Electric Industry Overview

1
Electric Industry Overview

• AGMA/ABMA Annual Meeting
• March 3, 2006

2
Status of U.S. Electric Industry

• Changing supply / delivery picture
• Period of overbuilt generation (gas-fired)
• Concern over supply / price for natural gas
• Concern over coal deliveries
• Inadequate transmission in some regions
• Focus on reliability after 2003 blackout
• More reliance on renewable resources, demand
  response and efficiency
• Deregulation no, Changed regulation yes
• Electricity Markets vary blend of competition
  and regulation
• Wholesale competition
• 19 states plus DC with retail competition
• Differing approaches to build new generation
• How to spur non-gas generation in market states?

3
Status of U.S. Electric Industry

• Strong regional approaches to wholesale
  competition
• SE, West
• Strongly oppose a one-size-fits-all market design
  and Federal intrusion into planning, siting and
  power supply adequacy
• NE, Mid-Atlantic, Mid-West
• Favor w/sale competition and Regional
  Transmission Organizations (RTOs)
• State regulators seek deference from Feds on
• Power supply planning, acquisition and adequacy
• Siting and pricing of transmission expansion
• Reliability
• Mergers
• And more

4
Status of U.S. Electric Industry

• Multi-emissions legislation stalled / Climate and
  Politics
• Congress passes The Energy Policy Act of 2005
• Most significant changes to electricity and gas
  laws since 1930s
• Wall Street views shape new investment
• Bankruptcies and erosion of merchant power and
  energy trading sectors
• Wholesale market development stuck in
  transition
• Federal / state conflicts on resource procurement
• Wall Street is demanding greater certainty for
  infrastructure investment
• Appropriate implementation of The Energy Policy
  Act of 2005
• Evolving environmental rules and costs
• Rising energy prices and rate proceedings

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Average Retail Prices of Electricity 1960-2004
Source Energy Information Administration (EIA),
Annual Energy Review (AER) 2004
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Electricity End-Use Prices 2005-2030
Source Energy Information Administration (EIA),
Annual Energy Outlook (AEO) 2005
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What Powers Our Plants?
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Trends in electric power generation chart
Trends in Electric Power Generation 1980 - 2025
Coal
Gas
Nuclear
Renewables
Oil
Source US Department of Energy, Energy
Information Administration
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Regional Differences
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Generation Options Affected By Public Policy
New Generation Capacity By Fuel Since 1950
Source Henwood Energy Consulting
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Challenges with Each Option

• Coal Certainty on environmental rules /
  policies, transportation, land use
• Nuclear Relicensing, waste storage,
  decommissioning
• Gas Infrastructure enhancement, supply, price,
  quality
• Hydroelectric New sites? Relicensing
  streamlining, fish mitigation
• Renewables / new technologies Funding,
  integration into grid
• Purchase power imputed as debt on balance
  sheets
• DSM Cost recovery, price responsive demand

Goal Diverse resource portfolio
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Energy Policy Act of 2005Generation

• Coal
• 3 investment tax credits for clean coal
  facilities
• Enhanced tax treatment for pollution control
• Nuclear
• Production tax credit for new advanced nuclear
• Modify decommissioning trust fund
• Reauthorizes Price-Anderson Act
• Gas
• Changes distribution pipeline depreciation (20 -
  15 yrs thru 2010)
• Various other delivery incentives
• Hydroelectric
• Licensing reform
• Fish mitigation
• Renewables / new technologies

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Impact on Transmission Congestion Dramatically
Increasing
2005
Requests for transmission loading relief (TLRs)
in the Eastern Interconnection
2003
Level 2 or higher TLRs
2001
1999
Source NERC Transmission Loading Relief
Procedure Logs
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Energy Policy Act of 2005Transmission

• Siting streamlined
• Grants FERC back stop siting authority
• Facilitates siting across Federal lands by
  designating DOE as lead agency
• Incentives
• Reduces depreciable lives for transmission assets
  from 20-15 yrs
• Encourages FERC to provides incentives for
  construction of new transmission
• Transmission spending expected to jump 60 in
  next 5 years

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Post Energy Act -- Conclusions

• Likely Outcomes
• Electricity growth follows economic growth (but
  less than 11)
• More coal plants will be built
• Nuclear construction will restart
• There will be a lot of renewables, but not
  salvation
• More transmission will be built
• Risks
• Gas prices spike again
• Gas prices drop back to lower levels

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Thank you!

• AGMA/ABMA Annual Meeting
• March 3, 2006