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FORWARD-LOOKING STATEMENTS

Some of the information in this Quarterly Report on Form 10-Q may contain forward-looking statements. Forward-looking statements give InfraREIT, Inc.’s (we or Company) current expectations and include projections of results of operations or financial condition or forecasts of future events. Words such as “could,” “will,” “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” “budget,” “potential” or “continue” and similar expressions are used to identify forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this document include our expectations regarding our strategies, objectives, growth and anticipated financial and operational performance, including guidance regarding our capital expenditures, infrastructure programs and estimated distributions to our stockholders.

A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe that we have chosen these assumptions or bases in good faith and that they are reasonable. However, the assumptions and estimates underlying the forward-looking statements included in this document are inherently uncertain and are subject to a wide variety of significant business, economic and competitive risks and uncertainties that could cause actual results to differ materially from those contained in this document. Accordingly, when considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this document, and you are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:

• decisions by regulators or changes in governmental policies or regulations with respect to our organizational structure, lease arrangements, capitalization, acquisitions and dispositions of assets, recovery of investments, our authorized rate of return and other regulatory parameters;

• our current reliance on our tenant for all our revenues and, as a result, our dependence on our tenant’s solvency and financial and operating performance;

• the effects of existing and future tax and other laws and governmental regulations;

• our failure to qualify or maintain our status as a real estate investment trust (REIT) or changes in the tax laws applicable to REITs;

• the amount of available investment to grow our rate base;

• insufficient cash available to meet distribution requirements;

• the price and availability of debt and equity financing;

• our level of indebtedness or debt service obligations;

• cyber breaches, weather conditions or other natural phenomena;

• the termination of our management agreement or the loss of the services of Hunt Utility Services, LLC or other qualified personnel;

• adverse economic developments in the electric power industry or in business conditions generally; and

• certain other factors discussed elsewhere in this Quarterly Report on Form 10-Q.

For the above reasons, there can be no assurance that any forward-looking statements included herein will prove to be indicative of our future performance or that actual results will not differ materially from those presented. In no event should the inclusion of forward-looking information in this document be regarded as a representation by any person that the results contained in such forward-looking information will be achieved.

Forward-looking statements speak only as of the date on which they are made. While we may update these statements from time to time, we are not required to do so other than pursuant to applicable laws. For a further discussion of these and other factors that could impact our future results and performance, see Part I, Item 1A., Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the U.S. Securities and Exchange Commission (SEC) on February 28, 2017.

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PART I.  FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

InfraREIT, Inc.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

	March 31, 2017			December 31, 2016
	(Unaudited)
Assets
Current Assets
Cash and cash equivalents	$	2,617		$	17,612
Restricted cash		1,682			1,682
Due from affiliates		27,058			32,554
Inventory		7,229			7,276
Prepaids and other current assets		1,447			726
Total current assets		40,033			59,850
Electric Plant, net		1,675,221			1,640,820
Goodwill		138,384			138,384
Other Assets		36,650			37,646
Total Assets	$	1,890,288		$	1,876,700
Liabilities and Equity
Current Liabilities
Accounts payable and accrued liabilities	$	29,124		$	37,372
Short-term borrowings		162,000			137,500
Current portion of long-term debt		7,960			7,849
Dividends and distributions payable		15,169			15,161
Accrued taxes		4,659			4,415
Total current liabilities		218,912			202,297
Long-Term Debt, Less Deferred Financing Costs		707,464			709,488
Regulatory Liability		24,013			21,004
Total liabilities		950,389			932,789
Commitments and Contingencies
Equity
Common stock, $0.01 par value; 450,000,000 shares authorized; 43,775,383 and     43,772,283 issued and outstanding as of March 31, 2017 and December 31, 2016,     respectively		438			438
Additional paid-in capital		705,900			705,845
Accumulated deficit		(21,238	)		(18,243	)
Total InfraREIT, Inc. equity		685,100			688,040
Noncontrolling interest		254,799			255,871
Total equity		939,899			943,911
Total Liabilities and Equity	$	1,890,288		$	1,876,700

See accompanying notes to the unaudited consolidated financial statements.

5

InfraREIT, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2017			2016
Lease revenue	$	39,624		$	33,665
Operating costs and expenses
General and administrative expense		5,981			5,545
Depreciation		12,687			11,074
Total operating costs and expenses		18,668			16,619
Income from operations		20,956			17,046
Other (expense) income
Interest expense, net		(9,698	)		(8,842	)
Other income, net		3			759
Total other expense		(9,695	)		(8,083	)
Income before income taxes		11,261			8,963
Income tax expense		244			186
Net income		11,017			8,777
Less: Net income attributable to noncontrolling interest		3,068			2,462
Net income attributable to InfraREIT, Inc.	$	7,949		$	6,315
Net income attributable to InfraREIT, Inc. common     stockholders per share:
Basic	$	0.18		$	0.14
Diluted	$	0.18		$	0.14
Cash dividends declared per common share	$	0.25		$	0.25

See accompanying notes to the unaudited consolidated financial statements.

6

InfraREIT, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2017			2016
Cash flows from operating activities
Net income	$	11,017		$	8,777
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		12,687			11,074
Amortization of deferred financing costs		1,004			1,003
Allowance for funds used during construction - other funds		—			(759	)
Equity based compensation		140			292
Changes in assets and liabilities:
Due from affiliates		5,496			5,638
Inventory		47			(143	)
Prepaids and other current assets		(721	)		(829	)
Accounts payable and accrued liabilities		140			7,487
Net cash provided by operating activities		29,810			32,540
Cash flows from investing activities
Additions to electric plant		(52,223	)		(58,495	)
Net cash used in investing activities		(52,223	)		(58,495	)
Cash flows from financing activities
Proceeds from short-term borrowings		34,000			—
Repayments of short-term borrowings		(9,500	)		(54,000	)
Proceeds from borrowings of long-term debt		—			100,000
Repayments of long-term debt		(1,921	)		(1,817	)
Deferred financing costs		—			(649	)
Dividends and distributions paid		(15,161	)		(13,634	)
Net cash provided by financing activities		7,418			29,900
Net (decrease) increase in cash and cash equivalents		(14,995	)		3,945
Cash and cash equivalents at beginning of period		17,612			9,471
Cash and cash equivalents at end of period	$	2,617		$	13,416

See accompanying notes to the unaudited consolidated financial statements.

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InfraREIT, Inc.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Presentation of Financial Statements

Basis of Presentation

InfraREIT, Inc. is a Maryland corporation, which may be referred to in these financial statements as the “Company,” “we,” “us” and “our.” These unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the U.S. Securities and Exchange Commission (SEC) on February 28, 2017.

We held 72.1% of the outstanding partnership units (OP Units) in InfraREIT Partners, LP (Operating Partnership or InfraREIT LP) as of March 31, 2017 and are its general partner. We include the accounts of the Operating Partnership and its subsidiaries in our consolidated financial statements. Hunt Consolidated, Inc. (HCI) affiliates, current or former employees and members of our board of directors held the other 27.9% of the outstanding OP Units as of March 31, 2017.

Use of Estimates

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Recent Accounting Guidance

Recent Accounting Guidance Not Yet Adopted

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases. ASU 2016-02 amended the existing accounting standard for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for periods beginning after December 15, 2018 with early adoption permitted. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. We are currently evaluating the new guidance and the extent of the impact this standard may have on our financial position, results of operations and cash flows.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Clarification of Certain Cash Receipts and Cash Payments. The objective of ASU 2016-15 is to eliminate the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows by adding or clarifying guidance on eight specific cash flow issues. ASU 2016-15 is effective for periods beginning after December 15, 2017 with early adoption permitted. The new standard should be applied retrospectively to all periods presented, unless deemed impracticable, in which case, prospective application is permitted. We are currently evaluating the new guidance and have not determined the impact this standard may have on our cash flows.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 203): Restricted Cash (A Consensus of the FASB Emerging Issues Task Force). ASU 2016-18 adds to or clarifies current guidance on the classification and presentation of restricted cash in the statement of cash flows. The new guidance requires entities to include in its cash and cash equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. The guidance does not provide a definition of restricted cash or restricted cash equivalents. ASU 2016-18 is effective for periods beginning after December 15, 2017 with early adoption permitted. If an entity adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. We have not yet adopted the new guidance, but it will affect our Consolidated Statement of Cash Flows for the presentation of restricted cash.

8

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 requires revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the expected consideration for these goods and services. As part of this guidance, lease transactions have been excluded from the requirements of this standard. As such, this guidance will not apply to us unless certain lease criteria are present; therefore, the new guidance should have a minimal, if any, impact on our financial position, results of operations and cash flows.

2. Related Party Transactions

Our subsidiary, Sharyland Distribution & Transmission Services, L.L.C. (SDTS), leases all our electric transmission and distribution assets (T&D assets) through several lease agreements to Sharyland Utilities, L.P. (Sharyland), a Texas based utility and our sole tenant. Under the leases, we have agreed to fund capital expenditures for footprint projects. Our leases define “footprint projects” to be transmission or distribution projects primarily situated within our distribution service territory, or that physically hang from our existing transmission assets or that are physically located within one of our substations.

We earned lease revenues from Sharyland under these agreements of $39.6 million and $33.7 million during the three months ended March 31, 2017 and 2016, respectively. In connection with our leases with Sharyland, we recorded a deferred rent liability of $16.5 million and $15.6 million as of March 31, 2017 and December 31, 2016, respectively, which is included in accounts payable and accrued liabilities on the Consolidated Balance Sheets.

In addition to rent payments that Sharyland makes to us, we and Sharyland also make payments to each other under the leases that primarily consist of payments to reimburse Sharyland for the costs of gross plant and equipment added to our T&D assets. For the three months ended March 31, 2017 and 2016, the net amount of payments we made to Sharyland was $52.2 million and $58.2 million, respectively.

As of March 31, 2017 and December 31, 2016, accounts payable and accrued liabilities on the Consolidated Balance Sheets included $4.8 million and $13.7 million, respectively, related to amounts owed to Sharyland. As of March 31, 2017 and December 31, 2016, amounts due from affiliates on the Consolidated Balance Sheets included $27.1 million and $32.6 million, respectively, related to amounts owed by Sharyland associated with our leases.

The management fee paid to Hunt Utility Services, LLC (Hunt Manager) for the three months ended March 31, 2017 and 2016 was $7.0 million and $3.3 million, respectively. As of December 31, 2016, there was $3.5 million accrued associated with management fees on the Consolidated Balance Sheets. There were no prepaid or accrued amounts associated with the management fees on the Consolidated Balance Sheets as of March 31, 2017. Additionally, during each of the three months ended March 31, 2017 and 2016, we paid Hunt Manager less than $0.1 million for reimbursement of annual software license and maintenance fees and other expenses in accordance with our management agreement.

Our management agreement with Hunt Manager provided for an annual base fee, or management fee, of $13.1 million from April 1, 2015 through March 31, 2016. Effective as of April 1, 2016, the annual base fee was automatically adjusted to $14.0 million annually through March 31, 2017. Effective as of April 1, 2017, the annual base fee was automatically adjusted to $14.2 million annually through March 31, 2018. The base fee for each twelve month period beginning each April 1 thereafter will equal 1.50% of our total equity as of December 31 of the immediately preceding year, subject to a $30.0 million cap. The term of the management agreement expires December 31, 2019, and will automatically renew for successive five year terms unless a majority of our independent directors decides to terminate the agreement.

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3. Electric Plant and Depreciation

The major classes of electric plant are as follows:

(In thousands)	March 31, 2017			December 31, 2016
Electric plant:
Transmission plant	$	1,222,769		$	1,203,164
Distribution plant		597,707			575,648
General plant		15,958			15,959
Total plant in service		1,836,434			1,794,771
Construction work in progress		107,900			107,189
Total electric plant		1,944,334			1,901,960
Accumulated depreciation		(269,113	)		(261,140	)
Electric plant, net	$	1,675,221		$	1,640,820

General plant consists primarily of a warehouse, buildings and associated assets. Construction work in progress (CWIP) relates to various transmission and distribution projects underway. The amounts of CWIP consist primarily of route development expenditures, labor and materials expenditures, right of way acquisitions, engineering services and legal fees. Electric plant, net includes plant acquisition adjustments of $27.4 million and $27.7 million as of March 31, 2017 and December 31, 2016, respectively.

4. Goodwill

Goodwill represents the excess of costs of an acquired business over the fair value of the assets acquired, less liabilities assumed. We conduct an impairment test of goodwill at least annually. As of March 31, 2017 and December 31, 2016, $138.4 million was recorded as goodwill on the Consolidated Balance Sheets.

5. Other Assets

Other assets are as follows:

	March 31, 2017							December 31, 2016
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Deferred financing costs on undrawn revolver	$	967	$	(446	)	$	521	$	967	$	(397	)	$	570
Other regulatory assets:
Deferred financing costs		27,761		(17,944	)		9,817		27,761		(16,997	)		10,764
Deferred costs recoverable in future years		23,793		—			23,793		23,793		—			23,793
Other regulatory assets		51,554		(17,944	)		33,610		51,554		(16,997	)		34,557
Investments		2,519		—			2,519		2,519		—			2,519
Other assets	$	55,040	$	(18,390	)	$	36,650	$	55,040	$	(17,394	)	$	37,646

Deferred financing costs on undrawn revolver consist of costs incurred in connection with the establishment of the InfraREIT LP revolving credit facility, see Note 6, Borrowings Under Credit Facilities.

Other regulatory assets consist of deferred financing costs within our regulated subsidiary, SDTS. The deferred financing costs primarily consist of debt issuance costs incurred in connection with the construction of our T&D assets or the refinancing of related debt. See Note 6, Borrowings Under Credit Facilities and Note 7, Long-Term Debt. These assets are classified as regulatory assets and amortized over the length of the related loan. These costs are recovered through rates established in our rate cases.

Deferred costs recoverable in future years of $23.8 million as of March 31, 2017 and December 31, 2016 represent operating costs incurred from inception of Sharyland through 2007. Recovery of these costs has been requested in the amended rate case application and rate filing packages filed with the Public Utility Commission of Texas (PUCT) by Sharyland and SDTS on December 30, 2016 (December Rate Case Filing). We have determined that these costs are probable of recovery through future rates based on orders of the PUCT in Sharyland’s prior rate cases and regulatory precedent. See Note 9, Regulatory Matters for additional information on the December Rate Case Filing.

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In connection with the acquisition of Cap Rock Holding Corporation, we received a participation in the National Rural Cooperative Corporation (NRUCFC). We account for this investment under the cost method of accounting. We believe that the investment is not impaired at March 31, 2017 and December 31, 2016.

6. Borrowings Under Credit Facilities

InfraREIT LP Revolving Credit Facility

In 2014, InfraREIT LP entered into a $75.0 million revolving credit facility, led by Bank of America, N.A., as administrative agent, with up to $15.0 million available for issuance of letters of credit and a maturity date of December 10, 2019. The revolving credit facility is secured by certain assets of InfraREIT LP, including accounts and other personal property, and is guaranteed by us and Transmission and Distribution Company, L.L.C. (TDC), with the TDC guarantee secured by the assets of, and InfraREIT LP’s equity interests in, TDC on materially the same basis as TDC’s senior secured notes described below in Note 7, Long-Term Debt.

Borrowings and other extensions of credit under the revolving credit facility bear interest, at InfraREIT LP’s election, at a rate equal to (1) the one, two, three or six month London Interbank Offered Rate (LIBOR) plus 2.5%, or (2) a base rate (equal to the highest of (a) the Federal Funds Rate plus ½ of 1%, (b) the Bank of America prime rate and (c) LIBOR plus 1%) plus 1.5%. Letters of credit are subject to a letter of credit fee equal to the daily amount available to be drawn times 2.5%. InfraREIT LP is also required to pay a commitment fee and other customary fees under the revolving credit facility. InfraREIT LP may prepay amounts outstanding under the revolving credit facility in whole or in part without premium or penalty.

As of March 31, 2017 and December 31, 2016, there were no borrowings or letters of credit outstanding and there was $75.0 million of borrowing capacity available under the revolving credit facility. As of March 31, 2017 and December 31, 2016, InfraREIT LP was in compliance with all debt covenants under the credit agreement.

SDTS Revolving Credit Facility

In 2014, SDTS entered into the third amended and restated credit agreement led by Royal Bank of Canada, as administrative agent, with a maturity date of December 10, 2019. The credit agreement contains a revolving credit facility with a borrowing capacity up to $250.0 million with up to $25.0 million of the revolving credit facility available for issuance of letters of credit and up to $5.0 million of the revolving credit facility available for swingline loans. The revolving credit facility is secured by SDTS’s T&D assets, the leases, certain accounts and TDC’s equity interests in SDTS on the same basis as SDTS’s various senior secured note obligations described below in Note 7, Long-Term Debt.

The interest rate for the revolving credit facility is based, at SDTS’s option, at a rate equal to either (1) a base rate, determined as the greatest of (a) the administrative agent’s prime rate, (b) the federal funds effective rate plus ½ of 1% and (c) LIBOR plus 1.00% per annum, plus a margin of either 0.75% or 1.00% per annum, depending on the total debt to capitalization ratio of SDTS on a consolidated basis or (2) the one, two, three or six month LIBOR plus a margin of either 1.75% or 2.00% per annum, depending on the total debt to capitalization ratio of SDTS on a consolidated basis. SDTS is also required to pay a commitment fee and other customary fees under its revolving credit facility. SDTS is entitled to prepay amounts outstanding under the revolving credit facility with no prepayment penalty.

As of March 31, 2017, SDTS had $162.0 million of borrowings outstanding at a weighted average interest rate of 2.72%, no letters of credit outstanding and $88.0 million of borrowing capacity available under this revolving credit facility. As of December 31, 2016, SDTS had $137.5 million of borrowings outstanding at a weighted average interest rate of 2.50% with no letters of credit outstanding and $112.5 million of borrowing capacity available under this revolving credit facility. As of March 31, 2017 and December 31, 2016, SDTS was in compliance with all debt covenants under the credit agreement.

The credit agreements require InfraREIT LP and SDTS to comply with customary covenants for facilities of this type, including: debt to capitalization ratios, debt service coverage ratios, limitations on additional debt, liens, investments, mergers, acquisitions, dispositions or entry into any line of business other than the business of the transmission and distribution of electric power and the provision of ancillary services and certain restrictions on the payment of dividends. The debt to capitalization ratio on the SDTS credit facility is calculated on a combined basis with Sharyland. The credit agreements also contain restrictions on the amount of Sharyland’s indebtedness and other restrictions on, and covenants applicable to, Sharyland.

The revolving credit facilities of InfraREIT LP and SDTS are subject to customary events of default. If an event of default occurs under either facility and is continuing, the lenders may accelerate amounts due under such revolving credit facility.

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7. Long-Term Debt

Long-term debt consisted of the following:

		March 31, 2017					December 31, 2016
(In thousands)	Maturity Date	Amount Outstanding			Interest Rate		Amount Outstanding			Interest Rate
TDC
Senior secured notes - $25.0 million	December 30, 2020	$	17,188			8.50%	$	17,500			8.50%
SDTS
Senior secured notes - $60.0 million	June 20, 2018		60,000			5.04%		60,000			5.04%
Senior secured notes - $400.0 million	December 3, 2025		400,000			3.86%		400,000			3.86%
Senior secured notes - $100.0 million	January 14, 2026		100,000			3.86%		100,000			3.86%
Senior secured notes - $53.5 million	December 30, 2029		42,100			7.25%		42,600			7.25%
Senior secured notes - $110.0 million	September 30, 2030		96,257			6.47%		97,366			6.47%
Total SDTS debt			698,357					699,966
Total long-term debt			715,545					717,466
Less unamortized deferred financing costs			(121	)				(129	)
Total long-term debt, less deferred     financing costs			715,424					717,337
Less current portion of long-term debt			(7,960	)				(7,849	)
Debt classified as long-term debt, less     deferred financing costs		$	707,464				$	709,488

In 2010, TDC issued $25.0 million aggregate principal amount of 8.50% per annum senior secured notes to The Prudential Insurance Company of America and affiliates (TDC Notes). Principal and interest on the TDC Notes are payable quarterly, and the TDC Notes are secured by the assets of, and InfraREIT LP’s equity interest in, TDC on materially the same basis as with lenders under InfraREIT LP’s revolving credit facility described above in Note 6, Borrowings Under Credit Facilities. In connection with the issuance of the TDC Notes, TDC incurred deferred financing costs which are shown as a reduction of the senior secured notes balance. The amount of unamortized deferred financing costs associated with the TDC Notes was $0.1 million as of March 31, 2017 and December 31, 2016.

SDTS has $60.0 million aggregate principal amount of 5.04% per annum senior secured notes issued to The Prudential Insurance Company of America and affiliates in 2011 (2011 Notes). Interest is payable quarterly while no principal payments are due until maturity.

In 2015, SDTS issued $400.0 million in 10 year senior secured notes, series A (Series A Notes), and in 2016 issued an additional $100.0 million in 10 year senior secured notes, series B (Series B Notes). These senior secured notes were issued through a private placement conducted pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and bear interest at a rate of 3.86% per annum, payable semi-annually. The Series A Notes are due at maturity with outstanding accrued interest payable each June and December. The Series B Notes are due at maturity with outstanding accrued interest payable each January and July.

In 2009, SDTS issued $53.5 million aggregate principal amount of 7.25% per annum senior secured notes to The Prudential Insurance Company of America and affiliates (2009 Notes). Principal and interest on the 2009 Notes are payable quarterly.

In 2010, SDTS issued $110.0 million aggregate principal amount of 6.47% per annum senior secured notes to The Prudential Insurance Company of America (2010 Notes). Principal and interest on the 2010 Notes are payable quarterly.

SDTS and TDC are entitled to prepay amounts outstanding under their senior secured notes, subject to a prepayment penalty equal to the excess of the discounted value of the remaining scheduled payments with respect to such notes over the amount of the prepaid notes.

The agreements governing the senior secured notes contain customary covenants, such as debt to capitalization ratios, debt service coverage ratios, limitations on liens, dispositions, mergers, entry into other lines of business, investments and the incurrence of additional indebtedness. The debt to capitalization ratios are calculated on a combined basis with Sharyland. SDTS’s Series A Notes and Series B Notes are not required to maintain a debt service coverage ratio. As of March 31, 2017 and December 31, 2016, SDTS and TDC were in compliance with all debt covenants under the applicable agreements.

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SDTS’s Series A Notes, Series B Notes, 2009 Notes, 2010 Notes and 2011 Notes are secured by substantially all of SDTS’s T&D assets, the leases, certain accounts and TDC’s equity interests in SDTS on the same basis as SDTS’s revolving credit facility described above in Note 6, Borrowings Under Credit Facilities.

The senior secured notes of TDC and SDTS are subject to customary events of default. If an event of default occurs with respect to the notes and is continuing, the lenders may accelerate the applicable amounts due.

8. Fair Value of Financial Instruments

The carrying amounts of our cash and cash equivalents, restricted cash, due from affiliates and accounts payable approximate fair value due to the short-term nature of these assets and liabilities.

We had borrowings totaling $715.5 million and $717.5 million under our senior secured notes with a weighted average interest rate of 4.6% per annum as of March 31, 2017 and December 31, 2016, respectively. The fair value of these borrowings is estimated using discounted cash flow analysis based on current market rates.

Financial instruments, measured at fair value, by level within the fair value hierarchy were as follows:

	Carrying		Fair Value
(In thousands)	Value		Level 1		Level 2		Level 3
March 31, 2017
Long-term debt	$	715,545	$	—	$	753,084	$	—
December 31, 2016
Long-term debt	$	717,466	$	—	$	758,415	$	—

9. Regulatory Matters

Regulatory Liability

Our regulatory liability is established through depreciation rates related to cost of removal and represents amounts that we expect to incur in the future. As of March 31, 2017 and December 31, 2016, we recorded on the Consolidated Balance Sheets as a long-term liability $24.0 million and $21.0 million, respectively, net of actual removal costs incurred.

Rate Case Filing

On April 29, 2016, Sharyland filed a system-wide rate proceeding with the PUCT to update its rates (April Rate Case Filing). Pursuant to a restructuring order issued by the PUCT in 2008 allowing us to utilize a REIT structure (2008 Restructuring Order), the April Rate Case Filing was prepared using the audited books and records of both Sharyland and SDTS and proposed rates to be set on a combined basis. However, as a result of a preliminary order issued by the PUCT in October 2016 (Preliminary Order), Sharyland and SDTS filed the December Rate Case Filing on December 30, 2016 with the PUCT which supersedes the April Rate Case Filing. The December Rate Case Filing requests:

• PUCT approval of a tariff establishing terms and conditions for the leases between Sharyland and SDTS, including rent rates that SDTS will charge Sharyland under the leases;

• the PUCT to issue SDTS its own certificate of convenience and necessity; and

• new system-wide rates for Sharyland’s system.

Sharyland and SDTS have requested the following rate case metrics, among others:

• allowed return on equity of 10%;

• maintain the capital structure of 55% debt to 45% equity; and

• reduce the cost of debt to 4.97%, down from 6.73%.

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Consistent with the Preliminary Order, SDTS and Sharyland proposed to replace their five existing lease agreements with two new leases, one for transmission assets and one for distribution assets. Each of the leases, if approved by the PUCT, will be executed upon the effectiveness of the rate case and will have an initial four year term. Sharyland will continue to have operational control over our T&D assets and will remain primarily responsible for regulatory compliance and reporting requirements related to our T&D assets on behalf of and with the cooperation of SDTS. Further, we will continue to be responsible for funding footprint project capital expenditures that are included in the capital expenditure budgets that Sharyland provides on a rolling three year basis, which will be subject to our approval. Sharyland will remain responsible for funding repair expenditures.

The proposed lease payments will include both base and percentage rent as established by the PUCT. Base rent under the leases is a fixed amount. Percentage rent will be an annual amount equal to a specified percentage (percentage rent rate) of gross revenues collected by Sharyland during the year, subject to certain adjustments as described in the leases, in excess of applicable annual percentage rent breakpoints.

The transmission lease, as proposed, will have one annual percentage rent breakpoint and one percentage rent rate. The distribution lease, as proposed, will have two annual percentage rent breakpoints and two percentage rent rates. Sharyland will owe percentage rent based on the applicable percentage rent rate on the portion of its adjusted gross revenues in excess of the applicable annual percentage rent breakpoint.

As proposed in the December Rate Case Filing, lease payments under the transmission lease will be updated upon effectiveness of the rate case to give effect to interim transmission cost of service (TCOS) filings that have been approved by the PUCT after the 2015 test year. The base rent payments will also be updated through TCOS and distribution cost recovery factor (DCRF) filings with the PUCT. These updates will replace the current rent supplements and validation process in our existing lease structure.

The rent rates that have been proposed in the December Rate Case Filing are based on the premise that SDTS, as the owner of regulated T&D assets, should receive most of the regulated return on its invested capital, while leaving Sharyland with a portion of the return that gives it the opportunity to operate prudently and remain financially stable.

The PUCT’s existing tariff construct does not contemplate the use of a lessor/lessee structure and therefore does not provide a mechanism for updating an asset company’s rates to account for load growth in its tenant’s distribution service territories. Accordingly, we and Sharyland have developed a proposed solution (Transition Payment Agreement) that is intended to allocate the growth in Sharyland’s distribution revenues as additional assets are placed in service after the 2015 test year between TDC, as the unregulated parent company of SDTS, and an unregulated parent company of Sharyland. The Transition Payment Agreement will provide us the opportunity to realize an additional portion of Sharyland’s revenue growth to mitigate the regulatory lag on our assets placed in service between rate cases, similar to the opportunity that integrated utilities enjoy. We expect the payments under the Transition Payment Agreement, which will be executed upon the conclusion of the rate case, to be based on a variety of factors, including Sharyland’s distribution revenue growth and the amount of distribution assets placed in service. Without the Transition Payment Agreement in place, we would be subject to considerable regulatory lag related to our distribution assets and, accordingly, the potential for reduced revenue related to our incremental distribution capital expenditures.

On March 28, 2017, an abatement of the rate case proceeding was granted and the hearing on the merits that was scheduled for March 29 through April 7, 2017 was canceled, pending ongoing settlement negotiations among us and the other parties to the rate case. However, there can be no guarantee that a settlement will be reached or when the abatement may be lifted and, if necessary, the hearings rescheduled; therefore, the ultimate timing and outcome of the rate case cannot be predicted at this time.

10. Commitments and Contingencies

SDTS and Sharyland filed an amended rate case application and rate case filing package with the PUCT on December 30, 2016. For further information regarding the rate case, see Note 9, Regulatory Matters.

In addition, from time to time, we are a party to various legal proceedings arising in the ordinary course of business. Although we cannot predict the outcome of any such legal proceedings, we do not believe the resolution of these proceedings, individually or in the aggregate, will have a material impact on our business, financial condition or results of operations, liquidity and cash flows.

11. Equity

We and the Operating Partnership declared cash dividends on common stock and distributions on OP Units of $0.25 per share during the three months ended March 31, 2017 and 2016. We paid a total of $15.2 million and $13.6 million in dividends and distributions during the three months ended March 31, 2017 and 2016, respectively.

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12. Noncontrolling Interest

We present as a noncontrolling interest the portion of any equity in entities that we control and consolidate but do not own. Generally, OP Units of our Operating Partnership participate in net income allocations and distributions and entitle their holder to the right, subject to the terms set forth in the partnership agreement, to require the Operating Partnership to redeem all or a portion of the OP Units held by such limited partner. At our option, we may satisfy this redemption with cash or by exchanging shares of InfraREIT, Inc. common stock on a one-for-one basis. As of March 31, 2017 and December 31, 2016, there were a total of 16.9 million OP Units held by the limited partners of the Operating Partnership.

During the three months ended March 31, 2017 and 2016, an aggregate of 31,633 and 29,722 long-term incentive units (LTIP Units), respectively, were issued by our Operating Partnership to members of our board of directors. For additional information, refer to Note 15, Share-Based Compensation.

We follow the guidance issued by the FASB regarding the classification and measurement of redeemable securities. Accordingly, we have determined that the OP Units meet the requirements to be classified as permanent equity. We redeemed 3,100 OP Units with the issuance of 3,100 shares of common stock during the three months ended March 31, 2017. During the three months ended March 31, 2016, we did not redeem any OP Units.

13. Earnings Per Share

Basic earnings per share is calculated by dividing net earnings after noncontrolling interest by the weighted average shares outstanding. Diluted earnings per share is calculated similarly, except that it includes the dilutive effect of the assumed redemption of OP Units for shares of our common stock, if such redemption were dilutive. The redemption of OP Units would have been anti-dilutive during the three months ended March 31, 2017 and 2016.

Earnings per share are calculated as follows:

	Three Months Ended March 31,
(In thousands, except per share data)	2017		2016
Basic net income per share:
Net income attributable to InfraREIT, Inc.	$	7,949	$	6,315
Weighted average common shares outstanding		43,775		43,570
Basic net income per share	$	0.18	$	0.14
Diluted net income per share:
Net income attributable to InfraREIT, Inc.	$	7,949	$	6,315
Weighted average common shares outstanding		43,775		43,570
Redemption of Operating Partnership units		—		—
Weighted average dilutive shares outstanding		43,775		43,570
Diluted net income per share	$	0.18	$	0.14
Due to the anti-dilutive effect, the computation of diluted     earnings per share does not reflect the following adjustments:
Net income attributable to noncontrolling interest	$	3,068	$	2,462
Redemption of Operating Partnership units		16,900		17,057

14. Leases

The following table shows the composition of our lease revenue:

	Three Months Ended March 31,
(In thousands)	2017		2016
Base rent (straight-line)	$	39,624	$	33,665
Percentage rent		—		—
Total lease revenue	$	39,624	$	33,665

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SDTS has entered into various leases with Sharyland for all our placed in service T&D assets. The master lease agreements, as amended, expire at various dates from December 31, 2017 through December 31, 2022. Each agreement includes annual base rent while all but one agreement includes additional percentage rent (based on an agreed upon percentage of the gross revenue of Sharyland, as defined in the lease agreements, in excess of annual specified breakpoints). The rate used for percentage rent for the reported time periods varies by lease and ranges from a high of 32% to a low of 23%. Because an annual specified breakpoint must be met under our leases before we can recognize any percentage rent, we anticipate our revenue will grow over the year with little to no percentage rent recognized in the first and second quarters of each year and with the largest amounts recognized during the third and fourth quarters of each year.

For information related to our proposed new leases, which, if approved by the PUCT will replace our five existing leases, see Note 9, Regulatory Matters.

15. Share-Based Compensation

We currently utilize the InfraREIT, Inc. 2015 Equity Incentive Plan (2015 Equity Incentive Plan) primarily to compensate the non-employee directors for their service on our board of directors. In January 2017, we issued an aggregate of 31,633 LTIP Units to members of our board of directors with a grant date fair value of $18.02 per LTIP Unit and an aggregate fair value of $0.6 million. The 31,633 LTIP Units will vest in January 2018, subject to continued service. In January 2016, we issued an aggregate of 4,735 shares of common stock and 29,722 LTIP Units to members of our board of directors with a grant date fair value of $18.58 per common share or LTIP Unit and an aggregate fair value of $0.6 million. The 29,722 LTIP Units vested January 2017, and the 4,735 shares of common stock fully vested upon issuance.

The compensation expense, which represents the fair value of the stock or LTIP Unit measured at market price at the date of grant, is recognized on a straight-line basis over the vesting period. For the three months ended March 31, 2017 and 2016, $0.1 million and $0.3 million, respectively, was recognized as compensation expense related to these grants and is included in general and administrative expense on the Consolidated Statements of Operations. The unamortized compensation expense related to these grants was $0.4 million as of March 31, 2017.

16. Supplemental Cash Flow Information

Supplemental cash flow information and non-cash investing and financing activities are as follows:

	Three Months Ended March 31,
(In thousands)	2017		2016
Supplemental cash flow information
Cash paid during the period for interest	$	6,418	$	4,064
Non-cash investing and financing activities
Change in accrued additions to electric plant		8,876		3,515
Allowance for funds used during construction - debt		815		982
Redemption of operating partnership units for common stock		55		—
Dividends and distributions payable		15,169		15,157

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This item contains a discussion of our business, including a general overview of our properties, results of operations, liquidity and capital resources and quantitative and qualitative disclosures about market risk.

The following discussion should be read in conjunction with Part II, Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on February 28, 2017 and the unaudited consolidated financial statements and related notes beginning on page 5. This Item 2 contains “forward-looking” statements that involve risks and uncertainties. See Forward-Looking Statements at the beginning of this Quarterly Report on Form 10-Q.

Overview

We are engaged in owning and leasing rate-regulated T&D assets in Texas. We are structured as a REIT and lease our T&D assets to Sharyland Utilities, L.P. (Sharyland), a Texas based regulated electric utility. Our assets are located in the Texas Panhandle near Amarillo (CREZ assets), the Permian Basin in and around Stanton, Central Texas around Brady, Northeast Texas in and around Celeste (S/B/C assets) and South Texas near McAllen (McAllen assets). We have grown rapidly over the last several years, with our rate base increasing from approximately $60 million as of December 31, 2009 to $1.4 billion as of March 31, 2017.

We are externally managed by Hunt Utility Services, LLC (Hunt Manager), subject to the oversight of our board of directors. In exchange for the management services, we pay a management fee to Hunt Manager. All our officers are employees of Hunt Manager.

For a description of our business model and other significant components of our results of operations, see Part II, Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on February 28, 2017.

Recent Events

On December 30, 2016, our regulated subsidiary, Sharyland Distribution & Transmission Services, L.L.C. (SDTS) and Sharyland filed an amended rate case application and rate filing packages with the PUCT (December Rate Case Filing). On March 28, 2017, an abatement of the rate case proceeding was granted and the hearing on the merits that was scheduled for March 29 through April 7, 2017 was canceled, pending ongoing settlement negotiations among us and the other parties to the rate case. However, there can be no guarantee that a settlement will be reached or when the abatement may be lifted and, if necessary, the hearings rescheduled; therefore, the ultimate timing and outcome of the rate case cannot be predicted at this time. For further information, see the caption Regulatory Matters below.

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InfraREIT, Inc. Results of Operations

	Three Months Ended March 31,
(In thousands)	2017			2016
Lease revenue
Base rent	$	39,624		$	33,665
Percentage rent		—			—
Total lease revenue		39,624			33,665
Operating costs and expenses
General and administrative expense		5,981			5,545
Depreciation		12,687			11,074
Total operating costs and expenses		18,668			16,619
Income from operations		20,956			17,046
Other (expense) income
Interest expense, net		(9,698	)		(8,842	)
Other income, net		3			759
Total other expense		(9,695	)		(8,083	)
Income before income taxes		11,261			8,963
Income tax expense		244			186
Net income		11,017			8,777
Less: Net income attributable to noncontrolling interest		3,068			2,462
Net income attributable to InfraREIT, Inc.	$	7,949		$	6,315

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016

Lease revenue — Lease revenue, consisting of only base rent, was $39.6 million and $33.7 million for the three months ended March 31, 2017 and 2016, respectively, representing an increase of $5.9 million, or 17.5%. The increase in base rent was driven by the addition of assets under lease. There was no percentage rent recognized during the three months ended March 31, 2017 and 2016 as Sharyland’s year-to-date adjusted gross revenue did not exceed the annual specified breakpoints under our leases. See Note 14, Leases in the Notes to the Unaudited Consolidated Financial Statements for additional information. Because an annual specified breakpoint must be met under our leases before we can recognize any percentage rent, we anticipate our revenue will grow over the year with little to no percentage rent recognized in the first and second quarters of each year and with the largest amounts recognized during the third and fourth quarters of each year.

General and administrative expense — General and administrative expense was $6.0 million and $5.5 million for the three months ended March 31, 2017 and 2016, respectively, representing an increase of $0.5 million, or 9.1%. The increase in general and administrative expense between the two periods was primarily driven by an increase of $0.4 million in professional services related to regulatory matters and $0.2 million in management fees owed to Hunt Manager under our management agreement partially offset by a decrease of $0.2 million in stock-based compensation. We anticipate additional expenses will be incurred related to the rate case and related matters throughout the remainder of 2017.

Depreciation — Depreciation expense was $12.7 million and $11.1 million for the three months ended March 31, 2017 and 2016, respectively, representing an increase of $1.6 million, or 14.4%. The increase in depreciation expense was due to additional assets placed in service during 2017 and 2016.

Interest expense, net — Interest expense, net was $9.7 million and $8.8 million during the three months ended March 31, 2017 and 2016, respectively, representing an increase of $0.9 million, or 10.2%. The increase in interest expense, net was due to higher average debt balances during 2017 as compared to 2016. Interest expense was partially offset by $0.8 million of AFUDC on debt in 2017 as compared to $1.0 million of AFUDC on debt in 2016. See Note 6, Borrowings Under Credit Facilities and Note 7, Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements for additional information.

Other income, net — Other income, net was less than $0.1 million and $0.8 million during the three months ended March 31, 2017 and 2016, respectively. The decrease in other income, net was primarily driven by no AFUDC on other funds being recognized in 2017 compared to $0.8 million AFUDC on other funds recognized in 2016. AFUDC on other funds was not recognized during 2017 as the short-term borrowings were in excess of the CWIP balance; therefore, CWIP was financed completely with debt.

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Net income — Net income was $11.0 million and $8.8 million during the three months ended March 31, 2017and 2016, respectively, representing an increase of $2.2 million, or 25.0%. The increase in net income between the two periods was attributable to a $5.9 million increase in lease revenue partially offset by a $1.6 million increase in depreciation expense, $0.9 million increase in interest expense, net and a $0.8 million decrease in other income, net.

Liquidity and Capital Resources

As of March 31, 2017, we had $2.6 million of unrestricted cash and cash equivalents. We use our cash on hand primarily for the payment of capital expenditures, operating expenses, debt service payments and dividend payments. As of March 31, 2017, we also had $1.7 million of restricted cash and $163.0 million of unused capacity under our revolving credit facilities.

We use our cash flows from operations and borrowings under our credit facilities to fund current obligations, projected working capital requirements, maturities of long-term debt, budgeted capital spending and the payment of dividends. We expect that we will be able to fund estimated capital expenditures associated with Footprint Projects through the end of 2019 without raising proceeds from additional equity offerings. However, if (1) we acquire T&D assets, (2) debt capital is unavailable on favorable terms, or at all, at a time when we would choose to access debt capital markets, (3) the capital expenditure requirements of our business are different than our expectations, (4) our credit metrics are weaker than our targeted levels, (5) the cash flows from operations do not meet our current estimates or (6) any other unexpected factors, such as capitalization or other requirements imposed by the PUCT, were to impact our liquidity and cash position, we may seek to raise proceeds from the equity markets at an earlier time.

Management expects that future operating cash flows, along with access to financial markets, will be sufficient to meet any future operating requirements and forecasted capital investment opportunities. As part of our financing strategy, we will periodically issue long-term debt or enter into term loan arrangements and use the proceeds to reduce borrowings under our revolving credit facilities or refinance other debt. If our ability to access the capital markets is restricted or if debt or equity capital were unavailable on favorable terms, or at all, at a time when we would like, or need, to access those markets, our ability to fund capital expenditures under our leases or to comply with the REIT distribution rules could be adversely affected.

Capital Expenditures

We fund Footprint Projects related to our T&D assets as we and Sharyland determine such Footprint Projects are required pursuant to the terms of our leases. Our total capital expenditures, cash for additions to electric plant on the Consolidated Statements of Cash Flows, for the three months ended March 31, 2017 and 2016 were $52.2 million and $58.5 million, respectively. On an accrual basis, capital expenditures for the three months ended March 31, 2017 and 2016 were $42.5 million and $54.0 million, respectively. Capital expenditures on an accrual basis differ from our total capital expenditures due in part to differences in construction costs incurred during the period versus cash paid during the period.

Under the terms of our leases, Sharyland provides a capital expenditure forecast on a rolling three year basis that sets forth anticipated capital expenditures related to our T&D assets during the fall of each year. Sharyland also provides us a quarterly update to determine if any material changes to the budget have been identified. We expect estimated Footprint Projects capital expenditures for the calendar years 2017 through 2019 in the range of $275 million to $500 million as set forth in the table below. We intend to fund these capital expenditures with a mix of debt and cash flows from operations.

		Years Ending December 31,
(In millions)		2017		2018		2019
Total estimated Footprint Projects capital expenditures	$	175-240	$	75-150	$	25-110

In addition to supporting ongoing load growth in our service territories, in recent years we have also made significant capital investments to expand the capacity of our CREZ assets and reinforce, upgrade and expand our T&D assets in our S/B/C service territory in response to rapid demand growth in our West Texas system. Many of these projects are coming to an end during 2017 and 2018 and, as a result, our capital expenditures forecast for 2019 is primarily driven by expectations regarding new generation sources connecting to our assets in the Texas Panhandle and South Plains; ongoing growth in the oil and gas sector in West Texas; and population growth and economic expansion in South Texas. Although we believe the assumptions and estimates underlying our forecast to be reasonable as of the date of this report, they are inherently uncertain and subject to a wide variety of significant business, economic and competitive risks and uncertainties that could cause the amount and timing of our capital expenditures to differ materially from our current expectations. See Forward-Looking Statements at the beginning of this Quarterly Report on Form 10-Q.

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Dividends and Distributions

As a REIT, we must make current distributions of at least 90% of our annual taxable income, excluding capital gains and other adjustments. We expect to distribute at least 100% of our taxable income.

We paid a total of $15.2 million and $13.6 million in dividends and distributions during the three months ended March 31, 2017 and 2016, respectively.

On February 27, 2017, our board of directors approved a cash distribution by our Operating Partnership to all unit holders of record on March 31, 2017 of $0.25 per unit, or $1.00 per unit on an annualized basis, for a total distribution of $15.2 million ($10.9 million to InfraREIT, Inc.). Also on February 27, 2017, our board of directors declared a cash dividend to stockholders of record of InfraREIT, Inc. on March 31, 2017 of $0.25 per share of common stock, or $1.00 per share on an annualized basis, for a total of $10.9 million. The cash distribution and cash dividend were paid on April 20, 2017.

Credit Arrangements

We have two revolving credit facilities and senior secured notes. Our assets are collateral under our various debt arrangements. See Note 6, Borrowings Under Credit Facilities and Note 7, Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements for additional information.

Operating Partnership Revolving Credit Facility

Our Operating Partnership is party to a $75.0 million revolving credit facility with up to $15.0 million available for issuance of letters of credit and a maturity date of December 10, 2019.

As of March 31, 2017 and December 31, 2016, there were no outstanding borrowings or letters of credit and there was $75.0 million of borrowing capacity available under the revolving credit facility. As of March 31, 2017 and December 31, 2016, our Operating Partnership was in compliance with all debt covenants under the credit agreement.

SDTS Revolving Credit Facility

SDTS has a $250.0 million revolving credit facility, with up to $25.0 million of the revolving credit facility available for issuance of letters of credit and up to $5.0 million of the revolving credit facility available for swingline loans. The revolving credit facility matures on December 10, 2019.

As of March 31, 2017, SDTS had $162.0 million of borrowings outstanding at a weighted average interest rate of 2.72%, no letters of credit outstanding and $88.0 million of borrowing capacity available under this revolving credit facility. As of December 31, 2016, SDTS had $137.5 million of borrowings outstanding at a weighted average interest rate of 2.50% with no letters of credit outstanding and $112.5 million of borrowing capacity available under this revolving credit facility. As of March 31, 2017 and December 31, 2016, SDTS was in compliance with all debt covenants under the credit agreement.

Senior Secured Notes

Our subsidiary, Transmission and Distribution Company, L.L.C. (TDC) issued $25.0 million aggregate principal amount of 8.50% per annum senior secured notes to The Prudential Insurance Company of America and affiliates (TDC Notes) with a maturity date of December 30, 2020. Principal and interest on the TDC Notes are payable quarterly. As of March 31, 2017, $17.2 million of principal was outstanding under the TDC Notes.

SDTS has 5.04% per annum senior secured notes issued to The Prudential Insurance Company of America and affiliates (2011 Notes) with a principal balance of $60.0 million which is due in full on June 20, 2018. Interest is payable quarterly with no principal payments until maturity. The carrying amount of the 2011 Notes was $60.0 million as of March 31, 2017.

SDTS has $400.0 million in 10 year senior secured notes, series A (Series A Notes), due December 3, 2025 and $100.0 million in 10 year senior secured notes, series B (Series B Notes), due January 14, 2026. These senior secured notes bear interest at a rate of 3.86% per annum, payable semi-annually. The Series A Notes are due at maturity with outstanding accrued interest payable each June and December. The Series B Notes are due at maturity with outstanding accrued interest payable each January and July. As of March 31, 2017, $400.0 million and $100.0 million were outstanding under the Series A Notes and Series B Notes, respectively.

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SDTS issued $53.5 million aggregate principal amount of 7.25% per annum senior secured notes to The Prudential Insurance Company of America and affiliates (2009 Notes) with a maturity date of December 30, 2029. Principal and interest on the 2009 Notes are payable quarterly. As of March 31, 2017, $42.1 million of principal was outstanding under the 2009 Notes. Additionally, SDTS issued $110.0 million aggregate principal amount of 6.47% per annum senior secured notes to The Prudential Insurance Company of America (2010 Notes) with a maturity date of September 30, 2030. Principal and interest on the 2010 Notes are payable quarterly. As of March 31, 2017, $96.3 million of principal was outstanding under the 2010 Notes.

As of March 31, 2017 and December 31, 2016, SDTS and TDC were in compliance with all debt covenants under the applicable agreements governing the senior secured notes.

Cash Flows

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016

Cash flows from operating activities — Net cash provided by operating activities was $29.8 million and $32.5 million during the three months ended March 31, 2017 and 2016, respectively. The decrease in net cash provided by operating activities related primarily to less cash provided by working capital changes during 2017 compared to 2016 partially offset by higher lease revenue during the three months ended March 31, 2017 compared to the same period of 2016.

Cash flows from investing activities — Net cash used in investing activities was $52.2 million and $58.5 million during the three months ended March 31, 2017 and 2016, respectively. All the net cash used in investing activities represented capital expenditures related to the construction of our T&D assets.

Cash flows from financing activities — Net cash provided by financing activities was $7.4 million and $29.9 million during the three months ended March 31, 2017 and 2016, respectively. The decrease related primarily to a $66.0 million reduction in proceeds from the issuance of short-term and long-term debt during 2017. The repayment of short-term and long-term borrowings was $44.4 million less in 2017 compared to 2016. Additionally, the payment of dividends and distributions were slightly higher in 2017 by $1.5 million compared to 2016.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of March 31, 2017 and December 31, 2016.

Regulatory Matters

Sharyland and SDTS filed the December Rate Case Filing with the PUCT on December 30, 2016. On March 28, 2017, an abatement of the rate case proceeding was granted and the hearing on the merits that was scheduled for March 29 through April 7, 2017 was canceled, pending ongoing settlement negotiations among us and the other parties to the rate case.

In the December Rate Case Filing, Sharyland and SDTS requested the following:

• PUCT approval of a tariff establishing terms and conditions for the leases between Sharyland and SDTS, including rent rates that SDTS will charge Sharyland under the leases;

• the PUCT to issue SDTS its own CCN; and

• new system-wide rates for Sharyland’s system.

Sharyland and SDTS have requested the following rate case metrics, among others:

• allowed return on equity of 10%;

• maintain the capital structure of 55% debt to 45% equity; and

• reduce the cost of debt to 4.97%, down from 6.73%.

21

In the December Rate Case Filing, Sharyland and SDTS proposed to replace their five existing lease agreements with two new leases, one for transmission assets and one for distribution assets. Each of the new leases, if approved by the PUCT, will be executed upon the effectiveness of the rate case and will have an initial four year term. Sharyland will continue to have operational control over our T&D assets and will remain primarily responsible for regulatory compliance and reporting requirements related to our T&D assets on behalf of and with the cooperation of SDTS. Further, we will continue to be responsible for funding Footprint Projects capital expenditures that are included in the capital expenditure budgets that Sharyland provides on a rolling three year basis, which will be subject to our approval. Sharyland will remain responsible for funding repair expenditures.

The proposed lease payments will include both base and percentage rent as established by the PUCT. Base rent under the leases is a fixed amount. Percentage rent will be an annual amount equal to a specified percentage (percentage rent rate) of gross revenues collected by Sharyland during the year, subject to certain adjustments as described in the leases, in excess of applicable annual percentage rent breakpoints. The transmission lease, as proposed, will have one annual percentage rent breakpoint and one percentage rent rate. The distribution lease, as proposed, will have two annual percentage rent breakpoints and two percentage rent rates. Sharyland will owe percentage rent based on the applicable percentage rent rate on the portion of Sharyland’s adjusted gross revenues in excess of the applicable annual percentage rent breakpoint. The base rent payments will be updated on an ongoing basis through TCOS and DCRF filings with the PUCT. These updates will replace the current rent supplements and validation process in our existing lease structure.

The PUCT’s existing tariff construct does not contemplate the use of a lessor/lessee structure and therefore does not provide a mechanism for updating an asset company’s rates to account for load growth in its tenant’s distribution service territories. Accordingly, we and Sharyland have developed a proposed solution (Transition Payment Agreement) that is intended to allocate the growth in Sharyland’s distribution revenues after the 2015 test year between our subsidiary, TDC, as the unregulated parent company of SDTS, and an unregulated parent company of Sharyland. The Transition Payment Agreement will provide us the opportunity to realize an additional portion of Sharyland’s revenue growth to mitigate the regulatory lag on our assets placed in service between rate cases, similar to the opportunity that integrated utilities enjoy. We expect the payments under the Transition Payment Agreement, which will be executed upon conclusion of the rate case, to be based on a variety of factors, including Sharyland’s distribution revenue growth and the amount of distribution assets placed in service.

We expect an increase in our general and administrative expense throughout the remainder of 2017 related to SDTS’s participation in the rate case and related matters.

There can be no guarantee that a settlement will be reached or when the abatement may be lifted and, if necessary, the hearings rescheduled; therefore, the ultimate timing and outcome of the rate case cannot be predicted at this time.

Reconciliations to Amounts Reported Under Generally Accepted Accounting Principals

We use certain financial measures that are not recognized under U.S. GAAP. The non-GAAP financial measures used in this report include non-GAAP earnings per share (Non-GAAP EPS); cash available for distribution (CAD); earnings before interest, taxes, depreciation and amortization (EBITDA); EBITDA as adjusted in the manner described below (Adjusted EBITDA); funds from operations (FFO) and FFO adjusted in the manner described below (AFFO). We derive these measures as follows to show our core operational performance:

• We define non-GAAP net income as net income adjusted in a manner we believe is appropriate to show our core operational performance, including:

• a quarterly, not annual, adjustment for the difference between the amount of percentage rent payments we expect to receive with respect to the applicable period and the amount of percentage rent we recognize under U.S. GAAP during the period; and

• an adjustment for the difference between the amount of base rent payments that we receive with respect to the applicable period and the amount of straight-line base rent recognized under U.S. GAAP.

• We define Non-GAAP EPS as non-GAAP net income divided by the weighted average shares outstanding calculated in the manner described in the footnotes in the Non-GAAP EPS reconciliation tables below.

22

• We define CAD in a manner we believe is appropriate to show our core operational performance, which includes a deduction of the portion of capital expenditures needed to maintain our net assets. This deduction equals depreciation expense within the applicable period. The portion of capital expenditures in excess of depreciation, which we refer to as growth capital expenditures, will increase net assets. The CAD calculation also includes adjustments for the amortization of deferred financing costs and stock compensation expense along with various other adjustments from net income that are consistent with the adjustments made to Non-GAAP EPS, FFO or EBITDA, which are more fully explained above and below.

• We define EBITDA as net income before interest expense, net; income tax expense; depreciation and amortization.

• Adjusted EBITDA is defined as EBITDA adjusted in a manner we believe is appropriate to show our core operational performance, including:

• a quarterly, not annual, adjustment for the difference between the amount of percentage rent payments we expect to receive with respect to the applicable period and the amount of percentage rent we recognize under U.S. GAAP during the period;

• an adjustment for the difference between the amount of base rent payments we receive with respect to the applicable period and the amount of straight-line base rent recognized under U.S. GAAP; and

• adjusting for other income (expense), net.

• The National Association of Real Estate Investment Trusts (NAREIT) defines FFO as net income (loss) (computed in accordance with U.S. GAAP), excluding gains and losses from sales of property (net) and impairments of depreciated real estate, plus real estate depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures. Applying the NAREIT definition to our consolidated financial statements results in FFO representing net income (loss) before depreciation, impairment of assets and gain (loss) on sale of assets. FFO does not represent cash generated from operations as defined by U.S. GAAP and it is not indicative of cash available to fund all cash needs, including distributions.

• AFFO is FFO adjusted for the same items that are used to adjust net income for Adjusted EBITDA.

Our management uses Non-GAAP EPS, CAD, EBITDA, Adjusted EBITDA, FFO and AFFO as important supplemental measures of our operating performance. For example, management uses the CAD measurement when recommending dividends to our board of directors. We also present non-GAAP performance measures because we believe they help investors understand our business, performance and ability to earn and distribute cash to our stockholders by providing perspectives not immediately apparent from net income. We have a diverse set of investors, including investors that primarily focus on utilities, yieldcos, master limited partnerships (MLPs) or REITs. Our management believes that each of these different classes of investors focus on different types of metrics in the evaluation of us. For instance, many utility investors focus on earnings per share (EPS) and we believe our presentation of Non-GAAP EPS enables a better comparison to other utilities. Our management believes it is appropriate to calculate and provide these measures in order to be responsive to these investors. Including reporting on these measures in our public disclosures also ensures that this information is available to all our investors. The presentation of Non-GAAP EPS, CAD, EBITDA, Adjusted EBITDA, FFO and AFFO are not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP.

We offer these measures to assist the users of our financial statements in assessing our operating performance under U.S. GAAP, but these measures are non-GAAP measures and should not be considered measures of liquidity, alternatives to net income or indicators of any other performance measure determined in accordance with U.S. GAAP, nor are they indicative of funds available to fund our cash needs, including capital expenditures, make payments on our indebtedness or make distributions. Our method of calculating these measures may be different from methods used by other companies and, accordingly, may not be comparable to similar measures as calculated by other companies. Investors should not rely on these measures as a substitute for any U.S. GAAP measure, including net income, cash flows from operating activities or revenues.

23

Non-GAAP EPS was $0.30 per share for the three months ended March 31, 2017 compared to $0.31 per share for the three months ended March 31, 2016, representing a decrease of 3.2%. Non-GAAP EPS during the three months ended March 31, 2017 and 2016 was based on 60.7 million and 60.6 million weighted average shares outstanding, respectively. The change in Non-GAAP EPS reflected a $0.7 million, or 3.7%, decrease in Non-GAAP net income from $18.8 million during the three months ended March 31, 2016 to $18.1 million for the three months ended March 31, 2017, resulting from an increase in lease revenues of $5.9 million during the three months ended March 31, 2017 compared to the same period of 2016, offset by a $2.9 million decrease in the adjustments to Non-GAAP net income and Non-GAAP EPS described in the table below due to timing difference associated with our recognition of base rent and percentage rent, as well as by increases in general and administrative expense, depreciation expense and interest of $0.5 million, $1.6 million and $0.9 million, respectively, during the three months ended March 31, 2017 compared to the same period in the prior year. Additionally, other income, net decreased by $0.8 million as a result of the reduction in our AFUDC on other funds.

For the three months ended March 31, 2017 and 2016, CAD was consistent at $19.3 million. Adjusted EBITDA was $40.8 million for the three months ended March 31, 2017 compared to $38.1 million for the three months ended March 31, 2016, representing an increase of $2.7 million, or 7.1%. For the three months ended March 31, 2017, AFFO was $30.8 million compared to $29.1 million in the same period in 2016, representing an increase of $1.7 million, or 5.8%.

Non-GAAP EPS

The following sets forth a reconciliation of net income attributable to InfraREIT, Inc. per diluted share to Non-GAAP EPS:

	Three Months Ended March 31, 2017				Three Months Ended March 31, 2016
(In thousands, except per share amounts, unaudited)	Amount		Per Share (3)		Amount		Per Share (4)
Net income attributable to InfraREIT, Inc.	$	7,949	$	0.18	$	6,315	$	0.15
Net income attributable to noncontrolling interest		3,068		0.18		2,462		0.14
Net income		11,017		0.18		8,777		0.15
Percentage rent adjustment (1)		6,174		0.10		6,990		0.11
Base rent adjustment (2)		957		0.02		3,035		0.05
Non-GAAP net income	$	18,148	$	0.30	$	18,802	$	0.31

(1) Represents the difference between the amount of percentage rent payments and the amounts recognized during the applicable period, if, any. Although we receive percentage rent payments related to each quarter, we do not recognize lease revenue related to percentage rent payments until our tenant’s annual gross revenues exceed minimum specified annual breakpoints under the leases.

(2) This adjustment relates to the difference between the timing of cash base rent payments made under our leases and when we recognize base rent revenue under U.S. GAAP. We recognize base rent on a straight-line basis over the applicable term of the lease commencing when the related assets are placed in service, which is frequently different than the period in which the cash base rent becomes due.

(3) The weighted average common shares outstanding during the three months ended March 31, 2017 of 43.8 million was used to calculate net income attributable to InfraREIT, Inc. per diluted share. The weighted average redeemable partnership units outstanding during the three months ended March 31, 2017 of 16.9 million was used to calculate the net income attributable to noncontrolling interest per share. The combination of the weighted average common shares and redeemable partnership units outstanding during the three months ended March 31, 2017 of 60.7 million was used for the remainder of the per share calculations.

(4) The weighted average common shares outstanding during the three months ended March 31, 2016 of 43.6 million was used to calculate net income attributable to InfraREIT, Inc. per diluted share. The weighted average redeemable partnership units outstanding during the three months ended March 31, 2016 of 17.0 million was used to calculate the net income attributable to noncontrolling interest per share. The combination of the weighted average common shares and redeemable partnership units outstanding during the three months ended March 31, 2016 of 60.6 million was used for the remainder of the per share calculations.

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CAD

The following sets forth a reconciliation of net income to CAD:

	Three Months Ended March 31,
(In thousands, unaudited)	2017			2016
Net income	$	11,017		$	8,777
Depreciation		12,687			11,074
Percentage rent adjustment (1)		6,174			6,990
Base rent adjustment (2)		957			3,035
Amortization of deferred financing costs		1,004			1,003
Non-cash equity compensation		140			292
Other income, net (3)		(3	)		(759	)
Capital expenditures to maintain net assets		(12,687	)		(11,074	)
CAD	$	19,289		$	19,338

(1) See footnote (1) to the reconciliation of Non-GAAP EPS above.

(2) See footnote (2) to the reconciliation of Non-GAAP EPS above.

(3) Includes AFUDC on other funds of $0.8 million for the three months ended March 31, 2016. There was no AFUDC on other funds recorded during the three months ended March 31, 2017.

EBITDA and Adjusted EBITDA

The following sets forth a reconciliation of net income to EBITDA and Adjusted EBITDA:

	Three Months Ended March 31,
(In thousands, unaudited)	2017			2016
Net income	$	11,017		$	8,777
Interest expense, net		9,698			8,842
Income tax expense		244			186
Depreciation		12,687			11,074
EBITDA		33,646			28,879
Percentage rent adjustment (1)		6,174			6,990
Base rent adjustment (2)		957			3,035
Other income, net (3)		(3	)		(759	)
Adjusted EBITDA	$	40,774		$	38,145

(1) See footnote (1) to the reconciliation of Non-GAAP EPS above.

(2) See footnote (2) to the reconciliation of Non-GAAP EPS above.

(3) See footnote (3) to the reconciliation of CAD above.

FFO and AFFO

The following sets forth a reconciliation of net income to FFO and AFFO:

	Three Months Ended March 31,
(In thousands, unaudited)	2017			2016
Net income	$	11,017		$	8,777
Depreciation		12,687			11,074
FFO		23,704			19,851
Percentage rent adjustment (1)		6,174			6,990
Base rent adjustment (2)		957			3,035
Other income, net (3)		(3	)		(759	)
AFFO	$	30,832		$	29,117

(1) See footnote (1) to the reconciliation of Non-GAAP EPS above.

(2) See footnote (2) to the reconciliation of Non-GAAP EPS above.

(3) See footnote (3) to the reconciliation of CAD above.

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Financial Information Related to Our Tenant

We have legal title to our T&D assets; however, Sharyland maintains operational control of those assets through the leases and through its managing member interest in SDTS and is responsible for construction and maintenance of our T&D assets. These rights and obligations constitute continuing involvement, which results in failed sale-leaseback financing accounting with respect to the lease of our T&D assets in Sharyland’s financial statements. Under failed sale-leaseback financing accounting, Sharyland is treated as the owner of the assets under all lease agreements, including T&D assets currently under construction. Consequently, our T&D assets, including any T&D assets currently under construction, are reflected as assets, and an estimate of Sharyland’s lease obligations to us are reflected as liabilities, on Sharyland’s balance sheet.

In addition to Sharyland’s financial information in accordance with U.S. GAAP, we are presenting Sharyland’s non-GAAP financial information below which removes the effect of the failed sale-leaseback accounting. This non-GAAP financial information is reviewed by our management and board of directors in evaluating Sharyland’s results of operations and financial condition. Although our management considers Sharyland’s U.S. GAAP financial information as well, we believe this non-GAAP financial information provides important supplemental evidence regarding Sharyland’s ability to meet its rent obligations to us, and we believe it is helpful to our investors in understanding our tenant’s financial condition without the additional implications of the failed sale-leaseback accounting.

We present the following below:

• Sharyland’s net income, calculated in accordance with U.S. GAAP.

• Sharyland’s non-GAAP net income, which is calculated by adding the amount of depreciation and interest expense that Sharyland incurs as a result of failed sale-leaseback financing accounting to Sharyland’s U.S. GAAP net income and subtracting Sharyland’s non-GAAP rent expense. Sharyland’s non-GAAP rent expense differs from our lease revenue because Sharyland’s non-GAAP rent expense is calculated on a cash basis rather than a U.S. GAAP basis.

• Sharyland’s non-GAAP net income before interest, taxes, depreciation, amortization and rent (EBITDAR), which is calculated by adding Sharyland’s non-GAAP interest, taxes, depreciation, amortization and rent expense to Sharyland’s non-GAAP net income.

• A coverage ratio illustrating how EBITDAR relates to Sharyland’s non-GAAP rent expense.

• Sharyland’s non-GAAP balance sheet, which is derived by removing the impacts of the required U.S. GAAP failed sale-leaseback financing accounting treatment.

Sharyland acquired the Cross Valley transmission line (Cross Valley Project) in May 2016. This acquisition was accounted for as a combination of entities under common control whereby the net assets acquired were combined with Sharyland at their carrying value. Income statement information for the period ended March 31, 2016 has been adjusted to reflect the acquisition of the Cross Valley Project. Accordingly, the non-GAAP reconciliations presented below give effect to the Cross Valley Project acquisition.

	Three Months Ended March 31,
(In thousands)	2017		2016
Net income	$	4,607	$	3,762
Failed sale-leaseback adjustments:
Add: Failed sale-leaseback depreciation expense		8,628		7,472
Add: Failed sale-leaseback interest expense		35,702		32,806
Deduct: Rent expense		46,709		43,249
Sharyland's management reported net income		2,228		791
Adjustments:
Add: Interest expense (income), net		1,491		(559	)
Add: Income tax expense		426		357
Add: Depreciation and amortization		2,604		2,196
Add: Rent expense		46,709		43,249
EBITDAR	$	53,458	$	46,034
Ratio of EBITDAR to rent expense	1.14x		1.06x

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	March 31, 2017
(In thousands)	U.S. GAAP Balance Sheet		Failed Sale- Leaseback Adjustments			Non-GAAP Balance Sheet
Assets
Current assets	$	78,147	$	—		$	78,147
Property, plant and equipment, net		1,874,691		(1,598,396	)		276,295
Goodwill		1,100		—			1,100
Deferred charges - regulatory assets, net		42,421		(23,793	)		18,628
Total Assets	$	1,996,359	$	(1,622,189	)	$	374,170
Partners' Capital and Liabilities
Current liabilities:
Accounts payable and accrued liabilities	$	30,017	$	—		$	30,017
Current portion of financing obligation		35,907		(35,907	)		—
Current portion of long-term debt		3,493		—			3,493
Due to affiliates		27,740		—			27,740
Short-term borrowings from affiliates		6,000		—			6,000
Revolving line of credit		5,000		—			5,000
Current state margin tax payable		2,182		—			2,182
Total current liabilities		110,339		(35,907	)		74,432
Long-term financing obligations		1,585,933		(1,585,933	)		—
Long-term debt		157,961		—			157,961
Regulatory liabilities		8,183		—			8,183
Other post-employment benefits (OPEB) and other long-term liabilities		6,131		—			6,131
Total liabilities		1,868,547		(1,621,840	)		246,707
Commitments and contingencies		—		—			—
Partners' capital		127,812		(349	)		127,463
Total Partners' Capital and Liabilities	$	1,996,359	$	(1,622,189	)	$	374,170

	December 31, 2016
(In thousands)	U.S. GAAP Balance Sheet		Failed Sale- Leaseback Adjustments			Non-GAAP Balance Sheet
Assets
Current assets	$	79,563	$	—		$	79,563
Property, plant and equipment, net		1,847,746		(1,570,237	)		277,509
Goodwill		1,100		—			1,100
Deferred charges - regulatory assets, net		41,807		(23,793	)		18,014
Total Assets	$	1,970,216	$	(1,594,030	)	$	376,186
Partners' Capital and Liabilities
Current liabilities:
Accounts payable and accrued liabilities	$	46,174	$	—		$	46,174
Current portion of financing obligation		39,028		(39,028	)		—
Current portion of long-term debt		3,493		—			3,493
Due to affiliates		28,674		—			28,674
Current state margin tax payable		1,756		—			1,756
Total current liabilities		119,125		(39,028	)		80,097
Long-term financing obligations		1,555,797		(1,555,797	)		—
Long-term debt		158,834		—			158,834
Regulatory liabilities		6,907		—			6,907
OPEB and other long-term liabilities		6,348		—			6,348
Total liabilities		1,847,011		(1,594,825	)		252,186
Commitments and contingencies		—		—			—
Partners' capital		123,205		795			124,000
Total Partners' Capital and Liabilities	$	1,970,216	$	(1,594,030	)	$	376,186

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have floating rate debt under our revolving credit facilities and are exposed to changes in interest rates on this indebtedness. In recent years, the credit markets have experienced historical lows in interest rates. If interest rates rise, the rates on our floating rate debt and future debt offerings could be higher than current levels, causing our financing costs to increase accordingly.

As of March 31, 2017, the outstanding balance on the revolving credit facilities was $162.0 million. A hypothetical increase or decrease in interest rates by 1.00% would have changed our interest expense by $0.4 million for the three months ended March 31, 2017.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer, we performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15 (e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating these disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Based upon that evaluation, our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting during the quarter ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We review our disclosure controls and procedures, which may include internal controls over financial reporting, on an ongoing basis. From time to time, management makes changes to enhance the effectiveness of these controls and ensure that they continue to meet the needs of our business activities over time.

PART II.  OTHER INFORMATION

Item 1. Legal Proceedings

SDTS, our regulated subsidiary, and Sharyland filed the December Rate Case Filing with the PUCT on December 30, 2016. For further information regarding the rate case, see the caption Regulatory Matters in Part I., Item 2., Management’s Discussion and Analysis of Financial Condition and Results of Operation of this Quarterly Report on Form 10-Q.

In addition, from time to time, we are party to various other legal proceedings arising in the ordinary course of business. Although we cannot predict the outcomes of any such legal proceedings, we do not believe the resolution of these proceedings, individually or in the aggregate, will have a material impact on our business, financial condition or results of operations, liquidity and cash flows.

Item 1A. Risk Factors

There have been no material changes in our risk factors during the three months ended March 31, 2017 from those previously disclosed in Part I, Item 1A., Risk Factors of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. You should carefully consider the risk factors discussed in our 2016 Form 10-K, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or future results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

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Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit Number		Description
3.1	—	Articles of Restatement of the Registrant (filed as exhibit 3.3 to the Company’s Current Report on Form 8-K dated March 9, 2015 and filed March 10, 2015 and incorporated herein by reference).
3.2	—	Amended and Restated Bylaws of the Registrant (filed as exhibit 3.5 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.1	—	Twelfth Amended and Restated Rent Supplement (McAllen Lease), dated February 22, 2017, between Sharyland Distribution & Transmission Services, L.L.C. and Sharyland Utilities, L.P. (filed as exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and filed February 28, 2017 and incorporated herein by reference).
10.2	—	Twelfth Amended and Restated Rent Supplement (Stanton/Brady/Celeste Lease), dated February 22, 2017, between Sharyland Distribution & Transmission Services, L.L.C. and Sharyland Utilities, L.P. (filed as exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and filed February 28, 2017 and incorporated herein by reference).
10.3	—	Tenth Amended and Restated Rent Supplement (CREZ Lease), dated February 22, 2017, between Sharyland Distribution & Transmission Services, L.L.C. and Sharyland Utilities, L.P. (filed as exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and filed February 28, 2017 and incorporated herein by reference).
10.4	—	Seventh Amended and Restated Rent Supplement (ERCOT Transmission Lease), dated February 22, 2017, between Sharyland Distribution & Transmission Services, L.L.C. and Sharyland Utilities, L.P. (filed as exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and filed February 28, 2017 and incorporated herein by reference).
31.1*	—	Rule 13A-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2*	—	Rule 13A-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1*	—	Section 1350 Certification of Chief Executive Officer
32.2*	—	Section 1350 Certification of Chief Financial Officer
99.1*	—	Consolidated Financial Statements of Sharyland Utilities, L.P. as of March 31, 2017
101.INS*	—	XBRL Instance Document
101.SCH*	—	XBRL Taxonomy Extension Schema Document
101.CAL*	—	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	—	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	—	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*	—	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

29

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	InfraREIT, Inc.
	(Registrant)
	/s/ Brant Meleski
Date: May 4, 2017	Brant Meleski
	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)
	/s/ Lance J. Phillips
Date: May 4, 2017	Lance J. Phillips
	Vice President, Principal Accounting Officer and Controller
	(Principal Accounting Officer)

30

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER

PURSUANT TO

EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David A. Campbell, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of InfraREIT, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 4, 2017	/s/ David A. Campbell
	David A. Campbell
	President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Brant Meleski, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of InfraREIT, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 4, 2017	/s/ Brant Meleski
	Brant Meleski
	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, David A. Campbell, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of InfraREIT, Inc. for the fiscal quarter ended March 31, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of InfraREIT, Inc.

Date: May 4, 2017	/s/ David A. Campbell
	David A. Campbell
	President and Chief Executive Officer
	(Principal Executive Officer)

The foregoing certification is not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), and is not to be incorporated by reference into any filing of InfraREIT, Inc. under Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language of such filing.

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Brant Meleski, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of InfraREIT, Inc. for the fiscal quarter ended March 31, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of InfraREIT, Inc.

Date: May 4, 2017	/s/ Brant Meleski
	Brant Meleski
	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)

The foregoing certification is not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), and is not to be incorporated by reference into any filing of InfraREIT, Inc. under Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language of such filing.

EX-99.1

Exhibit 99.1

SHARYLAND UTILITIES, L.P.

Consolidated Financial Statements
March 31, 2017
(Unaudited)

SHARYLAND UTILITIES, L.P.

Consolidated Balance Sheets

(In thousands)

(Unaudited)

	March 31,		December 31,
Assets	2017		2016
Current Assets
Cash and cash equivalents	$	12,499	$	12,263
Accounts receivable, net		45,251		40,744
Due from affiliates		15,119		21,701
Inventory		1,844		1,380
Prepayments and other current assets		3,434		3,475
Total current assets		78,147		79,563
Property, Plant and Equipment - net		1,874,691		1,847,746
Goodwill		1,100		1,100
Deferred Charges – Regulatory Assets, net		42,421		41,807
Total Assets	$	1,996,359	$	1,970,216
Liabilities and Partners’ Capital
Current Liabilities
Accounts payable and accrued liabilities	$	30,017	$	46,174
Short-term borrowing from affiliates		6,000		—
Revolving line of credit		5,000		—
Current portion of long-term debt		3,493		3,493
Current portion of financing obligation		35,907		39,028
Due to affiliates		27,740		28,674
State margin tax payable		2,182		1,756
Total current liabilities		110,339		119,125
Long-Term Financing Obligation		1,585,933		1,555,797
Long-Term Debt		157,961		158,834
Regulatory Liabilities		8,183		6,907
OPEB and Other Liabilities		6,131		6,348
Total Liabilities		1,868,547		1,847,011
Commitments and Contingencies		—		—
Partners’ Capital
General partner		1,228		1,181
Limited partner		126,584		122,024
Total partners’ capital		127,812		123,205
Total  Liabilities and Partners’ Capital	$	1,996,359	$	1,970,216

See accompanying notes to the consolidated financial statements.

SHARYLAND UTILITIES, L.P.

Consolidated Statements of Operations

(In thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2017			2016
				(as adjusted)
Revenues	$	80,538		$	67,963
Operating Expenses
Distribution expense		6,420			5,591
Transmission expense		7,970			7,490
Administrative and general expense		12,776			10,576
Depreciation and amortization		11,232			9,668
Total operating expenses		38,398			33,325
Operating Income		42,140			34,638
Other Expense - net
Interest expense - net		(37,193	)		(32,247	)
Other income - net		13			1,564
Tax reimbursements for contributions in aid of construction		73			164
Total other expense - net		(37,107	)		(30,519	)
Net Income Before Income Taxes		5,033			4,119
Income Tax Expense		426			357
Net Income	$	4,607		$	3,762

See accompanying notes to the consolidated financial statements.

SHARYLAND UTILITIES, L.P.

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2017		2016
			(as adjusted)
Net Income	$	4,607	$	3,762
Change in fair value of cash flow hedging instruments		—		(67	)
Comprehensive Net Income	$	4,607	$	3,695

See accompanying notes to the consolidated financial statements.

SHARYLAND UTILITIES, L.P.

Consolidated Statements of Partners’ Capital

Three Months Ended March 31, 2017

(In thousands)

(Unaudited)

	General Partner		Limited Partner		Total Partners’ Capital
Balance at December 31, 2016	$	1,181	$	122,024	$	123,205
Net income		47		4,560		4,607
Balance at March 31, 2017	$	1,228	$	126,584	$	127,812

See accompanying notes to the consolidated financial statements.

SHARYLAND UTILITIES, L.P.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2017			2016
				(as adjusted)
Cash flows from Operating Activities
Net income	$	4,607		$	3,762
Adjustments to reconcile net income to net cash provided by    operating activities:
Depreciation		10,534			9,481
Amortization of deferred costs		1,000			488
Allowance for funds used during construction - equity		—			(1,563	)
Changes in assets and liabilities:
Accounts receivable		(4,507	)		698
Due from affiliates		6,582			15,590
Inventory		(464	)		(370	)
Prepayments and other current assets		36			(1,257	)
Deferred charges - regulatory assets and liabilities		600			198
Accounts payable, accrued liabilities and other		(17,724	)		(18,969	)
Due to affiliates		737			(888	)
State margin tax payable		426			358
Net cash provided by operating activities		1,827			7,528
Cash flows from Investing Activities
Additions to property, plant and equipment		(1,943	)		(23,111	)
Net cash used in investing activities		(1,943	)		(23,111	)
Cash flows from Financing Activities
Partners' contributions		—			9,658
Proceeds from short-term borrowing		5,000			5,000
Proceeds from short-term borrowing from affiliates		10,000			4,000
Repayments of short-term borrowing		—			(5,000	)
Repayments of short-term borrowing to affiliates		(4,000	)		(4,000	)
Repayments of long-term debt		(873	)		(8,000	)
Repayments of financing obligation		(9,775	)		(9,036	)
Net cash provided by (used in) financing activities		352			(7,378	)
Net increase (decrease) in cash and cash equivalents		236			(22,961	)
Cash and cash equivalents at beginning of year		12,263			35,737
Cash and cash equivalents at end of year	$	12,499		$	12,776

See accompanying notes to the consolidated financial statements.

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

March 31,2017

(Unaudited)

(1) Description of Business and Summary of Significant Accounting Policies

(a) Description of Business

Sharyland Utilities, L.P. (the Partnership or SULP) is a partnership engaged in providing regulated electric transmission and distribution delivery services to retail electric providers (REPs) serving over 54,000 electric delivery points in 29 counties in approximately 35,800 circuit miles of overhead and 4,700 circuit miles of underground distribution lines throughout Texas. The Partnership’s customers are principally residential, commercial and irrigation customers located in the cities of Mission and McAllen, Texas, in the outlying areas of Hidalgo County in south Texas, in the Midland-Stanton area of west Texas, in the central Texas area around Brady, and in northeast Texas in Hunt, Collin and Fannin Counties.

The Partnership is also engaged in the transmission of electricity throughout Texas. Those transmission activities include: a 138 Kilovolt (kV) looped system of approximately 323 circuit miles in length near Stanton; approximately 45 circuit miles of 345 kV transmission line located near Stanton; a 138 kV direct current transmission interconnection between Texas and Mexico (Railroad DC Tie); approximately 16 circuit miles of 138 kV transmission line located in the cities of Mission and McAllen; approximately 430 circuit miles of 345 kV transmission loop in the Texas Panhandle and South Plains near Amarillo, Texas; 55 circuit miles 345 kV transmission line between Golden Spread Electric Co-op and the White River Station in the Texas Panhandle; and approximately 48 circuit miles of 345 kV transmission line from the eastern half of the North Edinburg substation to the Palmito substation in the southern region of Texas near Brownsville.

The Partnership was organized as a Texas limited partnership on November 3, 1998, as an electrical distribution utility located in Hidalgo County, Texas. On March 24, 2016, the Partnership transferred its ownership on SU FERC, L.L.C., a subsidiary of the Partnership, to its General Partner.

On March 18, 2016, Hunt Power, L.P. (HP), an affiliate of the Partnership, contributed GS Project Entity, L.L.C. (GSPE) to the partners of the Partnership (Partners). The Partners contributed the interest in GSPE to the Partnership. GSPE became a wholly owned subsidiary of the Partnership. On May 6, 2016, HP also contributed CV Project Entity, L.L.C. (CVPE) to the Partners. The Partners contributed the interest in CVPE to the Partnership. CVPE became a wholly owned subsidiary of the Partnership. See Note 2.

The Partnership leases most of its transmission and distribution assets from a related party, Sharyland Distribution & Transmission Services, L.L.C. (SDTS) under Master Lease Agreements. See Note 3.

(b) Principles of Consolidation and Presentation

All significant intercompany balances and transactions have been eliminated. The Partnership maintains accounting records in accordance with the uniform system of accounts, as prescribed by the Federal Energy Regulatory Commission (FERC). The Partnership’s consolidated financial statements reflect the effects of the different rate making principles mandated by the FERC and PUCT regulating its operations.The Partnership accounted for the contributions of GSPE and CVPE as common control transactions whereby the net assets acquired are combined with the Partnership at their carrying value. Prior period Consolidated Statement of Operations and Consolidated Statement of Cash Flows, have been recast in accordance with ASC Topic 805, Business Combinations. See Note 2.

(c) Use of Estimates

The preparation of the Partnership’s consolidated financial statements in accordance with accounting principles generally accepted in the United States (GAAP) require management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

(Continued)

2

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

(d) Recently Issued Accounting Pronouncements

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Clarification of Certain Cash Receipts and Cash Payments. The objective of ASU 2016-15 is to eliminate the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. ASU 2016-15 is effective for periods beginning after December 15, 2017 with early adoption permitted. The new standard requires a modified retrospective transition approach for all periods presented, unless deemed impracticable, in which case, prospective application is permitted. The Partnership is currently evaluating the new guidance and has not determined the impact this standard may have on our cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 amended the existing accounting standard for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for periods beginning after December 15, 2018 with early adoption permitted. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Partnership is currently evaluating the new guidance and has not determined the impact this standard may have on its financial position, results of operations or cash flows.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 requires revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the expected consideration for theses goods and services. The guidance supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. ASU 2014-09 is effective for periods beginning after December 15, 2017. The Partnership is currently evaluating the new guidance and has not determined the impact this standard may have on its financial position, results of operations or cash flows.

(2) Acquisition

On March 18, 2016, Hunt Power, L.P. (HP), an affiliate of the Partnership, contributed all of its ownership interest in GS Project Entity, L.L.C. (GSPE) to the Partners. The Partners contributed their interests in GSPE to the Partnership. GSPE became a wholly owned subsidiary of the Partnership. The Partnership accounted for the contributions of GSPE as common control transactions whereby the net assets acquired are combined with the Partnership at their carrying value. GSPE was formed on January 6, 2015 for the purpose of financing and owning the Golden Spread 345 kV-Transmission Line Project (GS Project). The approximately 55 circuit miles transmission line connects Golden Spread Electric Co-op (GSEC) gas-fired generation facilities to the White River Station in the Texas Panhandle which is owned by SDTS.

On May 6, 2016, HP also contributed all of its ownership interest in CV Project Entity, L.L.C. (CVPE) to the Partners. The Partners contributed their interests in CVPE to the Partnership. CVPE became a wholly owned subsidiary of the Partnership. The Partnership accounted for the contributions of CVPE as common control transactions whereby the net assets acquired are combined with the Partnership at their carrying value. As a result of this common control transaction, net income of $1.4 million was included in the Partnership’s Consolidated Statement of Operations for the three months ended March 31, 2016. CVPE was formed on November 14, 2014 for the purpose of financing and owning the Cross Valley 345 kV-Transmission Line Project (CV Project). The approximately 48 circuit miles of transmission line connects the eastern half of the North Edinburg substation owned by American Electric Power (AEP) to the Palmito Station in the Texas Panhandle which is owned by SDTS. The Partnership’s financial statements have been adjusted to reflect CVPE’s activities from the formation date. The CV Project was acquired by CVPE on January 15, 2015.

(Continued)

3

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

(3) Leases

The Partnership leases most of its Transmission and all of its Distribution (T&D) assets from SDTS, a related party, under five Master Lease Agreements (MLA). See Note 16, Regulatory Proceedings. Also under these same MLAs, SDTS is responsible for funding all prudently incurred electric plant capital expenditures deemed necessary to serve customers by the Partnership. In accordance with the MLAs, the Partnership is responsible for the maintenance and the operation of the T&D assets and for compliance with all regulatory requirements of the PUCT, the FERC, and any other regulatory entity with jurisdiction over the T&D assets. The MLAs obligate the Partnership to pay all property-related expenses, including maintenance, repairs, taxes on equipment in service, insurance, and to comply with the terms of the secured credit facilities and secured-term loan, if any, affecting the leased assets. The MLAs are subject to failed sale-leaseback accounting. See Note 4.

The MLAs, as amended, expire at various dates from December 31, 2017 through December 31, 2022. Each agreement includes annual base payments while all but one agreement includes additional payments, based on an agreed upon percentage of revenue earned by the Partnership, as defined in the MLAs, in excess of annual specified breakpoints. The rate used to calculate additional payments varies by lease and ranges from a high of 37% to a low of 23% over the term of the agreements.

The Partnership made fixed lease payments during the periods presented as follows:

	Three Months Ended
	March 31,
(In thousands)	2017		2016
Fixed Lease Payments	$	40,581	$	36,747

The Partnership’s MLAs include a rent validation after year end to true up lease payments for the difference between actual and estimated incremental capital expenditures placed in service. As a result of the rent validation, the Partnership made additional fixed payments of approximately $334,000 and $858,000 on March 22, 2017 and April 12, 2016, respectively, associated with the years ended December 31, 2016 and 2015, respectively.

The Partnership is also subject to certain restrictive covenants, including indebtedness limits, contained in the MLAs. The Partnership was in compliance with all such covenants as of March 31, 2017 and December 31, 2016.

Future minimum lease payments in accordance with these MLAs are as follows:

(In thousands)	Total
Year Ending December 31:
2017	$	122,477
2018		86,094
2019		84,163
2020		70,552
2021		8,528
Thereafter		4,414
Total future minimum lease payments	$	376,228

(4) Failed Sale-Leaseback – Financing Obligation

The Partnership leases most of its T&D assets from SDTS, a related party. SDTS has legal title to such T&D assets under lease. The Partnership, as a managing member of SDTS, has the exclusive power and authority on behalf of SDTS to manage, control, administer, and operate the T&D assets and business affairs of SDTS in accordance with the limited liability company agreement governing SDTS. These rights and obligations constitute continuing involvement, which results in failed sale-leaseback (financing) accounting. Under failed sale-leaseback accounting, the Partnership is deemed owner of the assets under all MLAs, including assets

(Continued)

4

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

currently under construction. Consequently, the T&D assets, including assets currently under construction and corresponding financial obligations are included in the Partnership’s Consolidated Balance Sheets. The leases are considered a failed sale-leaseback (financing) due to the Partnership’s continuing involvement in SDTS and due to the ongoing involvement in the construction of the T&D assets as defined by ASC Topic 840, Accounting for Leases.

Approximately $1.6 billion are included in long-term financing obligation liabilities related to the failed sale-leaseback (financing), as of March 31, 2017 and December 31, 2016. Approximately $35.9 million and $39.0 million of the failed sale-leaseback (financing) obligation are included in current liabilities as of March 31, 2017 and December 31, 2016, respectively.

The Partnership recorded interest on failed sale-leaseback (financing) in interest expense, net as follows:

	Three Months Ended
	March 31,
(In thousands)	2017		2016
Failed sale-lease back interest expense
Fixed portion of failed-leaseback interest	$	29,574	$	26,303
Variable portion of failed-leaseback    interest		6,128		6,502
Failed sale-lease back interest expense	$	35,702	$	32,805

As a result of the failed sale-leaseback (financing) transaction, the Partnership accounted for lease payments to the lessor as a reduction of its financing obligation. Payments made on the long-term financing obligation were as follows:

	Three Months Ended
	March 31,
(In thousands)	2017		2016
Payments on long-term financing obligation	$	9,775	$	9,036

Future payments of the financing obligation as of March 31, 2017 are as follows:

(In thousands)	Total
Year Ending December 31:
2017	$	30,137
2018		19,563
2019		14,076
2020		8,837
2021		3,731
Thereafter		1,417,321
Total financing obligation		1,493,665
Less: current portion of financing obligation		(35,907	)
Leased system under construction obligation		104,382
Lease deferral (Note 7)		23,793
Long-term lease obligation	$	1,585,933

The Partnership recorded depreciation expense related to the assets accounted for in accordance with failed sale-leaseback as follows:

	Three Months Ended
	March 31,
(In thousands)	2017		2016
Failed sale-lease back depreciation expense	$	8,628	$	7,472

(Continued)

5

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

(5) Prepaids and Other Current Assets

Prepaids and other current assets at March 31, 2017 and December 31, 2016 are as follows:

	March 31,		December 31,
(In thousands)	2017		2016
Field service agent for right of way acquisition	$	1,711	$	1,600
Other		1,723		1,875
Total prepaids and other current assets	$	3,434	$	3,475

(6) Property, Plant and Equipment - net

The major classes of property, plant and equipment at March 31, 2017 and December 31, 2016 are as follows:

(In thousands)	2017			2016
Property, plant and equipment
Leased system	$	1,760,190		$	1,724,090
Transmission plant		262,347			262,279
General plant		33,834			33,878
		2,056,371			2,020,247
Construction Work in Progress:
Leased system under construction		104,382			103,695
General plant under construction		1,710			1,568
		106,092			105,263
Other		293			293
Total Property, plant and equipment		2,162,756			2,125,803
Accumulated Depreciation - Leased system		(266,176	)		(257,548	)
Accumulated Depreciation – Transmission    plant		(2,833	)		(2,021	)
Accumulated Depreciation - General plant		(19,056	)		(18,488	)
Property, Plant, and Equipment - net	$	1,874,691		$	1,847,746

See Note 2 in regards to the acquisition of transmission plant.

See Note 4 in regards to leased system and leased system under construction.

General plant consists of a warehouse, furniture, fixtures, equipment, computer hardware, software, and vehicles.

(7) Deferred Charges – Regulatory Assets - Liabilities

Deferred Charges – Regulatory Assets, Net

Regulatory assets represent probable future recovery of costs from customers through the regulatory ratemaking process.  The table below provides detail of deferred charges that are included on the Partnership’s Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016.

(Continued)

6

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

Net deferred costs recoverable in future years as of March 31, 2017 and December 31, 2016 are as follows:

		March 31, 2017							December 31, 2016
	Amortization	Gross					Net		Gross					Net
	Period	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
(In thousands)	Ends	Amount		Amortization			Amount		Amount		Amortization			Amount
Deferred costs recoverable in    future years
Deferred financing costs	(a)	$	5,763		(2,599	)	$	3,164	$	5,767	$	(2,298	)	$	3,469
Inception operating costs	(a)		23,793		—			23,793		23,793		—			23,793
Rate case costs	(b)		12,199		(4,810	)		7,389		10,461		(4,263	)		6,198
Transmission cost recovery factor	(c)		2,359		—			2,359		2,603		—			2,603
Study costs	(d)		3,629		(1,737	)		1,892		3,629		(1,619	)		2,010
Transition to competition	(e)		2,289		(350	)		1,939		2,289		(320	)		1,969
Advanced metering costs	(f)		1,758		—			1,758		1,755		—			1,755
Energy efficiency cost    recovery factor	(g)		127		—			127		10		—			10
Net Deferred Charges -    Regulatory Assets		$	51,917	$	(9,496	)	$	42,421	$	50,307	$	(8,500	)	$	41,807

(a) Amortization period is anticipated to be established in a future rate case.

(b) $5.0 million is recovered through November 2017, $7.2 million recovery period is anticipated to be established in the December Filing.  

(c) This item is recovered or credited through a recovery factor that is set semi-annually.

(d) $2.0 million is recovered thorugh December 2017, $0.3 million is recovered through April 2019 and $1.3 million recovery period    is anticipated to be established in the December Filing.

(e) $0.6 million recovered through April 2019, $1.7 million recovery period is anticipated to be established in the December Filing.    

(f) Recovery period is anticipated to be established in a future rate case.

(g) This item is recovered through recovery mechanisms establised by tariff.

Deferred financing costs included in net deferred charges – regulatory assets consist of debt issuance costs incurred in connection with the construction credit agreements associated with GSPE and CVPE. These assets are classified as regulatory assets and amortized over the length of the related loan. These costs will be included in the costs to be recovered in connection with a future rate case.

The Partnership filed a rate case with the PUCT under Docket No. 41474 (2013 rate case) to adjust the retail delivery tariff for the Stanton, Brady, and Celeste customers. The application was based on a test year ended December 31, 2012, with an effective date of May 1, 2014. The final order was issued January 23, 2014. The final order of the 2013 rate case addressed recovery for costs associated with the transition to competition and certain study costs. Recovery of those costs began when the new tariff went into effect on May 1, 2014. In addition to those costs, the recovery of the 2013 rate case expenses was proposed under a separate docket – PUCT Docket No. 41723.

The 2013 rate case order required the Partnership to file a rate case on or before July 1, 2016. In Docket No. 45414, the PUCT ordered the Partnership to file a Rate Filing Package (RFP) by April 30, 2016. The Partnership filed the RFP to adjust the retail delivery tariff for all customers under Docket No. 45414 on April 29, 2016 (April Filing). The application was based on the test year ended December 31, 2015. All rate case costs incurred for Docket No. 45414 are included in the regulatory assets.

On October 10,^, 2016, the PUCT issued its preliminary order in the April Filing. The preliminary order required the Partnership and SDTS to amend the current application to include separate RFPs for the Partnership and SDTS. Also, the preliminary order required the Partnership and SDTS to make its amended filing no later than January 1, 2017. On December 30, 2016, the Partnership and SDTS filed an amended application with separate RFPs (December Filing) based on the same test year as the April Filing.

(Continued)

7

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

The inception operating costs of approximately $23.8 million at March 31, 2017 and December 31, 2016 represent operating costs incurred from inception through December 31, 2007. The 2013 rate case settlement established that the Partnership may seek recovery in a future rate case, pursuant to the mechanism established in Docket Nos. 21591 and 27556, of the inception operating costs plus related return on rate base. The right to benefit from the inception operating costs was transferred to SDTS. Consequently, due to the failed sale-leaseback accounting treatment, the Partnership has recorded a corresponding liability in financing obligation.

Regulatory Liabilities

Regulatory liabilities represent probable future refunds associated with the over-recovery of costs from customers through the regulatory ratemaking process.

The carrying amount of the regulatory liabilities as of March 31, 2017 and December 31, 2016 are as follows:

	Amortization
	period		March 31,		December 31,
(In thousands)	Ends		2017		2016
Postretirement benefits costs		(a)	$	3,018	$	3,018
Postretirement benefits collections		(b)		3,099		2,681
Estimated net removal costs		(c)		1,644		1,208
Deferred overhead costs		(c)		422		—
Regulatory liabilities			$	8,183	$	6,907

(a) This item represents liabilities recorded in accordance with OPEB accounting standards.

(b) The amortization of this item is anticipated to be established in the December Filing.

(c) Not applicable

(8) Related-Party Transactions

The Partnership made payments associated with the lease of some of its T&D assets to SDTS of approximately $46.1 million and $42.4 million during the three months ended March 31, 2017 and 2016, respectively.

The Partnership received payments throughout the period related to the acquisition of gross property plant and equipment, contracted services, direct labor, materials and supervision associated with its existing asset build out on the T&D assets from SDTS of approximately $50.2 million and $58.2 million during the three months ended March 31, 2017 and 2016, respectively. These costs are included on the Consolidated Balance Sheets under property, plant and equipment - net as leased system.

On February 12, 2015, the Partnership received a subordinated and unsecured loan agreement of $10.0 million from Loyal Trust No. 1 (LT1), a related party, as amended on, February 16, 2017. The promissory note matures on December 31, 2018. The revolving promissory note accrues interest at the floating JP Morgan Chase Prime Rate with all interest compounded semiannually. The note accrues interest at the greater of the three month London Inter-Bank Offered Rate (LIBOR) plus one hundred fifteen basis points as adjusted or at the floating JP Morgan Chase Prime Rate with all interest compounded semiannually. As of March 31, 2017, the Partnership had $6.0 million on the subordinated note. As of December 31, 2016, the Partnership had no amount outstanding on the subordinated note. The interest expense and fees on the subordinated note were approximately $40,000 and $5,000 during the three months ended March 31, 2017 and 2016, respectively.

The Partnership leases office space for its Dallas location from an affiliate at a contractually agreed upon lease agreement.  Charges for the lease are included in general and administrative expense in the accompanying Consolidated Statements of Operations amounted to approximately $84,000 and $85,000 during the three months ended March 31, 2017 and 2016, respectively.

(Continued)

8

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

An affiliate of the Partnership provides services to the Partnership at contractually agreed upon rates per hour and set amounts for infrastructure support. Charges for such services included in general and administrative expense in the accompanying Consolidated Statements of Operations amounted to approximately $700,000 and $1.0 million during the three months ended March 31, 2017 and 2016, respectively. Accrued fees included in due to affiliates on the Partnership’s Consolidated Balance Sheets related to these charges were approximately $1.1 million and $654,000 as of March 31, 2017 and 2016, respectively.

(9) Allocation of Partners’ Capital

Revenues, income, gains, losses, expenditures, deductions, credits and distributions, as defined in the partnership agreement, are allocated 1 percent to the general partner and 99 percent to the limited partner.

(10) Credit Facility

On May 15, 2014, the Partnership entered into an unsecured revolving credit facility of $5.0 million with Amegy Bank, as amended on, December 10, 2014. The credit facility accrues interest on the outstanding balance at the Prime Rate. At March 31, 2017, the Prime Rate was at 4.0%.  In addition to the interest on the outstanding balance, commitment fees accrue at 0.35% for the unused portion of the credit facility. The revolving credit facility expires on May 15, 2017. The Partnership has entered into discussions with Amegy Bank in order to extend the maturity of this facility.

As of March 31, 2017 and December 31, 2016, the Partnership had $5.0 million and no amount outstanding on the revolving credit facility. The interest expense and fees for the revolving credit facility were approximately $35,000 and $34,000 during the three months ended March 31, 2017 and 2016, respectively.

The agreement requires maintenance of certain financial ratios and imposes certain restricted covenants. The Partnership was in compliance with all covenants as of March 31, 2017 and December 31, 2016, respectively.

(11) Long-Term Debt

(In thousands)	March 31, 2017					December 31, 2016
CVPE
Fixed Rate Notes - $23.5 million	$	23,500	3.58	%		$	23,500	3.58	%
Term Loan - $82.5 million		81,469	2.73	%	*		81,984	2.36	%	*
GSPE
Term Loan - $57.2 million		56,485	2.73	%	*		56,843	2.36	%	*
Total long-term debt		161,454					162,327
Less: current portion of long-term debt		3,493					3,493
Long-term debt	$	157,961				$	158,834

* Interest based on LIBOR plus an applicable margin

Senior Secured Credit Facilities – On January 15, 2015, in conjunction with the acquisition, CVPE entered into a construction-term loan agreement consisting of $106.5 million construction term loan syndicated to five banks and a $23.5 million senior secured note issued to Prudential Insurance Company of America and affiliates (Fixed Rate Notes). The senior secured credit facilities and Fixed Rate Notes are collateralized by the CV Project assets.

The $106.5 million construction-term loan accrued interest at LIBOR plus 1.75% and matures on January 15, 2020. LIBOR resets at each selected interest period (one, three, or six months), at CVPE’s discretion at the current market rate. Interest was payable the last day of the selected interest period for interest periods of three months or less, and every three months for interest periods greater than three months.

(Continued)

9

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

The CV Project was placed in service June 10, 2016 and the new transmission cost of service (TCOS) rate that included the CV Project assets was approved on September 22, 2016 by the PUCT. On November 30, 2016, the amount outstanding on the construction-term loan was converted into a term loan with a balance of $82.5 million. After this conversion, interest accrues at LIBOR plus 1.75%. Interest is payable the last day of the selected interest period for interest periods of three months or less, and every three months for interest periods greater than three months. Amortized principal amounts of the term loan are payable quarterly after the conversion. The outstanding borrowing under the term loan at March 31, 2017 and December 31, 2016 was $81.5 million and $82.0 million, respectively.

As of March 31, 2017 and December 31, 2016, the Fixed Rate Notes had a principal balance of $23.5 million, respectively. Interest is payable quarterly at a rate of 3.58% per annum. The Fixed Rate Notes mature on January 15, 2020 and do not provide for any principal payments.

The construction-term loan agreement and senior secured notes contain certain default triggers, including without limitation: failure to maintain compliance with financial and other covenants contained in the agreement, limitation on liens, investments and the incurrence of additional indebtedness. CVPE was in compliance with all debt covenants for the construction-term loan agreement at March 31, 2017 and December 31, 2016.

On March 31, 2015, GSPE entered into a construction-term loan agreement of $84.0 million syndicated to three banks. The senior secured credit facilities are collateralized by GSPE’s assets. The $84.0 million construction-term loan accrued interest at LIBOR plus 1.75%. LIBOR resets at each selected interest period (one, two, three or six months), at GSPE’s discretion, at the current market rate. Interest was payable the last day of the selected interest period for interest periods of three months or less, and every three months for interest periods greater than three months.

The GS Project was placed in service in March 29, 2016 and the new TCOS rate that included the GS Project assets was approved on June 13, 2016 by the PUCT. On October 31, 2016, the amount outstanding on the construction-term loan was converted into a term loan with a balance of $57.2 million. After this conversion, interest accrues at LIBOR plus 1.75%. Interest is payable the last day of the selected interest period for interest periods of three months or less, and every three months for interest periods greater than three months. Amortized principal amounts of the term loan are payable quarterly after the conversion. The term loan will mature on the third anniversary after principal conversion. The outstanding borrowing under the term loan at March 31, 2017 and December 31, 2016 was $56.5 million and $56.8 million, respectively.

The construction-term loan agreement contains certain default triggers, including without limitation: failure to maintain compliance with financial and other covenants contained in the agreement, limitation on liens, investments and the incurrence of additional indebtedness. GSPE was in compliance with all debt covenants for the construction-term loan agreement at March 31, 2017 and December 31, 2016.

Future maturities of the total long-term debt as of March 31, 2017 are as follows:

(In thousands)	Total
Year Ending December 31:
2017	$	2,619
2018		3,493
2019		56,045
2020		99,297
	$	161,454

(Continued)

10

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

(12) Derivative Instruments

Interest – During 2015, CVPE and GSPE entered into an interest swap agreement designated as a cash flow hedge against variable interest rate exposure on a portion of their construction-term loans that established a fixed rate on the LIBOR interest rates specified in the construction-term loans at 0.7185% and 0.760%, respectively, per annum until December 31, 2016. Notional amounts reset on a monthly basis and did not exceed $35.4 million and $39.1 million, respectively, at any given time. There were no notional amounts as of March 31, 2017 as these swap agreements terminated on December 31, 2016.

These cash flow hedging instruments were recorded as a liability in the Consolidated Balance Sheets at fair value, with an offset to accumulated other comprehensive income to the extent the cash flow hedging instruments were effective. The cash flow hedging instrument gains and losses included in other comprehensive income were reclassified into earnings as the underlying transaction occurred. There was no cash flow hedging instrument ineffectiveness recorded for these swap agreements.

The Partnership reclassified approximately $67,000 included in other comprehensive income, during the three months ended March 31, 2016 to interest expense, net on the Consolidated Statement of Operations.

(13) Transmission Cost of Service

All Transmission Service Providers (TSPs) within Electric Reliability Council of Texas (ERCOT) provide open access transmission service and the costs are ultimately passed through to end-use customers. The PUCT regulates the transmission rates that are charged by the ERCOT TSPs. The Partnership is billed based on the Partnership’s pro rata share, during the prior year, of the average of ERCOT coincident peak demand for the months of June, July, August, and September (ERCOT 4CP), excluding the portion of coincident peak demand attributable to wholesale storage load. Each TSP files a tariff for transmission service to establish its rates, calculated as the TSP’s commission-approved transmission cost of service, or revenue requirement, divided by the aggregate ERCOT 4CP during the prior year. Therefore, the monthly transmission service charge to be paid by the Partnership is the product of each TSP’s monthly rate as specified in its tariff and the Partnership’s previous year’s share of the aggregate ERCOT 4CP.

Taking power over the ERCOT network requires the Partnership to pay fees regulated by the PUCT. The annual charges to use the ERCOT transmission network cover the period from January 1 through December 31 of each year. Because the use of the network is governed by ERCOT and falls under the jurisdiction of the PUCT, a contract is not required with each ERCOT TSP.

(14) Postretirement Benefits

The Partnership provides continued major medical coverage to retired employees and their dependents meeting certain eligibility requirements. The Partnership’s postretirement health care benefit plan provides prescription drug coverage. The Medicare Prescription Drug Improvement and Modernization Act of 2003 includes a federal subsidy for plans that offer prescription drug benefits that are actuarially equivalent to Medicare Part D. The Partnership and the actuarial advisors have determined that the prescription drug coverage provided by the Partnership’s postretirement health care benefit plan is actuarially equivalent to Medicare Part D, and accordingly, the subsidy provides some relief for ongoing retiree prescription costs.

The Partnership is required to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability on its balance sheet. FASB guidance requires an entity to include items that have not yet been recognized as net periodic postretirement benefit cost as a component of accumulated other comprehensive income. However, for a regulated utility this information is allowed to be recorded as a regulatory asset if: (i) the utility has historically recovered and currently recovers postretirement benefit plan expenses in its electric rates; and (ii) there is no negative evidence that the existing regulatory treatment will change. The Partnership has recorded the unrecognized components of net periodic postretirement benefit cost as a regulatory asset (liability) as these expenses are probable of future recovery.

(Continued)

11

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

(15) Fair Value of Financial Instruments

In accordance with ASC Topic 820, Fair Value Measurements and Disclosures, the Partnership is required to assess the fair value of its financial instruments and disclose the level of inputs used for that estimate set forth in ASC 820.

The carrying amounts of the Partnership’s cash and cash equivalents, due to and from affiliates, and accounts payable approximate fair value due to the short-term nature of these assets and liabilities.

As of March 31, 2017 and December 31, 2016, the Partnership had approximately $138.0 million and $138.8 million, respectively, of borrowings under the construction-term loans which accrued interest under a floating rate structure. Accordingly, the carrying value of such indebtedness approximated the fair value for the amounts outstanding.

The Partnership also had borrowings totaling $23.5 million under senior secured notes with a rate of 3.58% per annum as of March 31, 2017 and December 31, 2016. The fair value of these borrowings is estimated using discounted cash flow analysis based on current market rates.

Financial instruments, measured at fair value as defined by ASC 820, by level within the fair value hierarchy were as follows:

	Carrying		Fair Value
(In thousands)	Value		Level 1		Level 2		Level 3
March 31, 2017
Long-term debt	$	161,454	$	—	$	161,784	$	—
December 31, 2016
Long-term debt		162,327		—		162,352		—

(16) Commitments and Contingencies

Leases

The Partnership has various obligations under operating leases pertaining to equipment, facilities and office space. Charges for the operating leases included in general and administrative expense in the accompanying Consolidated Statements of Operations amounted to approximately $189,000 during the three months ended March 31, 2017.

The following is a schedule of future minimum lease payments required under operating leases with a term of greater than 12 months at inception as of March 31, 2017:

(In thousands)
Year Ending December 31:
2017 - Q2, Q3 and Q4	$	498
2018		586
2019		381
2020		359
Thereafter		353
	$	2,177

(Continued)

12

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

Regulatory proceedings

The Partnership is regulated by the PUCT. The 2013 rate case order required the Partnership to file a rate case on or before July 1, 2016. In Docket No. 45414, the PUCT ordered the Partnership to file an RFP by April 30, 2016. The Partnership filed the RFP to adjust the retail delivery tariff for all customers under Docket No. 45414 on April 29, 2016 (April Filing). The application was based on the test year ended December 31, 2015.

On October 10, 2016, the PUCT issued its preliminary order in the April Filing. The preliminary order required the Partnership and SDTS to amend the current application to include separate RFPs for the Partnership and SDTS no later than January 1, 2017. On December 30, 2016, the Partnership and SDTS filed an amended application with separate RFPs based on the same test year as the April Filing.

Consistent with the Preliminary Order, SULP and SDTS proposed to replace their five existing MLAs with two new leases, one for transmission assets and one for distribution assets. Each of the leases, if approved by the PUCT, will be executed upon the effectiveness of the rate case and will have a four year term. SULP will continue to have operational control over SDTS’s T&D assets and will remain primarily responsible for regulatory compliance and reporting requirements on behalf of and with cooperation from SDTS.

On March 28, 2017, an abatement of the April Filing was granted, and the hearing on the merits that was scheduled from March 29 through April 7, 2017 was canceled, pending ongoing settlement negotiations among the parties to the rate case. However, there can be no guarantee that a settlement will be reached or when the abatement may be lifted and, if necessary, the hearings rescheduled; therefore, the ultimate timing and outcome of the rate case cannot be predicted at this time.

In June 2016, the Partnership began discussions with the staff of the PUCT and the Office of Public Utility Counsel regarding the Partnership’s procedure for transitioning customers from its secondary service less than or equal to 10 kW (Small Secondary) rate schedule to its secondary service greater than 10 kW (Large Secondary) rate schedule. In early July, the Partnership received 13 complaints from customers stating that they had demand meters and were incorrectly moved to the Large Secondary rate schedule. On July 14, 2016, the Partnership received formal notification from the Oversight and Enforcement (O&E) Division of the PUCT that an investigation was being opened to determine whether the Partnership’s policy and procedures related to the transitioning of approximately 1,500 customers from the Small Secondary to the Large Secondary rate schedule were consistent with the Partnership’s tariff for delivery service, the Public Utilities Regulatory Authority (PURA), and the PUCT’s rules. After the O&E staff analyzed the data obtained from the Partnership, O&E staff concluded that over 1,000 customers were impacted by this transition from Small Secondary to the Large Secondary rate schedule. On February 17, 2017, the Partnership and O&E (the Parties) executed and filed in Docket No 46873, a settlement resolving O&E staff’s investigation of the Partnership for alleged violations of PURA, the PUCT’s rules, and the Partnership’s tariff. On March 30, 2017, the order for the settlement agreement was approved by the PUCT.  The settlement order requires the Partnership to pay an administrative penalty of approximately $425,000 and to refund the impacted customers approximately $990,000 including interest. On April 25, 2017, the Partnership paid the administrative penalty of $425,000 to the PUCT, which was accrued for as of March 31, 2017 as accounts payable and accrued liabilities on the Partnership’s Consolidated Balance Sheet. As of December 31, 2016, approximately $1.4 million was accrued as accounts payable and accrued liabilities on the Partnership’s Consolidated Balance Sheet.

(Continued)

13

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(Unaudited)

(17) Supplemental Cash Flow Information

Supplemental cash flow information and non-cash investment and financing activities for the three months ended March 31 are as follows:

(In thousands)	2017		2016
Supplemental cash flow information
Cash paid for interest	$	37,586	$	34,185
Cash paid for margin taxes		—		—
Non-cash investing and financing activities
Non-cash right of way additions to    property, plant and equipment		5		41
Noncash financing obligation incurred		36,786		52,589
Change in accrued additions to property,    plant and equipment		21		2,983
Allowance for funds used during    contruction - debt		—		2,020

(18) Subsequent Events

The Partnership has evaluated subsequent events from the Balance Sheet date through April 25, 2017, the date at which the Financial Statements were made available to be issued, and determined there are no other items to disclose.

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2017	May 01, 2017
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1
Trading Symbol	HIFR
Entity Registrant Name	InfraREIT, Inc.
Entity Central Index Key	0001506401
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		43,778,490

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Current Assets
Cash and cash equivalents	$ 2,617	$ 17,612
Restricted cash	1,682	1,682
Due from affiliates	27,058	32,554
Inventory	7,229	7,276
Prepaids and other current assets	1,447	726
Total current assets	40,033	59,850
Electric Plant, net	1,675,221	1,640,820
Goodwill	138,384	138,384
Other Assets	36,650	37,646
Total Assets	1,890,288	1,876,700
Current Liabilities
Accounts payable and accrued liabilities	29,124	37,372
Short-term borrowings	162,000	137,500
Current portion of long-term debt	7,960	7,849
Dividends and distributions payable	15,169	15,161
Accrued taxes	4,659	4,415
Total current liabilities	218,912	202,297
Long-Term Debt, Less Deferred Financing Costs	707,464	709,488
Regulatory Liability	24,013	21,004
Total liabilities	950,389	932,789
Commitments and Contingencies
Equity
Common stock, $0.01 par value; 450,000,000 shares authorized; 43,775,383 and 43,772,283 issued and outstanding as of March 31, 2017 and December 31, 2016, respectively	438	438
Additional paid-in capital	705,900	705,845
Accumulated deficit	(21,238)	(18,243)
Total InfraREIT, Inc. equity	685,100	688,040
Noncontrolling interest	254,799	255,871
Total equity	939,899	943,911
Total Liabilities and Equity	$ 1,890,288	$ 1,876,700

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Mar. 31, 2017	Dec. 31, 2016
Statement Of Financial Position [Abstract]
Common stock, par or stated value per share	$ 0.01	$ 0.01
Common stock, shares authorized	450,000,000	450,000,000
Common stock, shares issued	43,775,383	43,772,283
Common stock, shares, outstanding	43,775,383	43,772,283

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Income Statement [Abstract]
Lease revenue	$ 39,624	$ 33,665
Operating costs and expenses
General and administrative expense	5,981	5,545
Depreciation	12,687	11,074
Total operating costs and expenses	18,668	16,619
Income from operations	20,956	17,046
Other (expense) income
Interest expense, net	(9,698)	(8,842)
Other income, net	3	759
Total other expense	(9,695)	(8,083)
Income before income taxes	11,261	8,963
Income tax expense	244	186
Net income	11,017	8,777
Less: Net income attributable to noncontrolling interest	3,068	2,462
Net income attributable to InfraREIT, Inc.	$ 7,949	$ 6,315
Net income attributable to InfraREIT, Inc. common stockholders per share:
Basic	$ 0.18	$ 0.14
Diluted	0.18	0.14
Cash dividends declared per common share	$ 0.25	$ 0.25

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Cash flows from operating activities
Net income	$ 11,017	$ 8,777
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	12,687	11,074
Amortization of deferred financing costs	1,004	1,003
Allowance for funds used during construction - other funds		(759)
Equity based compensation	140	292
Changes in assets and liabilities:
Due from affiliates	5,496	5,638
Inventory	47	(143)
Prepaids and other current assets	(721)	(829)
Accounts payable and accrued liabilities	140	7,487
Net cash provided by operating activities	29,810	32,540
Cash flows from investing activities
Additions to electric plant	(52,223)	(58,495)
Net cash used in investing activities	(52,223)	(58,495)
Cash flows from financing activities
Proceeds from short-term borrowings	34,000
Repayments of short-term borrowings	(9,500)	(54,000)
Proceeds from borrowings of long-term debt		100,000
Repayments of long-term debt	(1,921)	(1,817)
Deferred financing costs		(649)
Dividends and distributions paid	(15,161)	(13,634)
Net cash provided by financing activities	7,418	29,900
Net (decrease) increase in cash and cash equivalents	(14,995)	3,945
Cash and cash equivalents at beginning of period	17,612	9,471
Cash and cash equivalents at end of period	$ 2,617	$ 13,416

XML

Description of Business and Presentation of Financial Statements

3 Months Ended

Mar. 31, 2017

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Description of Business and Presentation of Financial Statements

1. Description of Business and Presentation of Financial Statements

Basis of Presentation

InfraREIT, Inc. is a Maryland corporation, which may be referred to in these financial statements as the “Company,” “we,” “us” and “our.” These unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the U.S. Securities and Exchange Commission (SEC) on February 28, 2017.

We held 72.1% of the outstanding partnership units (OP Units) in InfraREIT Partners, LP (Operating Partnership or InfraREIT LP) as of March 31, 2017 and are its general partner. We include the accounts of the Operating Partnership and its subsidiaries in our consolidated financial statements. Hunt Consolidated, Inc. (HCI) affiliates, current or former employees and members of our board of directors held the other 27.9% of the outstanding OP Units as of March 31, 2017.

Use of Estimates

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Recent Accounting Guidance

Recent Accounting Guidance Not Yet Adopted

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases. ASU 2016-02 amended the existing accounting standard for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for periods beginning after December 15, 2018 with early adoption permitted. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. We are currently evaluating the new guidance and the extent of the impact this standard may have on our financial position, results of operations and cash flows.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Clarification of Certain Cash Receipts and Cash Payments. The objective of ASU 2016-15 is to eliminate the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows by adding or clarifying guidance on eight specific cash flow issues. ASU 2016-15 is effective for periods beginning after December 15, 2017 with early adoption permitted. The new standard should be applied retrospectively to all periods presented, unless deemed impracticable, in which case, prospective application is permitted. We are currently evaluating the new guidance and have not determined the impact this standard may have on our cash flows.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 203): Restricted Cash (A Consensus of the FASB Emerging Issues Task Force). ASU 2016-18 adds to or clarifies current guidance on the classification and presentation of restricted cash in the statement of cash flows. The new guidance requires entities to include in its cash and cash equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. The guidance does not provide a definition of restricted cash or restricted cash equivalents. ASU 2016-18 is effective for periods beginning after December 15, 2017 with early adoption permitted. If an entity adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. We have not yet adopted the new guidance, but it will affect our Consolidated Statement of Cash Flows for the presentation of restricted cash.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 requires revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the expected consideration for these goods and services. As part of this guidance, lease transactions have been excluded from the requirements of this standard. As such, this guidance will not apply to us unless certain lease criteria are present; therefore, the new guidance should have a minimal, if any, impact on our financial position, results of operations and cash flows.

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Related Party Transactions

3 Months Ended

Mar. 31, 2017

Related Party Transactions [Abstract]

Related Party Transactions

2. Related Party Transactions

Our subsidiary, Sharyland Distribution & Transmission Services, L.L.C. (SDTS), leases all our electric transmission and distribution assets (T&D assets) through several lease agreements to Sharyland Utilities, L.P. (Sharyland), a Texas based utility and our sole tenant. Under the leases, we have agreed to fund capital expenditures for footprint projects. Our leases define “footprint projects” to be transmission or distribution projects primarily situated within our distribution service territory, or that physically hang from our existing transmission assets or that are physically located within one of our substations.

We earned lease revenues from Sharyland under these agreements of $39.6 million and $33.7 million during the three months ended March 31, 2017 and 2016, respectively. In connection with our leases with Sharyland, we recorded a deferred rent liability of $16.5 million and $15.6 million as of March 31, 2017 and December 31, 2016, respectively, which is included in accounts payable and accrued liabilities on the Consolidated Balance Sheets.

In addition to rent payments that Sharyland makes to us, we and Sharyland also make payments to each other under the leases that primarily consist of payments to reimburse Sharyland for the costs of gross plant and equipment added to our T&D assets. For the three months ended March 31, 2017 and 2016, the net amount of payments we made to Sharyland was $52.2 million and $58.2 million, respectively.

As of March 31, 2017 and December 31, 2016, accounts payable and accrued liabilities on the Consolidated Balance Sheets included $4.8 million and $13.7 million, respectively, related to amounts owed to Sharyland. As of March 31, 2017 and December 31, 2016, amounts due from affiliates on the Consolidated Balance Sheets included $27.1 million and $32.6 million, respectively, related to amounts owed by Sharyland associated with our leases.

The management fee paid to Hunt Utility Services, LLC (Hunt Manager) for the three months ended March 31, 2017 and 2016 was $7.0 million and $3.3 million, respectively. As of December 31, 2016, there was $3.5 million accrued associated with management fees on the Consolidated Balance Sheets. There were no prepaid or accrued amounts associated with the management fees on the Consolidated Balance Sheets as of March 31, 2017. Additionally, during each of the three months ended March 31, 2017 and 2016, we paid Hunt Manager less than $0.1 million for reimbursement of annual software license and maintenance fees and other expenses in accordance with our management agreement.

Our management agreement with Hunt Manager provided for an annual base fee, or management fee, of $13.1 million from April 1, 2015 through March 31, 2016. Effective as of April 1, 2016, the annual base fee was automatically adjusted to $14.0 million annually through March 31, 2017. Effective as of April 1, 2017, the annual base fee was automatically adjusted to $14.2 million annually through March 31, 2018. The base fee for each twelve month period beginning each April 1 thereafter will equal 1.50% of our total equity as of December 31 of the immediately preceding year, subject to a $30.0 million cap. The term of the management agreement expires December 31, 2019, and will automatically renew for successive five year terms unless a majority of our independent directors decides to terminate the agreement.

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Electric Plant and Depreciation

3 Months Ended

Mar. 31, 2017

Public Utilities Property Plant And Equipment [Abstract]

Electric Plant and Depreciation

3. Electric Plant and Depreciation

The major classes of electric plant are as follows:

(In thousands)	March 31, 2017			December 31, 2016
Electric plant:
Transmission plant	$	1,222,769		$	1,203,164
Distribution plant		597,707			575,648
General plant		15,958			15,959
Total plant in service		1,836,434			1,794,771
Construction work in progress		107,900			107,189
Total electric plant		1,944,334			1,901,960
Accumulated depreciation		(269,113	)		(261,140	)
Electric plant, net	$	1,675,221		$	1,640,820

General plant consists primarily of a warehouse, buildings and associated assets. Construction work in progress (CWIP) relates to various transmission and distribution projects underway. The amounts of CWIP consist primarily of route development expenditures, labor and materials expenditures, right of way acquisitions, engineering services and legal fees. Electric plant, net includes plant acquisition adjustments of $27.4 million and $27.7 million as of March 31, 2017 and December 31, 2016, respectively.

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Goodwill

3 Months Ended

Mar. 31, 2017

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill

4. Goodwill

Goodwill represents the excess of costs of an acquired business over the fair value of the assets acquired, less liabilities assumed. We conduct an impairment test of goodwill at least annually. As of March 31, 2017 and December 31, 2016, $138.4 million was recorded as goodwill on the Consolidated Balance Sheets.

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Other Assets

3 Months Ended

Mar. 31, 2017

Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]

Other Assets

5. Other Assets

Other assets are as follows:

	March 31, 2017							December 31, 2016
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Deferred financing costs on undrawn revolver	$	967	$	(446	)	$	521	$	967	$	(397	)	$	570
Other regulatory assets:
Deferred financing costs		27,761		(17,944	)		9,817		27,761		(16,997	)		10,764
Deferred costs recoverable in future years		23,793		—			23,793		23,793		—			23,793
Other regulatory assets		51,554		(17,944	)		33,610		51,554		(16,997	)		34,557
Investments		2,519		—			2,519		2,519		—			2,519
Other assets	$	55,040	$	(18,390	)	$	36,650	$	55,040	$	(17,394	)	$	37,646

Deferred financing costs on undrawn revolver consist of costs incurred in connection with the establishment of the InfraREIT LP revolving credit facility, see Note 6, Borrowings Under Credit Facilities.

Other regulatory assets consist of deferred financing costs within our regulated subsidiary, SDTS. The deferred financing costs primarily consist of debt issuance costs incurred in connection with the construction of our T&D assets or the refinancing of related debt. See Note 6, Borrowings Under Credit Facilities and Note 7, Long-Term Debt. These assets are classified as regulatory assets and amortized over the length of the related loan. These costs are recovered through rates established in our rate cases.

Deferred costs recoverable in future years of $23.8 million as of March 31, 2017 and December 31, 2016 represent operating costs incurred from inception of Sharyland through 2007. Recovery of these costs has been requested in the amended rate case application and rate filing packages filed with the Public Utility Commission of Texas (PUCT) by Sharyland and SDTS on December 30, 2016 (December Rate Case Filing). We have determined that these costs are probable of recovery through future rates based on orders of the PUCT in Sharyland’s prior rate cases and regulatory precedent. See Note 9, Regulatory Matters for additional information on the December Rate Case Filing.

In connection with the acquisition of Cap Rock Holding Corporation, we received a participation in the National Rural Cooperative Corporation (NRUCFC). We account for this investment under the cost method of accounting. We believe that the investment is not impaired at March 31, 2017 and December 31, 2016.

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Borrowings Under Credit Facilities

3 Months Ended

Mar. 31, 2017

Debt Disclosure [Abstract]

Borrowings Under Credit Facilities

6. Borrowings Under Credit Facilities

InfraREIT LP Revolving Credit Facility

In 2014, InfraREIT LP entered into a $75.0 million revolving credit facility, led by Bank of America, N.A., as administrative agent, with up to $15.0 million available for issuance of letters of credit and a maturity date of December 10, 2019. The revolving credit facility is secured by certain assets of InfraREIT LP, including accounts and other personal property, and is guaranteed by us and Transmission and Distribution Company, L.L.C. (TDC), with the TDC guarantee secured by the assets of, and InfraREIT LP’s equity interests in, TDC on materially the same basis as TDC’s senior secured notes described below in Note 7, Long-Term Debt.

Borrowings and other extensions of credit under the revolving credit facility bear interest, at InfraREIT LP’s election, at a rate equal to (1) the one, two, three or six month London Interbank Offered Rate (LIBOR) plus 2.5%, or (2) a base rate (equal to the highest of (a) the Federal Funds Rate plus ½ of 1%, (b) the Bank of America prime rate and (c) LIBOR plus 1%) plus 1.5%. Letters of credit are subject to a letter of credit fee equal to the daily amount available to be drawn times 2.5%. InfraREIT LP is also required to pay a commitment fee and other customary fees under the revolving credit facility. InfraREIT LP may prepay amounts outstanding under the revolving credit facility in whole or in part without premium or penalty.

As of March 31, 2017 and December 31, 2016, there were no borrowings or letters of credit outstanding and there was $75.0 million of borrowing capacity available under the revolving credit facility. As of March 31, 2017 and December 31, 2016, InfraREIT LP was in compliance with all debt covenants under the credit agreement.

SDTS Revolving Credit Facility

In 2014, SDTS entered into the third amended and restated credit agreement led by Royal Bank of Canada, as administrative agent, with a maturity date of December 10, 2019. The credit agreement contains a revolving credit facility with a borrowing capacity up to $250.0 million with up to $25.0 million of the revolving credit facility available for issuance of letters of credit and up to $5.0 million of the revolving credit facility available for swingline loans. The revolving credit facility is secured by SDTS’s T&D assets, the leases, certain accounts and TDC’s equity interests in SDTS on the same basis as SDTS’s various senior secured note obligations described below in Note 7, Long-Term Debt.

The interest rate for the revolving credit facility is based, at SDTS’s option, at a rate equal to either (1) a base rate, determined as the greatest of (a) the administrative agent’s prime rate, (b) the federal funds effective rate plus ½ of 1% and (c) LIBOR plus 1.00% per annum, plus a margin of either 0.75% or 1.00% per annum, depending on the total debt to capitalization ratio of SDTS on a consolidated basis or (2) the one, two, three or six month LIBOR plus a margin of either 1.75% or 2.00% per annum, depending on the total debt to capitalization ratio of SDTS on a consolidated basis. SDTS is also required to pay a commitment fee and other customary fees under its revolving credit facility. SDTS is entitled to prepay amounts outstanding under the revolving credit facility with no prepayment penalty.

As of March 31, 2017, SDTS had $162.0 million of borrowings outstanding at a weighted average interest rate of 2.72%, no letters of credit outstanding and $88.0 million of borrowing capacity available under this revolving credit facility. As of December 31, 2016, SDTS had $137.5 million of borrowings outstanding at a weighted average interest rate of 2.50% with no letters of credit outstanding and $112.5 million of borrowing capacity available under this revolving credit facility. As of March 31, 2017 and December 31, 2016, SDTS was in compliance with all debt covenants under the credit agreement.

The credit agreements require InfraREIT LP and SDTS to comply with customary covenants for facilities of this type, including: debt to capitalization ratios, debt service coverage ratios, limitations on additional debt, liens, investments, mergers, acquisitions, dispositions or entry into any line of business other than the business of the transmission and distribution of electric power and the provision of ancillary services and certain restrictions on the payment of dividends. The debt to capitalization ratio on the SDTS credit facility is calculated on a combined basis with Sharyland. The credit agreements also contain restrictions on the amount of Sharyland’s indebtedness and other restrictions on, and covenants applicable to, Sharyland.

The revolving credit facilities of InfraREIT LP and SDTS are subject to customary events of default. If an event of default occurs under either facility and is continuing, the lenders may accelerate amounts due under such revolving credit facility.

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Long-Term Debt

3 Months Ended

Mar. 31, 2017

Debt Instruments [Abstract]

Long-Term Debt

7. Long-Term Debt

Long-term debt consisted of the following:

		March 31, 2017					December 31, 2016
(In thousands)	Maturity Date	Amount Outstanding			Interest Rate		Amount Outstanding			Interest Rate
TDC
Senior secured notes - $25.0 million	December 30, 2020	$	17,188			8.50%	$	17,500			8.50%
SDTS
Senior secured notes - $60.0 million	June 20, 2018		60,000			5.04%		60,000			5.04%
Senior secured notes - $400.0 million	December 3, 2025		400,000			3.86%		400,000			3.86%
Senior secured notes - $100.0 million	January 14, 2026		100,000			3.86%		100,000			3.86%
Senior secured notes - $53.5 million	December 30, 2029		42,100			7.25%		42,600			7.25%
Senior secured notes - $110.0 million	September 30, 2030		96,257			6.47%		97,366			6.47%
Total SDTS debt			698,357					699,966
Total long-term debt			715,545					717,466
Less unamortized deferred financing costs			(121	)				(129	)
Total long-term debt, less deferred     financing costs			715,424					717,337
Less current portion of long-term debt			(7,960	)				(7,849	)
Debt classified as long-term debt, less     deferred financing costs		$	707,464				$	709,488

In 2010, TDC issued $25.0 million aggregate principal amount of 8.50% per annum senior secured notes to The Prudential Insurance Company of America and affiliates (TDC Notes). Principal and interest on the TDC Notes are payable quarterly, and the TDC Notes are secured by the assets of, and InfraREIT LP’s equity interest in, TDC on materially the same basis as with lenders under InfraREIT LP’s revolving credit facility described above in Note 6, Borrowings Under Credit Facilities. In connection with the issuance of the TDC Notes, TDC incurred deferred financing costs which are shown as a reduction of the senior secured notes balance. The amount of unamortized deferred financing costs associated with the TDC Notes was $0.1 million as of March 31, 2017 and December 31, 2016.

SDTS has $60.0 million aggregate principal amount of 5.04% per annum senior secured notes issued to The Prudential Insurance Company of America and affiliates in 2011 (2011 Notes). Interest is payable quarterly while no principal payments are due until maturity.

In 2015, SDTS issued $400.0 million in 10 year senior secured notes, series A (Series A Notes), and in 2016 issued an additional $100.0 million in 10 year senior secured notes, series B (Series B Notes). These senior secured notes were issued through a private placement conducted pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and bear interest at a rate of 3.86% per annum, payable semi-annually. The Series A Notes are due at maturity with outstanding accrued interest payable each June and December. The Series B Notes are due at maturity with outstanding accrued interest payable each January and July.

In 2009, SDTS issued $53.5 million aggregate principal amount of 7.25% per annum senior secured notes to The Prudential Insurance Company of America and affiliates (2009 Notes). Principal and interest on the 2009 Notes are payable quarterly.

In 2010, SDTS issued $110.0 million aggregate principal amount of 6.47% per annum senior secured notes to The Prudential Insurance Company of America (2010 Notes). Principal and interest on the 2010 Notes are payable quarterly.

SDTS and TDC are entitled to prepay amounts outstanding under their senior secured notes, subject to a prepayment penalty equal to the excess of the discounted value of the remaining scheduled payments with respect to such notes over the amount of the prepaid notes.

The agreements governing the senior secured notes contain customary covenants, such as debt to capitalization ratios, debt service coverage ratios, limitations on liens, dispositions, mergers, entry into other lines of business, investments and the incurrence of additional indebtedness. The debt to capitalization ratios are calculated on a combined basis with Sharyland. SDTS’s Series A Notes and Series B Notes are not required to maintain a debt service coverage ratio. As of March 31, 2017 and December 31, 2016, SDTS and TDC were in compliance with all debt covenants under the applicable agreements.

SDTS’s Series A Notes, Series B Notes, 2009 Notes, 2010 Notes and 2011 Notes are secured by substantially all of SDTS’s T&D assets, the leases, certain accounts and TDC’s equity interests in SDTS on the same basis as SDTS’s revolving credit facility described above in Note 6, Borrowings Under Credit Facilities.

The senior secured notes of TDC and SDTS are subject to customary events of default. If an event of default occurs with respect to the notes and is continuing, the lenders may accelerate the applicable amounts due.

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Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

8. Fair Value of Financial Instruments

The carrying amounts of our cash and cash equivalents, restricted cash, due from affiliates and accounts payable approximate fair value due to the short-term nature of these assets and liabilities.

We had borrowings totaling $715.5 million and $717.5 million under our senior secured notes with a weighted average interest rate of 4.6% per annum as of March 31, 2017 and December 31, 2016, respectively. The fair value of these borrowings is estimated using discounted cash flow analysis based on current market rates.

Financial instruments, measured at fair value, by level within the fair value hierarchy were as follows:

	Carrying		Fair Value
(In thousands)	Value		Level 1		Level 2		Level 3
March 31, 2017
Long-term debt	$	715,545	$	—	$	753,084	$	—
December 31, 2016
Long-term debt	$	717,466	$	—	$	758,415	$	—

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Regulatory Matters

3 Months Ended

Mar. 31, 2017

Public Utilities Rate Matters [Abstract]

Regulatory Matters

9. Regulatory Matters

Regulatory Liability

Our regulatory liability is established through depreciation rates related to cost of removal and represents amounts that we expect to incur in the future. As of March 31, 2017 and December 31, 2016, we recorded on the Consolidated Balance Sheets as a long-term liability $24.0 million and $21.0 million, respectively, net of actual removal costs incurred.

Rate Case Filing

On April 29, 2016, Sharyland filed a system-wide rate proceeding with the PUCT to update its rates (April Rate Case Filing). Pursuant to a restructuring order issued by the PUCT in 2008 allowing us to utilize a REIT structure (2008 Restructuring Order), the April Rate Case Filing was prepared using the audited books and records of both Sharyland and SDTS and proposed rates to be set on a combined basis. However, as a result of a preliminary order issued by the PUCT in October 2016 (Preliminary Order), Sharyland and SDTS filed the December Rate Case Filing on December 30, 2016 with the PUCT which supersedes the April Rate Case Filing. The December Rate Case Filing requests:

• PUCT approval of a tariff establishing terms and conditions for the leases between Sharyland and SDTS, including rent rates that SDTS will charge Sharyland under the leases;

• the PUCT to issue SDTS its own certificate of convenience and necessity; and

• new system-wide rates for Sharyland’s system.

Sharyland and SDTS have requested the following rate case metrics, among others:

• allowed return on equity of 10%;

• maintain the capital structure of 55% debt to 45% equity; and

• reduce the cost of debt to 4.97%, down from 6.73%.

Consistent with the Preliminary Order, SDTS and Sharyland proposed to replace their five existing lease agreements with two new leases, one for transmission assets and one for distribution assets. Each of the leases, if approved by the PUCT, will be executed upon the effectiveness of the rate case and will have an initial four year term. Sharyland will continue to have operational control over our T&D assets and will remain primarily responsible for regulatory compliance and reporting requirements related to our T&D assets on behalf of and with the cooperation of SDTS. Further, we will continue to be responsible for funding footprint project capital expenditures that are included in the capital expenditure budgets that Sharyland provides on a rolling three year basis, which will be subject to our approval. Sharyland will remain responsible for funding repair expenditures.

The proposed lease payments will include both base and percentage rent as established by the PUCT. Base rent under the leases is a fixed amount. Percentage rent will be an annual amount equal to a specified percentage (percentage rent rate) of gross revenues collected by Sharyland during the year, subject to certain adjustments as described in the leases, in excess of applicable annual percentage rent breakpoints.

The transmission lease, as proposed, will have one annual percentage rent breakpoint and one percentage rent rate. The distribution lease, as proposed, will have two annual percentage rent breakpoints and two percentage rent rates. Sharyland will owe percentage rent based on the applicable percentage rent rate on the portion of its adjusted gross revenues in excess of the applicable annual percentage rent breakpoint.

As proposed in the December Rate Case Filing, lease payments under the transmission lease will be updated upon effectiveness of the rate case to give effect to interim transmission cost of service (TCOS) filings that have been approved by the PUCT after the 2015 test year. The base rent payments will also be updated through TCOS and distribution cost recovery factor (DCRF) filings with the PUCT. These updates will replace the current rent supplements and validation process in our existing lease structure.

The rent rates that have been proposed in the December Rate Case Filing are based on the premise that SDTS, as the owner of regulated T&D assets, should receive most of the regulated return on its invested capital, while leaving Sharyland with a portion of the return that gives it the opportunity to operate prudently and remain financially stable.

The PUCT’s existing tariff construct does not contemplate the use of a lessor/lessee structure and therefore does not provide a mechanism for updating an asset company’s rates to account for load growth in its tenant’s distribution service territories. Accordingly, we and Sharyland have developed a proposed solution (Transition Payment Agreement) that is intended to allocate the growth in Sharyland’s distribution revenues as additional assets are placed in service after the 2015 test year between TDC, as the unregulated parent company of SDTS, and an unregulated parent company of Sharyland. The Transition Payment Agreement will provide us the opportunity to realize an additional portion of Sharyland’s revenue growth to mitigate the regulatory lag on our assets placed in service between rate cases, similar to the opportunity that integrated utilities enjoy. We expect the payments under the Transition Payment Agreement, which will be executed upon the conclusion of the rate case, to be based on a variety of factors, including Sharyland’s distribution revenue growth and the amount of distribution assets placed in service. Without the Transition Payment Agreement in place, we would be subject to considerable regulatory lag related to our distribution assets and, accordingly, the potential for reduced revenue related to our incremental distribution capital expenditures.

On March 28, 2017, an abatement of the rate case proceeding was granted and the hearing on the merits that was scheduled for March 29 through April 7, 2017 was canceled, pending ongoing settlement negotiations among us and the other parties to the rate case. However, there can be no guarantee that a settlement will be reached or when the abatement may be lifted and, if necessary, the hearings rescheduled; therefore, the ultimate timing and outcome of the rate case cannot be predicted at this time.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2017

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

10. Commitments and Contingencies

SDTS and Sharyland filed an amended rate case application and rate case filing package with the PUCT on December 30, 2016. For further information regarding the rate case, see Note 9, Regulatory Matters.

In addition, from time to time, we are a party to various legal proceedings arising in the ordinary course of business. Although we cannot predict the outcome of any such legal proceedings, we do not believe the resolution of these proceedings, individually or in the aggregate, will have a material impact on our business, financial condition or results of operations, liquidity and cash flows.

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Equity

3 Months Ended

Mar. 31, 2017

Equity [Abstract]

Equity

11. Equity

We and the Operating Partnership declared cash dividends on common stock and distributions on OP Units of $0.25 per share during the three months ended March 31, 2017 and 2016. We paid a total of $15.2 million and $13.6 million in dividends and distributions during the three months ended March 31, 2017 and 2016, respectively.

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Noncontrolling Interest

3 Months Ended

Mar. 31, 2017

Noncontrolling Interest [Abstract]

Noncontrolling Interest

12. Noncontrolling Interest

We present as a noncontrolling interest the portion of any equity in entities that we control and consolidate but do not own. Generally, OP Units of our Operating Partnership participate in net income allocations and distributions and entitle their holder to the right, subject to the terms set forth in the partnership agreement, to require the Operating Partnership to redeem all or a portion of the OP Units held by such limited partner. At our option, we may satisfy this redemption with cash or by exchanging shares of InfraREIT, Inc. common stock on a one-for-one basis. As of March 31, 2017 and December 31, 2016, there were a total of 16.9 million OP Units held by the limited partners of the Operating Partnership.

During the three months ended March 31, 2017 and 2016, an aggregate of 31,633 and 29,722 long-term incentive units (LTIP Units), respectively, were issued by our Operating Partnership to members of our board of directors. For additional information, refer to Note 15, Share-Based Compensation.

We follow the guidance issued by the FASB regarding the classification and measurement of redeemable securities. Accordingly, we have determined that the OP Units meet the requirements to be classified as permanent equity. We redeemed 3,100 OP Units with the issuance of 3,100 shares of common stock during the three months ended March 31, 2017. During the three months ended March 31, 2016, we did not redeem any OP Units.

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Earnings Per Share

3 Months Ended

Mar. 31, 2017

Earnings Per Share [Abstract]

Earnings Per Share

13. Earnings Per Share

Basic earnings per share is calculated by dividing net earnings after noncontrolling interest by the weighted average shares outstanding. Diluted earnings per share is calculated similarly, except that it includes the dilutive effect of the assumed redemption of OP Units for shares of our common stock, if such redemption were dilutive. The redemption of OP Units would have been anti-dilutive during the three months ended March 31, 2017 and 2016.

Earnings per share are calculated as follows:

	Three Months Ended March 31,
(In thousands, except per share data)	2017		2016
Basic net income per share:
Net income attributable to InfraREIT, Inc.	$	7,949	$	6,315
Weighted average common shares outstanding		43,775		43,570
Basic net income per share	$	0.18	$	0.14
Diluted net income per share:
Net income attributable to InfraREIT, Inc.	$	7,949	$	6,315
Weighted average common shares outstanding		43,775		43,570
Redemption of Operating Partnership units		—		—
Weighted average dilutive shares outstanding		43,775		43,570
Diluted net income per share	$	0.18	$	0.14
Due to the anti-dilutive effect, the computation of diluted     earnings per share does not reflect the following adjustments:
Net income attributable to noncontrolling interest	$	3,068	$	2,462
Redemption of Operating Partnership units		16,900		17,057

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Leases

3 Months Ended

Mar. 31, 2017

Leases [Abstract]

Leases

14. Leases

The following table shows the composition of our lease revenue:

	Three Months Ended March 31,
(In thousands)	2017		2016
Base rent (straight-line)	$	39,624	$	33,665
Percentage rent		—		—
Total lease revenue	$	39,624	$	33,665

SDTS has entered into various leases with Sharyland for all our placed in service T&D assets. The master lease agreements, as amended, expire at various dates from December 31, 2017 through December 31, 2022. Each agreement includes annual base rent while all but one agreement includes additional percentage rent (based on an agreed upon percentage of the gross revenue of Sharyland, as defined in the lease agreements, in excess of annual specified breakpoints). The rate used for percentage rent for the reported time periods varies by lease and ranges from a high of 32% to a low of 23%. Because an annual specified breakpoint must be met under our leases before we can recognize any percentage rent, we anticipate our revenue will grow over the year with little to no percentage rent recognized in the first and second quarters of each year and with the largest amounts recognized during the third and fourth quarters of each year.

For information related to our proposed new leases, which, if approved by the PUCT will replace our five existing leases, see Note 9, Regulatory Matters.

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Share Based Compensation

3 Months Ended

Mar. 31, 2017

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Share-Based Compensation

15. Share-Based Compensation

We currently utilize the InfraREIT, Inc. 2015 Equity Incentive Plan (2015 Equity Incentive Plan) primarily to compensate the non-employee directors for their service on our board of directors. In January 2017, we issued an aggregate of 31,633 LTIP Units to members of our board of directors with a grant date fair value of $18.02 per LTIP Unit and an aggregate fair value of $0.6 million. The 31,633 LTIP Units will vest in January 2018, subject to continued service. In January 2016, we issued an aggregate of 4,735 shares of common stock and 29,722 LTIP Units to members of our board of directors with a grant date fair value of $18.58 per common share or LTIP Unit and an aggregate fair value of $0.6 million. The 29,722 LTIP Units vested January 2017, and the 4,735 shares of common stock fully vested upon issuance.

The compensation expense, which represents the fair value of the stock or LTIP Unit measured at market price at the date of grant, is recognized on a straight-line basis over the vesting period. For the three months ended March 31, 2017 and 2016, $0.1 million and $0.3 million, respectively, was recognized as compensation expense related to these grants and is included in general and administrative expense on the Consolidated Statements of Operations. The unamortized compensation expense related to these grants was $0.4 million as of March 31, 2017.

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Supplemental Cash Flow Information

3 Months Ended

Mar. 31, 2017

Supplemental Cash Flow Information [Abstract]

Supplemental Cash Flow Information

16. Supplemental Cash Flow Information

Supplemental cash flow information and non-cash investing and financing activities are as follows:

	Three Months Ended March 31,
(In thousands)	2017		2016
Supplemental cash flow information
Cash paid during the period for interest	$	6,418	$	4,064
Non-cash investing and financing activities
Change in accrued additions to electric plant		8,876		3,515
Allowance for funds used during construction - debt		815		982
Redemption of operating partnership units for common stock		55		—
Dividends and distributions payable		15,169		15,157

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Description of Business and Presentation of Financial Statements (Policies)

3 Months Ended

Mar. 31, 2017

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

InfraREIT, Inc. is a Maryland corporation, which may be referred to in these financial statements as the “Company,” “we,” “us” and “our.” These unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the U.S. Securities and Exchange Commission (SEC) on February 28, 2017.

We held 72.1% of the outstanding partnership units (OP Units) in InfraREIT Partners, LP (Operating Partnership or InfraREIT LP) as of March 31, 2017 and are its general partner. We include the accounts of the Operating Partnership and its subsidiaries in our consolidated financial statements. Hunt Consolidated, Inc. (HCI) affiliates, current or former employees and members of our board of directors held the other 27.9% of the outstanding OP Units as of March 31, 2017.

Use of Estimates

Use of Estimates

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Recent Accounting Guidance

Recent Accounting Guidance

Recent Accounting Guidance Not Yet Adopted

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases. ASU 2016-02 amended the existing accounting standard for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for periods beginning after December 15, 2018 with early adoption permitted. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. We are currently evaluating the new guidance and the extent of the impact this standard may have on our financial position, results of operations and cash flows.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Clarification of Certain Cash Receipts and Cash Payments. The objective of ASU 2016-15 is to eliminate the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows by adding or clarifying guidance on eight specific cash flow issues. ASU 2016-15 is effective for periods beginning after December 15, 2017 with early adoption permitted. The new standard should be applied retrospectively to all periods presented, unless deemed impracticable, in which case, prospective application is permitted. We are currently evaluating the new guidance and have not determined the impact this standard may have on our cash flows.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 203): Restricted Cash (A Consensus of the FASB Emerging Issues Task Force). ASU 2016-18 adds to or clarifies current guidance on the classification and presentation of restricted cash in the statement of cash flows. The new guidance requires entities to include in its cash and cash equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. The guidance does not provide a definition of restricted cash or restricted cash equivalents. ASU 2016-18 is effective for periods beginning after December 15, 2017 with early adoption permitted. If an entity adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. We have not yet adopted the new guidance, but it will affect our Consolidated Statement of Cash Flows for the presentation of restricted cash.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 requires revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the expected consideration for these goods and services. As part of this guidance, lease transactions have been excluded from the requirements of this standard. As such, this guidance will not apply to us unless certain lease criteria are present; therefore, the new guidance should have a minimal, if any, impact on our financial position, results of operations and cash flows.

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Electric Plant and Depreciation (Tables)

3 Months Ended

Mar. 31, 2017

Public Utilities Property Plant And Equipment [Abstract]

Schedule of Major Classes of Electric Plant

The major classes of electric plant are as follows:

(In thousands)	March 31, 2017			December 31, 2016
Electric plant:
Transmission plant	$	1,222,769		$	1,203,164
Distribution plant		597,707			575,648
General plant		15,958			15,959
Total plant in service		1,836,434			1,794,771
Construction work in progress		107,900			107,189
Total electric plant		1,944,334			1,901,960
Accumulated depreciation		(269,113	)		(261,140	)
Electric plant, net	$	1,675,221		$	1,640,820

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Other Assets (Tables)

3 Months Ended

Mar. 31, 2017

Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]

Summary of Other Assets

Other assets are as follows:

	March 31, 2017							December 31, 2016
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Deferred financing costs on undrawn revolver	$	967	$	(446	)	$	521	$	967	$	(397	)	$	570
Other regulatory assets:
Deferred financing costs		27,761		(17,944	)		9,817		27,761		(16,997	)		10,764
Deferred costs recoverable in future years		23,793		—			23,793		23,793		—			23,793
Other regulatory assets		51,554		(17,944	)		33,610		51,554		(16,997	)		34,557
Investments		2,519		—			2,519		2,519		—			2,519
Other assets	$	55,040	$	(18,390	)	$	36,650	$	55,040	$	(17,394	)	$	37,646

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Long-Term Debt (Tables)

3 Months Ended

Mar. 31, 2017

Debt Instruments [Abstract]

Components of Long-Term Debt

Long-term debt consisted of the following:

		March 31, 2017					December 31, 2016
(In thousands)	Maturity Date	Amount Outstanding			Interest Rate		Amount Outstanding			Interest Rate
TDC
Senior secured notes - $25.0 million	December 30, 2020	$	17,188			8.50%	$	17,500			8.50%
SDTS
Senior secured notes - $60.0 million	June 20, 2018		60,000			5.04%		60,000			5.04%
Senior secured notes - $400.0 million	December 3, 2025		400,000			3.86%		400,000			3.86%
Senior secured notes - $100.0 million	January 14, 2026		100,000			3.86%		100,000			3.86%
Senior secured notes - $53.5 million	December 30, 2029		42,100			7.25%		42,600			7.25%
Senior secured notes - $110.0 million	September 30, 2030		96,257			6.47%		97,366			6.47%
Total SDTS debt			698,357					699,966
Total long-term debt			715,545					717,466
Less unamortized deferred financing costs			(121	)				(129	)
Total long-term debt, less deferred     financing costs			715,424					717,337
Less current portion of long-term debt			(7,960	)				(7,849	)
Debt classified as long-term debt, less     deferred financing costs		$	707,464				$	709,488

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Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2017

Fair Value Disclosures [Abstract]

Financial Instruments Measured at Fair Value

Financial instruments, measured at fair value, by level within the fair value hierarchy were as follows:

	Carrying		Fair Value
(In thousands)	Value		Level 1		Level 2		Level 3
March 31, 2017
Long-term debt	$	715,545	$	—	$	753,084	$	—
December 31, 2016
Long-term debt	$	717,466	$	—	$	758,415	$	—

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2017

Earnings Per Share [Abstract]

Computation of Earnings Per Share

Earnings per share are calculated as follows:

	Three Months Ended March 31,
(In thousands, except per share data)	2017		2016
Basic net income per share:
Net income attributable to InfraREIT, Inc.	$	7,949	$	6,315
Weighted average common shares outstanding		43,775		43,570
Basic net income per share	$	0.18	$	0.14
Diluted net income per share:
Net income attributable to InfraREIT, Inc.	$	7,949	$	6,315
Weighted average common shares outstanding		43,775		43,570
Redemption of Operating Partnership units		—		—
Weighted average dilutive shares outstanding		43,775		43,570
Diluted net income per share	$	0.18	$	0.14
Due to the anti-dilutive effect, the computation of diluted     earnings per share does not reflect the following adjustments:
Net income attributable to noncontrolling interest	$	3,068	$	2,462
Redemption of Operating Partnership units		16,900		17,057

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Leases (Tables)

3 Months Ended

Mar. 31, 2017

Leases [Abstract]

Schedule of Composition of Lease Revenue

The following table shows the composition of our lease revenue:

	Three Months Ended March 31,
(In thousands)	2017		2016
Base rent (straight-line)	$	39,624	$	33,665
Percentage rent		—		—
Total lease revenue	$	39,624	$	33,665

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Supplemental Cash Flow Information (Tables)

3 Months Ended

Mar. 31, 2017

Supplemental Cash Flow Information [Abstract]

Supplemental Cash Flow Information and Non-cash Investing and Financing Activities

Supplemental cash flow information and non-cash investing and financing activities are as follows:

	Three Months Ended March 31,
(In thousands)	2017		2016
Supplemental cash flow information
Cash paid during the period for interest	$	6,418	$	4,064
Non-cash investing and financing activities
Change in accrued additions to electric plant		8,876		3,515
Allowance for funds used during construction - debt		815		982
Redemption of operating partnership units for common stock		55		—
Dividends and distributions payable		15,169		15,157

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Description of Business and Presentation of Financial Statements - Additional Information (Details)	3 Months Ended
	Mar. 31, 2017
Description Of Business And Presentation Of Financial Statements [Line Items]
Percentage of partnership units outstanding	72.10%
Hunt Consolidated Incorporation
Description Of Business And Presentation Of Financial Statements [Line Items]
Percentage of partnership units outstanding	27.90%

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Related Party Transactions - Additional Information (Details) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Related Party Transaction [Line Items]
Due from affiliates	$ 27,058,000			$ 27,058,000		$ 32,554,000
Hunt Utility Services L L C
Related Party Transaction [Line Items]
Payment for management fee	7,000,000	$ 3,300,000
Prepaid management fee	0			0
Accrued management fee	$ 0			0		3,500,000
Management fee				$ 14,000,000	$ 13,100,000
Management agreement expiration date	Dec. 31, 2019
Agreement successive renewal terms	5 years
Management fee, description	The base fee for each twelve month period beginning each April 1 thereafter will equal 1.50% of our total equity as of December 31 of the immediately preceding year, subject to a $30.0 million cap
Investment management fee equity multiplier	1.50%			1.50%
Management fee cap	$ 30,000,000			$ 30,000,000
Hunt Utility Services L L C | Scenario, Forecast
Related Party Transaction [Line Items]
Management fee			$ 14,200,000
Maximum | Hunt Utility Services L L C
Related Party Transaction [Line Items]
Reimbursement of annual software license and maintenance fees and other expenses	100,000	100,000
Sharyland
Related Party Transaction [Line Items]
Lease revenue from related party	39,600,000	33,700,000
Deferred rent liability	16,500,000			16,500,000		15,600,000
Payments to acquire plant, and equipment	52,200,000	$ 58,200,000
Accounts payable and accrued liabilities	4,800,000			4,800,000		13,700,000
Due from affiliates	$ 27,100,000			$ 27,100,000		$ 32,600,000

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Electric Plant and Depreciation - Schedule of Major Classes of Electric Plant (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Electric plant:
Transmission plant	$ 1,222,769	$ 1,203,164
Distribution plant	597,707	575,648
General plant	15,958	15,959
Total plant in service	1,836,434	1,794,771
Construction work in progress	107,900	107,189
Total electric plant	1,944,334	1,901,960
Accumulated depreciation	(269,113)	(261,140)
Electric plant, net	$ 1,675,221	$ 1,640,820

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Electric Plant and Depreciation - Additional Information (Details) - USD ($) $ in Millions	Mar. 31, 2017	Dec. 31, 2016
Public Utilities Property Plant And Equipment [Abstract]
Electric plant, net includes plant acquisition adjustments	$ 27.4	$ 27.7

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Goodwill (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Goodwill And Intangible Assets Disclosure [Abstract]
Goodwill	$ 138,384	$ 138,384

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Other Assets - Summary of Other Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Other Assets Noncurrent [Abstract]
Deferred financing costs on undrawn revolver, Gross Carrying Amount	$ 967	$ 967
Other regulatory assets Deferred financing costs, Gross Carrying Amount	27,761	27,761
Other regulatory assets Deferred costs recoverable in future years, Gross Carrying Amount	23,793	23,793
Other regulatory assets, Gross Carrying Amount	51,554	51,554
Investments, Gross Carrying Amount	2,519	2,519
Other assets, Gross Carrying Amount	55,040	55,040
Deferred financing costs on undrawn revolver, Accumulated Amortization	(446)	(397)
Other regulatory assets Deferred financing costs, Accumulated Amortization	(17,944)	(16,997)
Other regulatory assets, Accumulated Amortization	(17,944)	(16,997)
Other assets, Accumulated Amortization	(18,390)	(17,394)
Deferred financing costs on undrawn revolver, Net Carrying Amount	521	570
Other regulatory assets Deferred financing costs, Net Carrying Amount	9,817	10,764
Other regulatory assets Deferred costs recoverable in future years, Net Carrying Amount	23,793	23,793
Other regulatory assets, Net Carrying Amount	33,610	34,557
Investments, Net Carrying Amount	2,519	2,519
Other assets, Net Carrying Amount	$ 36,650	$ 37,646

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Other Assets - Additional Information (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Other Assets Noncurrent [Abstract]
Deferred costs recoverable in future years	$ 23,793	$ 23,793

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Borrowings Under Credit Facilities - Additional Information (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2014
InfraREIT LP Revolving Credit Facility
Line Of Credit Facility [Line Items]
Amount of revolving credit facility under agreement	$ 0	$ 0	$ 75,000,000
Line of credit facility, remaining borrowing capacity	$ 75,000,000	75,000,000	15,000,000
Credit facility, maturity date	Dec. 10, 2019
Revolving credit facility, interest rate description	a rate equal to (1) the one, two, three or six month London Interbank Offered Rate (LIBOR) plus 2.5%, or (2) a base rate (equal to the highest of (a) the Federal Funds Rate plus ½ of 1%, (b) the Bank of America prime rate and (c) LIBOR plus 1%) plus 1.5%. Letters of credit are subject to a letter of credit fee equal to the daily amount available to be drawn times 2.5%.
Letter of credit fee multiplier	2.50%
InfraREIT LP Revolving Credit Facility | One, Two, Three or Six Month London Interbank Offered Rate (LIBOR)
Line Of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate	2.50%
InfraREIT LP Revolving Credit Facility | Federal Funds Rate
Line Of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate	0.50%
InfraREIT LP Revolving Credit Facility | LIBOR
Line Of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate	1.00%
InfraREIT LP Revolving Credit Facility | Base Rate
Line Of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate	1.50%
Third Amended and Restated Credit Agreement | SDTS Credit Agreements
Line Of Credit Facility [Line Items]
Credit facility, maturity date	Dec. 10, 2019
Credit facility, maximum borrowing capacity			250,000,000
Third Amended and Restated Credit Agreement | SDTS Credit Agreements | Letter Of Credit
Line Of Credit Facility [Line Items]
Credit facility, maximum borrowing capacity			25,000,000
Third Amended and Restated Credit Agreement | SDTS Credit Agreements | Swingline Loans
Line Of Credit Facility [Line Items]
Line of credit facility, remaining borrowing capacity			$ 5,000,000
Revolving Credit Facility | SDTS Credit Agreements
Line Of Credit Facility [Line Items]
Amount of revolving credit facility under agreement	$ 162,000,000	137,500,000
Line of credit facility, remaining borrowing capacity	$ 88,000,000	$ 112,500,000
Revolving credit facility, interest rate description	a rate equal to either (1) a base rate, determined as the greatest of (a) the administrative agent’s prime rate, (b) the federal funds effective rate plus ½ of 1% and (c) LIBOR plus 1.00% per annum, plus a margin of either 0.75% or 1.00% per annum, depending on the total debt to capitalization ratio of SDTS on a consolidated basis or (2) the one, two, three or six month LIBOR plus a margin of either 1.75% or 2.00% per annum
Debt, weighted average interest rate	2.72%	2.50%
Revolving Credit Facility | SDTS Credit Agreements | Letter Of Credit
Line Of Credit Facility [Line Items]
Amount of revolving credit facility under agreement	$ 0	$ 0
Revolving Credit Facility | One, Two, Three or Six Month London Interbank Offered Rate (LIBOR) | SDTS Credit Agreements | Minimum
Line Of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate	1.75%
Revolving Credit Facility | One, Two, Three or Six Month London Interbank Offered Rate (LIBOR) | SDTS Credit Agreements | Maximum
Line Of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate	2.00%
Revolving Credit Facility | Federal Funds Rate | SDTS Credit Agreements
Line Of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate	0.50%
Revolving Credit Facility | LIBOR | SDTS Credit Agreements
Line Of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate	1.00%
Revolving Credit Facility | Base Rate | SDTS Credit Agreements | Minimum
Line Of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate	0.75%
Revolving Credit Facility | Base Rate | SDTS Credit Agreements | Maximum
Line Of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate	1.00%

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Long-Term Debt - Components of Long-Term Debt (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Debt Instrument [Line Items]
Long-term debt, Amount Outstanding	$ 715,545	$ 717,466
Less unamortized deferred financing costs	(121)	(129)
Total long-term debt, less deferred financing costs	715,424	717,337
Less current portion of long-term debt	(7,960)	(7,849)
Debt classified as long-term debt, less deferred financing costs	$ 707,464	$ 709,488
TDC | Senior Secured Notes, 8.50%
Debt Instrument [Line Items]
Long-term debt, Interest Rate	8.50%	8.50%		8.50%
Long-term debt, Amount Outstanding	$ 17,188	$ 17,500
Interest bearing note, maturity date	Dec. 30, 2020
SDTS Credit Agreements
Debt Instrument [Line Items]
Long-term debt, Amount Outstanding	$ 698,357	$ 699,966
SDTS Credit Agreements | Senior Secured Notes, 5.04%
Debt Instrument [Line Items]
Long-term debt, Interest Rate	5.04%	5.04%	5.04%
Long-term debt, Amount Outstanding	$ 60,000	$ 60,000
Interest bearing note, maturity date	Jun. 20, 2018
SDTS Credit Agreements | Senior Secured Notes, 3.86%
Debt Instrument [Line Items]
Long-term debt, Interest Rate	3.86%	3.86%
Long-term debt, Amount Outstanding	$ 400,000	$ 400,000
Interest bearing note, maturity date	Dec. 03, 2025
SDTS Credit Agreements | Senior Secured Notes, 3.86% Maturing in 2026
Debt Instrument [Line Items]
Long-term debt, Interest Rate	3.86%	3.86%
Long-term debt, Amount Outstanding	$ 100,000	$ 100,000
Interest bearing note, maturity date	Jan. 14, 2026
SDTS Credit Agreements | Senior Secured Notes, 7.25%
Debt Instrument [Line Items]
Long-term debt, Interest Rate	7.25%	7.25%			7.25%
Long-term debt, Amount Outstanding	$ 42,100	$ 42,600
Interest bearing note, maturity date	Dec. 30, 2029
SDTS Credit Agreements | Senior Secured Notes, 6.47%
Debt Instrument [Line Items]
Long-term debt, Interest Rate	6.47%	6.47%		6.47%
Long-term debt, Amount Outstanding	$ 96,257	$ 97,366
Interest bearing note, maturity date	Sep. 30, 2030

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Long-Term Debt - Components of Long-Term Debt (Parenthetical) (Details) - USD ($) $ in Millions	Mar. 31, 2017	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
TDC | Senior Secured Notes, 8.50%
Debt Instrument [Line Items]
Long-term debt, face amount	$ 25.0		$ 25.0
SDTS Credit Agreements | Senior Secured Notes, 5.04%
Debt Instrument [Line Items]
Long-term debt, face amount	60.0	$ 60.0
SDTS Credit Agreements | Senior Secured Notes, 3.86%
Debt Instrument [Line Items]
Long-term debt, face amount	400.0
SDTS Credit Agreements | Senior Secured Notes, 3.86% Maturing in 2026
Debt Instrument [Line Items]
Long-term debt, face amount	100.0
SDTS Credit Agreements | Senior Secured Notes, 7.25%
Debt Instrument [Line Items]
Long-term debt, face amount	53.5			$ 53.5
SDTS Credit Agreements | Senior Secured Notes, 6.47%
Debt Instrument [Line Items]
Long-term debt, face amount	$ 110.0		$ 110.0

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Long-Term Debt - Additional Information (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Mar. 31, 2017	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Debt Instrument [Line Items]
Deferred financing costs, Net Carrying Amount	$ 570		$ 521
TDC | Senior Secured Notes, 8.50%
Debt Instrument [Line Items]
Long-term debt, face amount			$ 25,000		$ 25,000
Long-term debt, stated interest rate	8.50%		8.50%		8.50%
Deferred financing costs, Net Carrying Amount	$ 100		$ 100
SDTS Credit Agreements | Senior Secured Notes, 5.04%
Debt Instrument [Line Items]
Long-term debt, face amount			$ 60,000	$ 60,000
Long-term debt, stated interest rate	5.04%		5.04%	5.04%
SDTS Credit Agreements | Senior Secured Notes, 7.25%
Debt Instrument [Line Items]
Long-term debt, face amount			$ 53,500			$ 53,500
Long-term debt, stated interest rate	7.25%		7.25%			7.25%
SDTS Credit Agreements | Senior Secured Notes, 6.47%
Debt Instrument [Line Items]
Long-term debt, face amount			$ 110,000		$ 110,000
Long-term debt, stated interest rate	6.47%		6.47%		6.47%
SDTS Credit Agreements | Series A Notes
Debt Instrument [Line Items]
Long-term debt, face amount		$ 400,000
Long-term debt, stated interest rate		3.86%
Long-Term Debt Maturity Period		10 years
SDTS Credit Agreements | Series B Notes
Debt Instrument [Line Items]
Long-term debt, face amount	$ 100,000
Long-term debt, stated interest rate	3.86%
Long-Term Debt Maturity Period	10 years

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Fair Value of Financial Instruments - Additional Information (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Long-term Debt	$ 707,464	$ 709,488
Senior Secured Notes
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Long-term Debt	$ 715,500	$ 717,500
Debt, weighted average interest rate	4.60%	4.60%

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Fair Value of Financial Instruments - Financial Instruments Measured at Fair Value (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Carrying Value
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Long-term debt	$ 715,545	$ 717,466
Level 2 | Fair Value
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Long-term debt	$ 753,084	$ 758,415

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Regulatory Matters - Additional Information (Details) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2017 USD ($) Lease RentBreakpoint RentRate	Dec. 31, 2016 USD ($) Lease
Public Utilities General Disclosures [Line Items]
Regulatory Liability | $	$ 24,013	$ 21,004
Leasing arrangements, operating leases, term of contract	4 years
Transmission Assets
Public Utilities General Disclosures [Line Items]
Number of annual rent breakpoints | RentBreakpoint	1
Number of rent rates | RentRate	1
Distribution Assets
Public Utilities General Disclosures [Line Items]
Number of annual rent breakpoints | RentBreakpoint	2
Number of rent rates | RentRate	2
Sharyland Distribution & Transmission Services | Sharyland
Public Utilities General Disclosures [Line Items]
Number of lease agreements	2	5
Sharyland Distribution & Transmission Services | Sharyland | Transmission Assets
Public Utilities General Disclosures [Line Items]
Number of lease agreements	1
Sharyland Distribution & Transmission Services | Sharyland | Distribution Assets
Public Utilities General Disclosures [Line Items]
Number of lease agreements	1
Sharyland | Sharyland Distribution & Transmission Services
Public Utilities General Disclosures [Line Items]
Public utilities, allowed return on equity, percentage	10.00%
Sharyland and SDTS
Public Utilities General Disclosures [Line Items]
Public utilities, requested capital structure, debt percentage	55.00%
Public utilities, requested capital structure, equity percentage	45.00%
Public utilities, reduced cost of debt percentage	4.97%
Public utilities cost of debt percentage	6.73%

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Equity - Additional Information (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Equity [Abstract]
Cash dividends declared per share to shareholders	$ 0.25	$ 0.25
Cash distributions declared to unit holders, per unit	$ 0.25	$ 0.25
Dividends and distributions paid	$ 15,161	$ 13,634

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Noncontrolling Interest - Additional Information (Details) - shares	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Minority Interest [Line Items]
Description of units redeemed for cash or, at option, exchanged for common shares	one-for-one basis
OP Units held by the limited partners	16,900,000		16,900,000
Operating partnership units redeem	3,100	0
Common shares issued	3,100
LTIP Units
Minority Interest [Line Items]
Operating partnership units issued	31,633	29,722

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Earnings Per Share - Computation of Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Basic net income per share:
Net income attributable to InfraREIT, Inc.	$ 7,949	$ 6,315
Weighted average common shares outstanding	43,775	43,570
Basic net income per share	$ 0.18	$ 0.14
Diluted net income per share:
Net income attributable to InfraREIT, Inc.	$ 7,949	$ 6,315
Weighted average common shares outstanding	43,775	43,570
Weighted average dilutive shares outstanding	43,775	43,570
Diluted net income per share	$ 0.18	$ 0.14
Due to the anti-dilutive effect, the computation of diluted earnings per share does not reflect the following adjustments:
Net income attributable to noncontrolling interest	$ 3,068	$ 2,462
Redemption of Operating Partnership units	16,900	17,057

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Leases - Schedule of Composition of Lease Revenue (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Leases [Abstract]
Base rent (straight-line)	$ 39,624	$ 33,665
Total lease revenue	$ 39,624	$ 33,665

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Leases - Additional Information (Details)	3 Months Ended
	Mar. 31, 2017
Operating Leased Assets [Line Items]
Operating leases placed in services dates description	SDTS has entered into various leases with Sharyland for all our placed in service T&D assets. The master lease agreements, as amended, expire at various dates from December 31, 2017 through December 31, 2022.
Lease expiration date range, start date	Dec. 31, 2017
Lease expiration date range, end date	Dec. 31, 2022
Maximum
Operating Leased Assets [Line Items]
Rate of rent used, Percentage	32.00%
Minimum
Operating Leased Assets [Line Items]
Rate of rent used, Percentage	23.00%

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Share-Based Compensation - Additional Information (Details) - 2015 Equity Incentive Plan - USD ($)	1 Months Ended		3 Months Ended
	Jan. 31, 2017	Jan. 31, 2016	Mar. 31, 2017	Mar. 31, 2016
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Unamortized stock compensation expense			$ 400,000
General And Administrative Expense
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Compensation expenses			$ 100,000	$ 300,000
Director
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Aggregate common stock shares issued to directors		4,735
Director | LTIP Units
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
LTIP Units issued to directors	31,633	29,722
Grant date fair value per share	$ 18.02	$ 18.58
Grant date fair value	$ 600,000	$ 600,000
Vesting period of LTIP Units	Jan. 31, 2018	Jan. 31, 2017

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Supplemental Cash Flow Information - Supplemental Cash Flow Information and Non-cash Investing and Financing Activities (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Supplemental cash flow information
Cash paid during the period for interest	$ 6,418	$ 4,064
Non-cash investing and financing activities
Change in accrued additions to electric plant	8,876	3,515
Allowance for funds used during construction - debt	815	982
Redemption of operating partnership units for common stock	55
Dividends and distributions payable	$ 15,169	$ 15,157	$ 15,161