Michael Bradley, Director Jackie Carney, Legislative Director The Clean Energy Group December 2008

1. Background material related to Tom King’s, (President, National Grid), presentation at Dec. 5, 2008 MA Energy Roundtable. The Clean Energy Group’s Clean Air Policy Initiative Michael Bradley, Director Jackie Carney, Legislative Director The Clean Energy Group December 2008

2. History of the Clean Energy Group • Founded in 1997, The Clean Energy Group (CEG) is a coalition of electricity generation and distribution companies that share a commitment to responsible environmental stewardship. The companies focus on state and federal air quality and climate change policy. By working cooperatively with the environmental community, government, and other stakeholders, the Group seeks to promote the adoption of progressive environmental policies that are sustainable from both an environmental and an economic perspective. • Since 2000, a subset of the group, what we call the Clean Air Policy Initiative (CAPI), has advocated the regulation of greenhouse gas emissions and other key pollutants from the electric power sector. • The current CAPI membership includes: Avista, Calpine, Constellation Energy, Entergy, Exelon, National Grid, FPL, PSEG, PG&E Corporation, and Seattle City Light. • Our members comprise some of the largest regulated electric and natural gas utilities in the United States serving more than 60 million residential and business customers. Together, the Clean Energy Group members represent a fifth of all U.S investor-owned generation capacity and produce almost a quarter of all U.S. investor-owned electricity while emitting less than a tenth of the associated greenhouse gases. They include the nation’s largest nuclear energy producer, the largest wind energy producer, the largest solar energy producer, the largest geothermal producer, the largest wholesale power seller, the largest competitive supplier of electricity to large commercial and industrial customers, and the first electric utility to achieve greenhouse gas neutrality. Their combined operations extend to all 50 states. • M.J. Bradley & Associates is a technical resource for the organization, coordinating the day-to-day activities of the group and evaluating legislative proposals to regulate greenhouse gas emissions.

3. Participants in the Clean Energy Group’s Legislative Initiative: The Clean Air Policy Initiative

4. CAPI Company Operations Power Generation Electric or Natural Gas Service • Our members: • Serve electricity to more than 57 million people (20% of U.S. population); • Deliver natural gas to more than 8.3 million gas customers, including homes and businesses; • Have nearly 170,000 megawatts of generating capacity throughout the U.S. (over 20% of total generation of top 100 U.S. investor-owned generators) • Produce almost a quarter of all U.S. electricity (investor owned) while emitting less than 10 percent of the associated greenhouse gases Sampling of Clean Energy Group company facilities from around the U.S.

5. CEG Legislative Principles • We support a single, national cap-and-trade program that includes aggressive reduction targets and compliance timelines that create the right incentives to drive innovative compliance solutions. • Reduction targets and compliance timelines should challenge the electric power sector to find innovative compliance solutions and continually improve performance. • Federal legislation should include a framework for the distribution of emission allowances. • We support a robust auction of emissions allowances. • We support an equitable distribution of allowances that recognizes the value of low- and non-emitting forms of generation, while creating incentives for efficiency improvements and technology innovation. • We support the adoption of cost control measures that do not compromise an effective market, including a comprehensive greenhouse gas offset trading program and provisions to guard against extreme volatility and excessively high prices to minimize the economic costs of the program, while maximizing the reductions achieved. • Federal policies should provide increased funding and support for research and development and deployment of advanced energy technologies and energy efficiency. • We support the establishment of a transparent and liquid federal carbon trading market. A properly functioning trading system, with a clear price signal, is critical for a smooth transition to a lower carbon economy. Federal legislation should include policies that will encourage the integration of domestic greenhouse gas trading markets—as well as international trading markets—into a single U.S. trading system.

6. CEG Allowance Allocation Principles • Climate change legislation must dedicate a significant share of allowances to a federal auction and for consumer benefit. • If allowances are distributed for free to local distribution companies (LDCs), LDCs should serve as an important tool to protect consumers from the energy-cost impacts related to a national cap-and-trade program. • To the extent Congress allocates any allowances to electric generators or merchant facilities, allowances should be allocated to all fossil units on an updating, output basis. • We support an allocation methodology based on electric output or sales because it: • drives investment in, and encourages the development and deployment of, the advanced technologies necessary to transition to a low-carbon economy, and • protects customers that have already paid for clean generation and energy efficiency. • Allocating emission allowances based on historic emissions is not the right allocation approach for any allocation to the electric sector. • An allocation methodology should not reward the actions that are contributing to the problem of climate change. • An allocation methodology for LDCs based on historic emissions is difficult, if not impossible, to fairly administer given the complexity of tracking electrons to their generation source. All of electricity generated by a company may not be consumed by that company's customers. By contrast, LDCs already report their annual sales to federal regulators.

7. CEG Allowance Allocation Principles • The distribution of allowances to LDCs must be transparent, and LDCs must be required to sell 100 percent of the allowances at fair market value within one year of receipt and direct that revenue toward: • mitigating consumers’ rate impacts; • funding energy efficiency programs; • supporting the deployment of low-carbon technologies. • The allocation to LDCs should be adjusted upward for electricity not delivered as a result of consumer energy-efficiency programs implemented by the LDC and verified by the regulatory agency of the LDC.

8. A Historic Emissions Based Allocation Creates Inequitable Results • A historic emission allocation creates inequitable results and conflicts with the goals of transitioning to a low-carbon economy • Customers served by utilities with lower average emissions would receive fewer allowances and less cost mitigation than customers with higher average emissions • Customers with lower average emissions also generally pay the highest average electricity rates. An emissions based allocation widens this gap. • Distributing allowances based on emissions rewards higher emitting utilities for the emissions that have contributed the most to climate change and discourages them from pursuing energy efficiency programs and clean energy technologies. • The impacts of climate change may impact electricity customers in ways that do not necessarily correspond with their historic emissions. For example, a utility with significant hydroelectric resources may face higher costs in the future because of reduced snowpack. CEG members support an allocation methodology based on electricity output or MWh sales.

9. 0.6 0.2 0.4 0.8 1.0 ton 0.5 0.7 8 4 6 11 21 cents 7 10 Consumers of Low-Emitting Electricity Pay the Highest Rates Emission rates (tons per MWh) of electricity sold in states An allocation methodology should not reward the actions that are contributing to the problem of climate change. Customers with lower average emissions generally pay the highest average electricity rates. An emissions based allocation may widen the gap between rates paid by consumers of low- and high-emitting electricity. Average electricity rates (cents/KWh)

10. Contacts Michael Bradley, Director mbradley@mjbradley.com Jackie Carney, Legislative Director jackie@thecleanenergygroup.com