www.epsa.org

GETTING ENOUGH COAL: MORE THAN A THREE LEGGED STOOLGETTING ENOUGH COAL: MORE THAN A THREE LEGGED STOOLDAY ONE KEYNOTE: NOVEMBER 2, 2006DAY ONE KEYNOTE: NOVEMBER 2, 2006

COAL NEEDS POWER COMPETITION TO SUCCEEDCOAL NEEDS POWER COMPETITION TO SUCCEED

John E. ShelkJohn E. ShelkPresident and CEOPresident and CEO

Electric Power Supply AssociationElectric Power Supply Association

What is EPSA?• The national trade association of competitive power sector

• Advocacy programs in regulatory, legislative and public affairs

• Emphasis on federal developments, team with state and regional partners

• Focused on core mission of a successful competitive power sector to better serve customers

• Bright outlook for the sector; strategies will vary by region

• Nearly 40% of installed generating capacity

• One-third of net electricity generation

• Competitive sector built almost all new generation since early 1990s – primarily natural gas

• New generation was largely at supplier’s risk, not at ratepayer expense

• Improved operating results at plants acquired through restructuring – coal and nuclear

Role of Competitive Power Sector

Coal 36%Natural Gas 27%Nuclear 27%Renewables 5%Other 5%

EIA Electric Power Annual (2005 data)(Released October 2006)

Competitive Power’s Fuel Diversity

• Next Wave of Power Generation• Buy v. Build Debate is Joined• FERC and Coal – Bypass Railroads?• Coal and the Environment• Coal and New Technologies• Public Policy Implications

Overview

• EIA Annual Outlooks: 40-50% increase in demand by 2030 (174 GW from coal out of 350 GW in the base case)

• GAO: 36% increase in demand by 2025

• GE Financial Energy Services: $250 billion to add 150,000 MW by 2025

• Crunch starts 2008-2012, not at end of the 20-year forecast period

• How to meet demand is up for grabs - Fuels

• Who will meet demand is also up for grabs

Next Wave of Power Generation

• FERC:

– 17,000 MW added in 2005, 25% below the 2004 level

– Additions in 2005 down 75% from peak of 2002

– 2005 still greater than in 14 out of the previous 20 years

– Additions likely in 2006 will be roughly half of the 2005 level

(Staff presentation, February 16, 2006)

Causes for Concern – February 2006 Reports Should Be Sobering

• CERA:

“The U.S. power business is at the point where plans for new supply need to be addressed. Assuming all power plants currently under construction and half of those under development are eventually completed, less than half the new capacity needed over the next ten years will come online.”

(Press Release, February 9, 2006)

Causes for Concern – February 2006 Reports Should be Sobering

• Demand up three times supply (2006-2015): 19 percent (141 GW) v. 6 percent (57 GW)

• Importance of “uncommitted” resources: projected double to over 100 GW

• Transmission miles increasing only 7 percent• Fuel supply, delivery and electric generation

– gas-fired capacity half of new plants (2006-2015)– coal delivery an issue 2005-06, but improving– NERC/RROs review of fuel and reliability

(Released October 2006)

NERC 2006 Long Term Assessment

• Self-build: only rate-base can do new coal and nuclear

• Competitive suppliers are fuel diverse

• Case for competitive suppliers is compelling – risk transfer

• Importance of competitive procurement – debt equivalency as key issue

• Clock is ticking – already late on next building phase

• Must make regulatory decisions to reduce uncertainty

Buy vs. Build Debate is Joined

• June 15, 2006 FERC Discussion/Conference

• Order 888 Open Access Reform

• Transmission Investment Incentives

• Transmission Siting – DOE corridors, FERC back stop

FERC and Coal – Bypass Railroads?

• CAIR and CAMR compliance costs

• New Source Review – Congress and courts

• Climate Change – Congress, courts and states

• Coal Production Issues

Coal and the Environment

• New technologies are key to coal’s future

• New technologies are costlier and riskier

• Generally rising cost environment for all generation

• Backlash from cost overruns would hurt coal

Coal and New Technologies

• Wholesale market design issues – new generation

• Competitive procurement issues – control costs

• Harmonize energy and environmental issues

• Building coalition partners on all issues

Public Policy Implications