Clean Coal Portfolio Standards Law Impact on Third

Clean Coal Portfolio Standards Law: Impact on Third Party Suppliers & Large Electric Customers IIEC Annual Meeting Kevin Wright President Illinois Competitive Energy Association June 16, 2010

Overview of ICEA and Competitive Suppliers • ICEA members include Ameren Energy Marketing, Champion Energy, Constellation New. Energy, Direct Energy, Exelon Energy Company, Integrys Energy, MC Squared Energy, and Nordic Energy Services. • Our customers include manufacturers, retail merchants, small businesses, the State of Illinois and other governmental units, school districts, park districts, cultural, religious and sporting facilities, hospital, hotels, restaurants, ranging from Main Street to the Fortune 500. • ARES provide more than half of the electricity consumed in Illinois; over 74% of commercial and industrial, governmental and other non-residential load is served by ARES. The state’s largest C&I customers procure 97% of their electricity from ARES. 2

Clean Coal Portfolio Standard Law (CCPSL) SB 1987, P. A. 09 -1027, 1/12/09 • CCPSL encourages advanced clean coal technologies that capture and sequester CO 2 emissions to advance environmental protection goals and to demonstrate viability of coal and coal-derived fuels. • “Initial Clean Coal Facility” is narrowly defined so that Tenaska’s TEC is the initial clean coal facility; CCPSL goal: By 1/1/25, 25% of electricity used in State shall be generated by cost-effective clean coal facilities. • CCPSL implicitly requires 100% of TECs output be purchased by Illinois utilities and ARES through long-term PPAs up to 30 years. • CCPSL provides a 2. 015% rate cap for utility served customers, but provides NO rate cap for ARES served customers. 3

Status of Tenaska’s TEC Project • CCPSL requires TEC to submit a Facility Cost Report—including a FEED Study, facility costs, financing method, O&M costs—to ICC, IPA, and GA. • TECs FCR submitted to ICC on 2/26/10; ICC has 6 months, in consultation with its expert and IPA, to submit a report to the Legislature setting forth its analysis of the TEC FCR. • ICC Report shall include, but not be limited to: – a comparison of costs associated with electricity generated by other types of generation facilities; – an analysis of the rate impacts on residential and small business customers over the life of the sourcing agreements (NB: Rate Impact to C&I customers is not required); – an analysis of the likelihood that the initial clean coal facility will commence commercial operation and be delivering power to the facility’s bus bar by 2016. 4

Status of Tenaska’s TEC Project (cont. ) • CCPSL provides that GA, based on the FCR and ICC Report, must enact authorizing legislation approving: – price, stated in cents per kwh – project impact on residential & small business customers’ bill (NB: C&I Customer Rate Impact is NOT Required) – maximum allowable ROE for project (CCPSL: 11. 5% ROE and 55% debt 45% equity ratio) • ICC provided a comment period for interested parties; comments will be attached to ICC’s Report to the GA. ICC Report to GA possibly in July. • The STOP (Stop Tenaska’s Overpriced Power) Coalition, comprised of ICEA, business groups, and trade associations, submitted comments including a Christensen Energy Consulting Associates (CA) analysis of TEC’s FCR. 5

STOP Coalition Comments--CA Analysis • TEC Will Result in Significant Electric Increases for Illinois’ Electric Customers. – TECs Cost Report: If the TEC were built on time and on budget, it could cost electricity customers an average of $386 M more per year for 30 years (or about $11. 6 B) over power from other resources. But additional Co$t$ are Excluded from the TEC Cost Report… – CA Analysis: If the costs of building and operating TEC are higher than expected and if certain revenues are lower than forecasted, Illinois electricity consumers could plausibly pay $100 M more per year over 30 years than is suggested in TECs Cost Report projections. And, TECs costs could be even higher for Illinois consumers… – TECs Cost Report: If TEC were unable to store its captured CO 2 either by delivering it through the proposed Denbury pipeline or by sequestering it “on-site, ” consumers would bear an additional $137 M in costs per year on average over 30 years. 6

Significant Rate Increases to Illinois Electric Customers • Rate Impact of TECs Above-Market Electricity – At best, utility served customers will pay an average of $152 M per year b/c of the rate cap; ARES served customers will pay b/t $140 M to $244 M of this burden b/c there is NO rate cap protection for C & I customers. – CA Analysis: TECs CR incorrectly applies the benchmark 2009 rate for residential and small commercial customers to ALL load served by utilities and ARES. This flaw significantly understates the rate impact on ARES served customers. ARES customer rates will rise b/t 3. 0% and 7. 1%. BOTTOM LINE: Retail businesses, manufacturers, government agencies, schools, hospitals, hotels, and other entities vital to the Illinois economy will be saddled with all of the remaining above-market costs beyond the utility rate cap, costing businesses hundreds of millions of dollars per year at a time when they can least afford it and causing irreparable harm to the competitive electric market in Illinois. 7

TECs “Green” Benefit Is Speculative At Best • The proposed Denbury pipeline is in grave legislative trouble and underground storage of CO 2 is unproven. • KY and IN failed to enact legislation to move forward the Denbury pipeline to transport 50% of the CO 2 from TEC to the Gulf of Mexico. • Alternative mechanisms for CO 2 sequestration are just as uncertain; geologic sequestration costs much more than the pipeline and its feasibility is unproven. • CA Analysis: Absent these 2 options, CO 2 disposal would cost billions and significantly increase costs to Illinois ratepayers. 8

Net Negative Impact on Jobs and Illinois Economy • TECs Report claims significant jobs creation benefits b/c of TECs construction and operation. • CA Analysis: However, the study only examines the gross impacts to build and run the plant. What really matters is the net impact on job creation. – The report completely overlooks the negative impact of an increase in electric rates on the broader Illinois economy and job outlook. Moreover, some of those jobs would be created elsewhere in Illinois if TEC were not built. • CA Analysis: The net impact to the Illinois economy from forcing consumers and businesses to purchase high cost, above-market generation is the real issue. The result will make Illinois a less attractive place to do business and will reduce business investment and jobs. • CA Analysis: When both positive and negative consequences are considered, the TEC project will result in a net job and income loss for IL. 9

What Others Are Saying About the TEC Project Com. Ed/Northbridge Report • BOTTOM LINE: “TEC is a step backward in the attainment of the state’s environmental goals, will not appreciably advance the goal of demonstrating the viability of coal since it depends so heavily upon purchased natural gas and fails to protect consumers from the risk of paying exorbitant amounts for the energy from the facility. ” • TEC Does Not Advance the Goals of the Clean Coal Act – – – TEC Will Emit 50% More CO 2 Than a Comparable CCGT Facility A CCGT Facility Would Displace 50% More CO 2 Than TEC 35% of Energy Generated by TEC Will be Fueled by Purchased Natural Gas The cost from TEC is more than twice the expected future cost of comparable supply procured from the PJM market; it is 50% higher than the expected future cost of energy from a CCGT Facility. Illinois consumers must bear the cost of this very expense source of energy and bear all the risk that the price could rise significantly higher. 10

Com. Ed/Northbridge Report • Tenaska’s Proposed Sourcing Agreement Ignores the Consumer Protections Contained in the Clean Coal Act – TEC is Extremely Expensive—With Lifetime Above-Market Costs Projected at $8. 7 Billion—and Its Costs are Uncertain – Tenaska’s Circulated Sourcing Agreement ignores each and every one of the consumer protections enacted by the GA: It proposes a full cost recovery mechanism, not a per kilowatt-hour price; does not provide for ICC review/approval in price changes; and effectively circumvents the cap on the amount of costs that can be charged to customers. • The Commission and the General Assembly Should Consider All of Their Options Before Approving TEC – Other clean coal projects are underway in Illinois; TEC will use up all available funding for clean coal facilities; GA should consider the one project which advances the Act’s goals at the least cost to customers. 11

What Others Are Saying About the TEC Project Sierra Club/Schlissel Technical Consulting Report • BOTTOM LINE: “TEC does not reasonably demonstrate that the proposed facility will only have a minor impact on the bills of Illinois electric ratepayers. Its claims and conclusions and its supporting analyses are biased in favor of the proposed Taylorville facility by a number of extremely optimistic assumptions…Tenaska will not bear any significant risks from TEC. Instead, the ratepayers of the state’s investor-owned utilities and alternative electric suppliers will bear the main risks and burdens of the project. ” • Tenaska assumes that TECs rate impact will be heavily mitigated by revenues from the sales of SYN gas, CO 2, sulfur, NOx allowances and plant capacity. Tenaska does not offer any guarantees that these revenues actually will be obtained. Instead, the risks associated with these sales are passed along to the ratepayers…through 30 -year sourcing agreements. 12

Sierra Club/Schlissel Technical Consulting Report Highlights • The Rate Impact Analysis results are heavily biased by the assumption that TEC will achieve extremely low heat rates and that TEC will achieve high annual capacity factors, which is dependent upon the technology performing well and Tenaska obtaining ‘must run’ status. • The analysis is distorted by the assumption of high natural gas prices; the FCR significantly understates the potential for higher coal prices. • The FCR is not persuasive in its claim that TEC will capture more than 50% of the CO 2 that would otherwise be emitted; Tenaska assumes a very low cost for sequestering the CO 2 from TEC. • The overall reductions in regional CO 2 emissions attributable to the proposed TEC may be significantly overstated. 13

What Others Are Saying About the TEC Project Doug Whitley, IL State Chamber President • Clean Coal projects hold promise for Illinois’ economy. However, the state cannot afford to build cleaner coal projects (or other energy projects for that matter) at any cost to consumers–especially business consumers. • Tenaska is attempting to have the entirety of the investment underwritten and secured by a legislative mandate that electricity customers in Illinois buy power from the project no matter how costly. • The current plan Tenaska is pitching will result in above-market costs of electricity and a subsequent, negative impact on job creation that could outweigh the job creation benefits of building the plant. • BOTTOM LINE: “No one hopes more than I do that cleaner coal plants find the technological, economic and environmental sweet spot to make them viable in our state. But giving a private entity a guaranteed long-term rate on the backs of thousands of business customers in our state isn’t the answer. ” 14

What Others Are Saying About the TEC Project Greg Baise, IL Manufacturers’ Assoc. President • Illinois businesses have been hit hard by the recession and this is not the time to consider unnecessary increases in electric rates to make a private venture viable. • BOTTOM LINE: “The 4, 000 businesses across this state that I represent will have little patience for any legislation that raises energy costs needlessly. ” 15

What Others Are Saying About the TEC Project Gary Hickey, Forsyth, IL--Private Citizen and PE • The TEC project should be terminated ASAP, based on its lack of value as a demonstration project and its devastating economic impact to Illinois consumers. Each of the TECs 385 permanent jobs will cost $730, 943 per year or $281, 420, 040 in higher electric rates. • TECs plant cost is already 45% more than the Clinton Nuclear Power Station: All-in cost of TEC plant is $3. 5 B. Summertime rating is 533 MW or $6, 604 per kilowatt. Clinton is $4. 25 B for 933 MW, or $4, 555 per kilowatt. • TECs true economic impact is masked by how the proposal is packaged • BOTTOM LINE: “Assuming a new based load plant is even needed, the least cost base-load capacity alternative to the IGCC facility is a combined cycle natural gas plant. ” 16

Tenaska/TEC Take-Away Messages • TECs Formula = Increased Electricity Costs + Job Loss + Environmental Risk • Commercial and industrial customers, the engine driving Illinois’ economy, will bear a highly disproportionate cost to subsidize this unproven project from Nebraska-based Tenaska, the 16 th largest privately-owned company in the US. • From rate impacts, to job creation benefits, to environmental outcomes, the TEC Cost Report consistently offers scenarios that put TEC in the best possible light and that mask the full range of rate impacts to all consumers that the TEC plant project could impose. • The TEC project is bad public policy and is anti-competitive. 17