Resetting Environmental Goals: New Source Review and Clear Skies

1. Resetting Environmental Goals: New Source Reviewand Clear Skies * A New Multi-Client Study Prepared by Global Insight (USA), Inc. 2003

2. The Cost of Compliance As President Bush pushes his Clear Skies environmental agenda, the Congressional debate continues to heat up. New lower emission standards for some major pollutants, an overall change in the timing of reductions, and the possible inclusion of new CO2 targets have all been proposed. Businesses and power producers will be forced to comply with potential new regulations, but at what cost?

3. An Uncertain Future The political debate will determine emissions limits and the future regulatory environment… • The administration favors Clear Skies • Environmentalists favor stricter standards and quicker implementation • Others favor compromise legislation …and the impact across the power, natural gas, and coal value chains

4. In the Meantime… Right now, the EPA is making decisions regarding a host of regulations, covering everything from mercury to PM2.5 and ozone. Some of these policies may go into effect before the debate on Clear Skies is resolved. The resulting regulations will have a profound impact on electricity, natural gas, and coal markets, regardless of Congress’ actions.

5. A New Study from Global Insight Resetting Environmental Goals:New Source Reviewand Clear Skies * * * * * A new study from Global Insight will explore the regulatory alternatives with a clear vision of the issues, a deep understanding of the energy industry, and a comprehensive scenario-based approach.

6. Resetting Environmental Goals will… • Provide a complete review of all major and proposed regulatory legislation • Summarize the technological options available to comply with regulations • Assess the impacts of proposed legislation on power, natural gas, and coal markets based on three different scenarios: • Timing and technology mix • Emission credits and prices • Supply and demand • Provide a unit-by-unit baseline of installed pollution abatement equipment

7. Global Insight Scenarios The Status Quo • The implementation of the Clean Air Act and its amendments continues • NSR debate remains unresolved, leading to continued uncertainty in energy markets The Bush Administration Triumphs • Clear Skies passes, calling for deeper cuts in allowed emissions relative to the status quo, but spread over a longer period of time • NSR regulations are clarified to encourage investment in existing capacity

8. Scenario Analysis (Continued) Green Prevails • Legislation passes calling for a greater reduction in emissions relative to the status quo, but over a shorter time period • NSR regulations are clarified to encourage investment in new capacity at the expense of older facilities

9. Who Should Participate? Energy Businesses • Anticipate impact of changes in emissions requirements and assess compliance needs • Plan capacity needs and feasibility of new capital investment for plants • Assess competitive position relative to other players Government Agencies • Evaluate economic impact of regulations • Prioritize budget allocations to most effectively meet environmental objectives Financial Institutions • Determine impact of regulations on energy markets • Identify investment/lending risks and opportunities

10. Study Outline Executive Summary What Is Driving Environmental Policy? • On-going federal-state-regional emissions regulations • Potential for Clear Skies and competing proposals to alter emission standardsand timing of implementation • New Source Review Possible Outcomes • The status quo • The Bush administration’s proposals • Reducing emissions sooner, tightening enforcement

11. Study Outline (Continued) U.S. Capacity Profile for all U.S. Generating Units • Technology, fuel type, and backup fuel capability • Installed pollution abatement equipment (PABE) • Planned PABE investments Technology Review • Current generating, PABE, and developing technologies Scenario Impacts on Selected Markets • Power, natural gas, coal • Emission allowances Conclusions

12. Study Deliverables • Interim multi-media conference call presenting scenarios for participant discussion and comment • Comprehensive report detailing final analysis and scenario results • CD ROM containing complete study dataset • Optional on-site presentation of results

13. Timing and Prices The Study will be delivered in October 2003 • Subscribers will be invited to join a conference to provide input to the scenarios (late August) Study participation • Subscribers by September 15 $20,0001 • Subscribers after September 15 $25,0001 Optional on-site presentation $5,0002 1$4,000 discount for full U.S. Energy Service subscribers 2Requires study subscription

14. Project Team Leaders Mary Novak – Managing Director, Global Insight, Energy Services In her 20-year tenure with Global Insight and its predecessor companies, Ms. Novak has held a variety of positions with the Energy Group. Ms. Novak joined the company as a senior economist with responsibility for natural gas analysis. Subsequently, Ms. Novak held the position of Director of the U.S. Energy Service. As a principal, Ms. Novak directed the company's analysis in the environmental area, coordinating the many services and models used in this emerging discipline. John Dean – President of JD Energy, Inc. Mr. Dean has 25 years experience in coal, coal transportation, and power analysis. He has conducted site-specific coal price forecasts for over 100 utility and industrial companies and written extensively on coal contracting issues. Mr. Dean has also directed policy analyses on such issues as environmental legislation, acid rain, coal market shifts, and the impact of tax changes on the coal industry.

15. Project Team Leaders (Continued) Bill Ellison – Director of Ellison Consultants Since 1966, Mr. Ellison has specialized in stack gas cleaning including NOx abatement, flue gas desulfurization, and management of resulting liquid and solid by-products. He is currently in the forefront of technical development activities for commercializing optimum means of achieving NOx emission reduction in existing FGD facilities. Kemm Farney –Principal, Global Insight, Electric Power Service Dr. Farney has 25 years experience as a practicing economist working in regulated and recently deregulated industries. Previously serving as Chief Economist at a large mid-western utility, Dr. Farney’s areas of expertise include econometric and statistical analysis, cost/benefit and feasibility analysis, strategic planning, and competitive benchmarking. Jim Osten –Principal, Global Insight, Natural Gas Service With 20 years of experience, Mr. Osten is Global Insight’s natural gas industry expert, publishing numerous studies on the overall market, gas prices, the valuation of assets, and infrastructure expansion.