McCloskey’s Petcoke Conference July 19-20, 2004

1. WHY ARE UTILITIES AFRAID OF PETCOKE? McCloskey’s Petcoke Conference July 19-20, 2004 John Hanou, Vice President Hill & Associates, Inc.

2. DISCUSSION TOPICS • Hill & Associates, Inc. • Petcoke Basics • Technical Issues • Political / Legal Concerns • Other Concerns • Conclusions

3. Who or What is Hill & Associates, Inc.? • Management Consultants • Energy Issues - Forecasts • Coal Supply/Demand/Price • Electricity Supply/Demand/Price • Energy Publishing Affiliate • Petcoke Newsletter

4. Petcoke Basics • Increased use of heavier grades of crude, coupled with technological advances in oil refining processes, has led to increased supplies of petroleum coke. • Its high heat and low ash content and relatively low cost make it attractive fuel for power generation but… • It is high in sulfur and high in heavy metals and, has a low volatile matter content, which pose some technical and environmental challenges.

5. Petcoke Basics (Continued) • World production is 65+ mmt and growing • U.S. consumption is about 9 mmt • USA is the biggest producer of petcoke • Venezuela is second • Japan is the largest consumer • Cement industry has used it for years

6. Petcoke Basics (Continued) • Can be used as a primary or secondary fuel in a new grassroots plant or for co-firing in an existing coal-fired power plant. • Four power generation technologies that can use petroleum coke as a combustion fuel are: • Pulverized coal (PC) boiler • Circulating fluidized bed (CFB) boiler • Pressurized fluidized bed combustion (PFBC) • Coke gasification combined cycle (CGCC)

7. Technical Issues • Contains high levels of heavy metals (Va, Ni), thus there are environmental concerns regarding fugitive dust. • Link between elevated levels of coke dust in the air and respiratory illness. • Arrangements for transferring and storage must be considered.

8. Technical Issues (Continued) • The measured hardness can be higher than coal • Mills may require additional grinding capacity when used in an existing pulverized coal (PC) plant. • Blending must be consistent. • Can be capital intensive.

9. Technical Issues (Continued) • Low volatile content • Poor ignition and burnout characteristics in PCs. • Unburned carbon content in the fly ash. • Hurts plant efficiency • May require fly-ash recycle • May lose ash customers as a result • Higher levels of excess air required.

10. Technical Issues (Continued) • Low volatile content (Continued) • May require co-firing with gas, oil or coal (20% blend common in coal plants). • To ensure stable flame and preclude ignition problems. • Higher Blending Costs • If pre-blended – higher transport and handling • Capital to be added. • Room for second stockpile? • Covered storage may not be possible.

11. Technical Issues (Continued) • High vanadium levels in the ash and the high sulfur levels in the fuel result in high SO3 levels. • Sulfuric acid corrodes walls lining stacks. • “Blue haze” problem. • Opacity issues…can give false readings on opacity.

12. Technical Issues (Continued) • Because of higher sulfur levels, petcoke is generally fired only in plants containing FGD scrubbers or plants with circulating fluidized bed boilers. • While capable of removing +95% of SO2, only 20% of SO3 is scrubbed by FGDs. • SO3 increases the flue gas dew point. • Air heater exit gas temperatures must be kept above the dew point, thus higher sulfur content adversely affects the boiler efficiency. • May require a wet precipitator in addition to a dry electrostatic precipitator (ESP) and wet FGD.

13. Technical Issues (Continued) • NOx emissions are higher than coal • Impact of petcoke on SCR catalyst life unknown • Important during OTAG season (May-Sept.) Can plants comply? No history yet. • More difficult to handle than coal. • It doesn’t stack well. • Can roll like BBs.

14. Political / Legal Concerns • Approval must be given and permits must be secured from the various state air quality boards. • This can be a time-intensive process. • Internal politics • Power plant managers resistance to change • Fuel costs can be passed through…not higher operating costs!! • Why disrupt a smooth operation?

15. Political / Legal Concerns (Continued) • “Not in my backyard “ • Must respond to community concerns by local community and environmental groups….even coal groups! • Bills have been passed to force enclosures • May require petcoke piles and vehicles used to transport the coke to be fully enclosed. • Install covered, telescoping loading chutes and conveyors; • Construct containment structures for truck and rail car unloading operations; • Clean up adjacent roadways; pave onsite roads to enable easy cleanup of spilled materials; and • Use wind screens to reduce blowing dust and water sprayers to clean trucks.

16. Political / Legal Concerns (Continued) • Coal-producing states may not support use of petcoke that displaces coal • KY waste law (HB 159) pushed by WKY producers created a "special" exemption from the definition of "special wastes" to mandate to treat utility waste from combustion of petcoke as a solid waste rather than a "special waste." • Testimony suggested that petcoke generates much less ash, and leaches lower levels of all hazardous metals than coal, (with higher levels of vanadium and nickel), and reflected that the intent of the bill was actually to raise the waste management costs of petcoke use in order to give cost advantage to western Kentucky coal. The bill did not pass the Senate.

17. Other Concerns • Transportation • Most easily delivered to barge-served plants or those located close to refineries. • Hard to get unit train rates – single car rates in effect. • Railroads resistance to single cars. • Covered trucks may be necessary.

18. Other Concerns (Continued) • Supply concerns • Petroleum coke will be produced regardless of its market price. • Venezuela strike disrupted supply in 2003. • Large swings in availability due to inconsistent international demand.

19. Other Concerns (Continued) • Price Volatility • Price not indexed to crude oil prices. • Price normally below price of high sulfur coal because of its poorer environmental characteristics. • Big variation in price depending on coal price (foreign) and the produced amount of petcoke.

21. CONCLUSIONS • LOW PRICE IS ATTRACTIVE • ISSUES EXIST BUT ARE NOT INSURMOUNTABLE • PETCOKE USE WILL EXPAND IN US