Looking Ahead in 2012: Energy Outlook and West Virginia

1. Looking Ahead in 2012: Energy Outlook and West Virginia January 25, 2012 The West Virginia Economic Development Council Charleston, WV Kenneth J. Nemeth Executive Director and Secretary Southern States Energy Board www.sseb.org

2. Background Through innovations in energy and environmental policies, programs and technologies, the Southern States Energy Board enhances economic development and the quality of life in the South. - SSEB Mission Statement • Established 1960, expanded in 1978 • 16 U.S. States and Two Territories • Each jurisdiction represented by the governor, a legislator • from the House and Senate and a governor’s alternate • Federal Representative Appointed by U.S. President www.sseb.org

3. Key Issues in 2012 – Southern States Energy Board • Natural Gas and Oil Exploration and development • Workforce Education and Professional Development • Carbon Capture, Utilization and Sequestration (CCUS) • Water and Energy Nexus • Energy Efficiency and Renewable Energy • Impacts of EPA Regulations on Industries and US Electric Supply • Coal Resources • Nuclear Energy • Cyber Security for Energy Infrastructure • Smart Grid www.sseb.org

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5. $100 Oil Leads to Foreign Exports!!!Price 1/17/12: 100 $/Bbl(P • Price of Oil 1/22/12: ____ $/Barrel High Oil Prices + Sluggish American Economy = More Oil Exports To Foreign Countries! www.sseb.org

6. Six Megatrends Facing the World • Population Growth- 1 of 3 Chinese or Indian • Food Production • Renewable Energy • Demand for Safety, Security • Connectivity Innovation • World Recession

11. The context: fresh challenges add to already worrying trends • Economic concerns have diverted attention from energy policy and limited the means of intervention • Post-Fukushima, nuclear is facing uncertainty • MENA turmoil raised questions about region’s investment plans (Middle East & North Africa) • Some key trends are pointing in worrying directions: • CO2emissions rebounded to a record high • Energy efficiency of global economy worsened for 2nd straight year • Spending on oil imports is near record highs www.sseb.org

12. “If we don’t change direction soon, we’ll end up where we’re heading”IEA 2011 Forecast in World Energy Outlook • In a world full of uncertainty, one thing is sure: rising incomes & population will push energy needs higher • Oil supply diversity is diminishing, while new options are opening up for natural gas • Coal –the “forgotten fuel” –has underpinned growth, but its future will be shaped by uptake of efficient power plants & CCS • Power sector investment will become increasingly capital intensive with the rising share of renewables • Despite steps in the right direction, the door to 2°C is closing www.sseb.org

13. ENERGY RESOURCES: Global Energy Forms:Limits in Supply & Price All Energy Forms Needed for Diversity of Supply • ENERGY EFFICIENCY/DEMAND-SIDE MANAGEMENT/CONSERVATION: An important resource – augments future power supply • OIL: Consistently above $70/barrel; declining reserves; risky sources • NUCLEAR: Valuable; constraints - cost, safety & waste disposal concerns • HYDRO: Limited, regionalized growth in supply • WIND: Limited availability; grid disruptions; intermittent supply • BIOMASS: Limited, regional supply, environmental questions • NATURAL GAS: Price volatility; declining reserves; risky sources • COAL: Faces GHG, climate change, regulators, environmental challenges • SOLAR: Cost of materials; intermittent supply

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15. What Holds us Back? American’s Energy Burden Higher Energy Prices From Legislation, Unfunded EPA Mandates Rising Cost of Electricity & Volatile Natural Gas High Gasoline Prices Rising Food Prices The American Family Working Through Weak Economy and Credit Crunch www.sseb.org

16. US Energy Flows- 2009 www.sseb.org

17. Coal & Gas Uncertainty??? www.sseb.org 2011 Energy Information Administration Forecast

18. Complete Under Construction High Probability Increased Long-Term Coal DemandDue to Increased Coal Generation 40 Units Totaling 20 GW and ~80 MTPY of Coal Use 7,570 MW EKPC JK Smith 1 278 MW NRG Energy Big Cajun 1 230 MW Sithe Power River Hill 290 MW AEP John W. Turk 600 MW 6,705 MW Black Hills Wygen 3 110 MW Basin Electric Dry Fork 390 MW TXU Oak Grove 1 800 MW CU Springfield Southwest 2 300 MW TXU Oak Grove 2 800 MW Dominion VA City HEC 614 MW 2,770 MW CLECO Rodemacher 3 660 MW WE Energies Oak Creek 1 615 MW Duke Energy Cliffside 6 825 MW Units 1,410 MW AR River Power Lamar 18 MW Holcim Cement St. Genevieve Xcel Comanche 3 750 MW Duke Energy Edwardsport 630 MW Black Hills Wygen 2 90 MW EKPC Spurlock 4 278 MW CPS Spruce 2 750 MW Genpower Longview 695 MW E Caruso Goodland EC 26 MW OPPD NC2 660 MW LS Power Plum Point 665 MW Hastings Whelan 2 220 MW Newmont TS Plant 200 MW KCP&L Iatan 2 850 MW Springfield CWLP Dallman 200 MW LS Power Sandy Creek 900 MW 1,370 MW LG&E Trimble County 2 750 MW MidAmerican Walter Scott 4 790 MW Santee Cooper Cross Unit 4 580 MW Tucson Electric Springerville 4 400 MW Prarie State Unit 1 800 MW 400 MW TXU Sandow 5 569 MW Tucson Electric Springerville 3 400 MW WPSC Weston 4 500 MW WE Energies Oak Creek 2 615 MW Prarie State Unit 2 800 MW Santee Cooper Cross Unit 3 580 MW 2006 2007 2008 2009 2010 2011+ Source: Public filings; Peabody analysis.

19. Future of Natural Gas- MIT Findings- 2011 • Abundant natural gas supply exists, at low cost • Role of natural gas likely to expand worldwide • Cost-effective bridge to low-carbon future • Increased utilization of existing natural gas power plants gives some emissions offset potential • Past R&D has advanced natural gas supply www.sseb.org

20. Future of Natural Gas- UncertaintiesMIT Study -2011 • Extent and nature of GHG mitigation measures adopted in US • Technology mix in a carbon-constrained world • Ultimate size and production cost of natural gas resource base • Environmental acceptability of production methods of shale gas plays • Evolution of international natural gas markets www.sseb.org

21. Natural Gas Future- Recommendations from MIT Study • Need additional R&D on unconventional natural gas development including reduction in water use for fracking • Consider displacement of coal with gas generation • Integrate reliability and efficiency of natural gas with renewable energy expansion • Organize industry & government partnerships to minimize environmental impacts of shale gas development • Develop CO2 emissions reduction policy to create level playing field • Support unconventional gas development outside US to diversify natural gas supply base www.sseb.org

22. American Petroleum Institute “State of American Energy” Jan 2012 • Oil and Gas Industries need • Increased access to oil and natural gas reserves • Ensured common sense regulations • Improved/ accelerated leading and permitting processes • Increased pipeline infrastructure for Canadian oil sands • Avoided punitive measures • Oil and Gas Industries- Creating jobs • Marcellus shale development: PA- 76,000 jobs; NY- 20,000; WV- 17,000 by 2015 • Developing Canadian oil sands & creating sufficient pipeline capacity could create 500,000 jobs by 2035 • Additional 1.4 million jobs by 2030 above current 9.2 million jobs • Stimulating the Economy • Industry pays $86 million/day ($31 Billion/year) in taxes, rents, royalties • Support $1.1 Trillion in US economic activity in 2009 (7.7% US GDP) • Could provide additional $800 Billion in government revenue through 2030 • Secure Future Energy – national security and economic security • Investments over $2 Trillion in capital projects since 2000 • Additional offshore and onshore reserves could increase production by 76% www.sseb.org

23. Challenges and Opportunities: “Future of the Electric Grid” 2012 - 2030MIT Dec 2011 • Incorporating more renewable power into grid • Intermittent resources • Renewable resources remotely located from load centers • Electric Vehicles and increased variability in demand • Load shapes less base-load, reducing use of generating assets • High penetration of distributed generation modifies design/ operation of the distribution system • Aging workforce • 45% of US electric utility engineers leave in next 5 years • 40-50% of power industry technical jobs will leave (lineworkers, pipefitters, operators, others) • Technologies for reliability and efficiency • Smart grid effective on bulk transmission system • Upgrades to distribution system (advanced metering, e.g.) requires investment and regulatory changes • Cyber Security and Privacy www.sseb.org

24. Energy Issues at the Federal Level • Cross State Air Pollution Rule (CSAPR) • Court of Appeals for DC Circuit granted stay of CSAPR pending court review • Continue administering Clean Air Interstate Rule (CAIR) until complete • Final decision expected summer/ fall 2012 • Manchin-Coats Bill • Extend compliance deadline for (CSAPR) by three years and Utility MACT rule by two years –both would begin on January 1, 2017 • Fracking review at EPA level • Other EPA regulations affecting operation of coal fleet (unit retirements expected) • GHG Regulations for new and modified power plants – January • Cooling water intake structure standards • Coal Combustion residuals • Ozone updates, currently set for 2013, but could be forced to reconsider earlier www.sseb.org

25. Energy Issues at the Federal Level, continued • Keystone XL pipeline – Permit answer expected by February 21 • Transmission (FERC Order 1000) • Continuation of Production Tax Credit for Renewable Energy? Revive Treasury grants for Renewables development? • Loan guarantee program for all energy resources • Should US be net gas exporter? LNG terminals awaiting usefulness • Renewable Fuel Mandates for 2012 • Nuclear uncertainty/ NRC Approval of Westinghouse AP1000 (Dec. 2011) • Offshore Drilling – Boehner’s American Energy & Infrastructure Jobs Act to link expanded production (drilling offshore & ANWR) / infrastructure improvements • November announcement that next 5 year plan for offshore oil/gas lease (2012-2017) would exclude lease sales in the Mid and South-Atlantic www.sseb.org

26. Energy Issues at the State Level • Fracking regulations and considerations • NY, PA, TX, NC, WV • ND: Bakken Shale Formation producing over 510,000 BPD • CCS Legislation and exploration • EPA pressing Illinois EPA to require CCS for coal gasification project • State Energy Plans • North Carolina Renewable Portfolio Standard • Texas Renewable Goals • 5880 MW by 2015 and 10,000 MW by 2025 • Status: 10,090 MW of wind (of US total of 42,400 MW) • OK Energy Security Act (2010) and OK First Energy Plan (2011) • Target: 15% Renewable energy by 2015 • Focus: Reduce oil imports and improve environment • Integrating Oklahoma renewable resources (wind, biofuels, energy efficiency) into rich traditional energy base (oil and gas) using emerging technologies for development and extraction www.sseb.org

27. State Activity in Fracking Issues • Texas Fracking Legislation • June, 2011 bill requiring disclose of fracking chemicals at: www.fracfocus.org • Sponsor Jim Keefer (R): “…hopeful this will take mystery out of fracking … balance between sustainable business market & ensuring public health and safety • North Carolina • Current bill to open state to fracking was vetoed by Gov. Bev Perdue • Veto could be overridden by House (Senate has already overridden veto) • Depts. of Environment and Natural Resources conducting study - due April 2012 • New Jersey • Measure to ban fracking passed Senate and House; Gov Christie vetoed with 1 year moratorium for review • NJ sits atop Utica Shale, large unexplored formation • New York revising standards for hydraulic fracturing • Proposed rulemaking in process with comment period through Dec. 12, 2011 • “Regulations still lack benefit of full Environmental Impact Study…” (NY AG) • WV bill increases fees for natural gas drilling in Marcellus Shale • Several million dollars in revenue to be used to hire new gas well inspectors • Pennsylvania creating statewide regulations to supersede local gas drilling ordinances www.sseb.org

28. Energy for West Virginia • WV CCS storage site through Midwest Carbon Sequestration Partnership • Largest coal producer east of Mississippi, 10% of US coal • Underground Mines over 1/2 of state production • WV 4th nationwide in interstate sales of electricity • Electricity Rates relatively low • Residential 8.79 cents/kwh (2010) • Commercial 7.66 / Industrial 5.86 c/kwh

29. Total: 6.9 Billion Kwh

31. West Virginia Energy Outlook & Issues • Mountaineer CCS Commercial project • 20 MW product validation facility success • Status: Shelved • Spruce No. 1 Surface Mine- EPA disallowed earlier permit approval • Coal power plant closings in WV – up to 17% of net boilerplate capacity by 2015 • Carbon Capture and Storage Task Force Report • Marcellus Shale: Natural Gas • Coal: Foreign Exports continue, especially met coal to China www.sseb.org

32. Carbon Capture & Storage Activities in West Virginia • SECARB Activities – Storage in coal seams with Enhanced Coalbed Methane Recovery in Loup Creek Field • MRCSP Activities - Regional characterization

33. Carbon Capture and Sequestration Act Working Group (2009) • Working Group charged by Legislature- study issues related to the CO2 sequestration to encourage use of CCS in West Virginia • Final Report: July 1, 2011 www.dep.wv.gov/executive/Documents • Report addressed following issues: • Economic assessment & environmental feasibility of large, long term CCS options • Need for clarification of ownership rights of pore space • Identification of geologic sequestration monitoring sites to assess CCS impacts • Costs, benefits, risks and rewards determination of CCS projects in WV • Assessment of potential CO2 sequestration capacity in the state www.sseb.org

34. SECARB Phase III Early Test Monitoring Well Early Test Injection Well Early Test Analyzing Core AAPG Field Trip (April 2010) Anthropogenic Test Future Site of Monitoring Well Anthropogenic Test Groundbreaking Ceremony for Capture Unit Anthropogenic Test Capture Unit Fabrication

35. Natural Gas Drilling in WV Marcellus Shale • Governor Earl Ray Tomblin signed bill December 14, 2011 after special session of legislature regarding large scale drilling for natural gas in the WV Marcellus Shale • Applies: Horizontally drilled wells disturbing >3 Acres or consuming >210,000 gallons of water/month (NOT: vertical wells and almost 2000 wells with existing or pending permits) • Requires $10,000 initial permit fee, with $5,000 for each additional well on same site • Spacing: • 100’ between wells and other water sources • >250’ from water well • >300’ from natural trout stream • >625’ from occupied houses • >1000’ from public water supply intake • Greater public noticing and comment processes www.sseb.org

36. Marcellus Play www.sseb.org

37. Estimated Job Gains from Shale Gas Development by Basin Source: Center for Energy Policy and the Environment, “The Economic Opportunities of Shale Energy Development,” May 2011.

38. Concluding Thoughts on Fracking • Natural gas resources will play a larger role in US energy supply • Fracking is a key to long term, abundant, relatively stable priced gas supply • Issues of concern • Environmental • Water use • Infrastructure (pipelines, e.g) • Who regulates? EPA little jurisdiction; states have primacy • Intersection of fracking and CCS could become an issue • Public acceptance What is the role of engineers and scientists in this endeavor???

39. West Virginia Alternative & Renewable Energy Portfolio Act of 2009 • Principles • Tradeable Alternative Energy Resource credits • Alternative Energy Resources Research Fund (funded through utility fines) • Net metering for self-generation • Creating jobs through alternative resources • Alternative & Renewable Energy Standards • Minimum of 10% by 2015 and 25% by 2025 • Resources • Advanced Coal Technology, including CCS • Coal Bed Methane and Coal Gas • Renewable Energy Resources (solar, wind, hydro, biomass, fuel cells, other) • IGCC • Waste Coal • Tire Derived Fuel • Pumped Storage Hydro • Alternatives defined by PSC

40. Energy Opportunities in West Virginia • Advanced Coal Technology • TransGas Development Systems LLC – Mingo County $3 billion CTL plant • CONSOL McElroy Mine Project – Marshall County • GenPower Longview WV 695 MW advanced coal plant (2011) • Fossil Energy Initiatives • Water Resources and Energy – National Research Center for Coal and Energy at WVU • WV Energy Blueprint • Industrial Energy Efficiency • Industrial Assessment Center Audits • Student intern programs at WVU & WVU Tech • Governor’s Energy Award for Industrial Energy Efficiency • Steel of West Virginia (2011) Quad/Graphics Inc (2010) • Wind Projects • 528 MW in operation • 55 MW under construction (Pinnacle Wind Farm)

41. AES Wind Generation and Energy Storage in West Virginia • AES Laurel Mountain facility began commercial operation • 98 MW wind facility • 32 MW integrated battery storage (giant banks of small batteries) • “Largest project of its kind”- output is a regulated power supply • 61 Wind turbines on 80-meter towers along 13 mile stretch of Laurel Mountain near Elkins, WV • Power supplied into the PJM interconnection • “Energy storage technology is the silver bullet that helps resolve the variability in power demand,” Terry Boston, PJM’s president and CEO. “Combining wind and solar with storage provides the greatest benefit to grid operations and has the potential to achieve the greatest economic value.”

42. A Path Forward for Indigenous West Virginia Energy Resources • Promote R&D for clean coal & sequestration • Promote Advanced Technologies • Support unconventional gas development through Marcellus Shale legislation and ongoing activity • Consider transmission projects for economic transfers and for regulatory requirements (e.g. TrailCo line) • Continue support for West Virginia Wind Working Group • Continue to support the Reuse of Surface Mined Land • Promote indigenous liquid transportation fuels (coal, biomass, oil shale) with carbon sequestration to eliminate dependence on imported oil (e.g. TransGas plant) • Fund university and community college programs in workforce training related to electric utility and energy industry • Support modernized infrastructure (pipelines, expanded refineries, transmission, roads, bridges) • Promote Alternative Resources including renewable resources • Promote Energy Efficiency in existing energy infrastructure and in end-use, including advanced net metering and advanced interconnection standards

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44. Presented by: Kenneth J. Nemeth Southern States Energy Board 6325 Amherst Court Norcross, Georgia 30092 770-242-7712 nemeth@sseb.org www.sseb.org