Electricity Technology in a Carbon-Constrained Future

1. Electricity Technology in a Carbon-Constrained Future NARUC 2007 Summer Committee Meetings New York City, New YorkJuly 16, 2007 Steven SpeckerPresident and CEO

2. Presentation Objective Answer the following two questions: • What is the technical feasibility of slowing, stopping, and reversing the increase of CO2 emissions from the U.S. electric sector? • What is the potential impact of the availability of advanced electricity technologies on the cost of electricity in a carbon-constrained future?

3. U.S. Electricity Generation Forecast* ~40% Growth 2005 2030 3826 TWh 5406 TWh * Base case from EIA “Annual Energy Outlook 2007”

4. Forecasted U.S. Electricity Sector CO2 Emissions • Base case from EIA “Annual Energy Outlook 2007” • includes some efficiency, new renewables, new nuclear • assumes no CO2 capture or storage due to high costs

5. EPRI CO2 “Prism” Achieving all targets is very aggressive, but potentially feasible EIA Base Case 2007

6. Presentation Objective Answer the following two questions: • What is the technical feasibility of slowing, stopping, and reversing the increase of CO2 emissions from the U.S. electric sector? • What is the potential impact of the availability of advanced electricity technologies on the cost of electricity in a carbon-constrained future?

7. Economic Model EPRI Economic Analysis Model (MERGE) • Designed to examine economy-wide impacts of climate policy • Each country or group of countries maximizes its own welfare • Prices of each GHG determined internally within model • Top down model of economic growth • Technological detail in energy sector One of three models used by U.S. Climate Change Science Program and in many other international and domestic studies.

8. Assumed Economy-wide CO2 Constraint Prism profile closely approximated by an economy-wide CO2 emission constraint which is flat from 2010 to 2020 followed by a reduction of 3%/year Prism electric sector CO2 emission profile

9. Full Portfolio Case Assumes all technologies from the Prism technology feasibility analysis are available to be deployed by the target dates Limited Portfolio Case Assumes that Coal w/CCS and Nuclear ALWRs are not available for deployment Technology Cases Modeled Two Technology Cases Using Economy-wide CO2 Constraint which results in the Prism profile for the electric sector

10. 7 7 Demand Reduction(price-induced) 6 6 Solar 5 5 Wind Trillion kWh per year Hydro Trillion kWh per year 4 4 Nuclear 3 3 Gas w/CCS Gas 2 2 Oil Coal w/CCS 1 1 Coal 0 0 2000 2010 2020 2030 2040 2050 2000 2010 2020 2030 2040 2050 Economic Modeling Results (Prism CO2 Profile) Limited Portfolio (no CCS or ALWR’s) Full Portfolio (with CCS and ALWR’s)

11. 7 7 Demand Reduction(price-induced) 6 6 Solar 5 5 Wind Trillion kWh per year Hydro Trillion kWh per year 4 4 Nuclear 3 3 Gas w/CCS Gas 2 2 Oil Coal w/CCS 1 1 Coal 0 0 2000 2010 2020 2030 2040 2050 2000 2010 2020 2030 2040 2050 Economic Modeling Results (Prism CO2 Profile) Limited Portfolio (no CCS or ALWR’s) Full Portfolio (with CCS and ALWR’s) $65 to $100/MWh* $160 to $250/MWh* *2050 wholesale generation cost 2007 $

12. Conclusions • It is technically feasible to slow, stop, and eventually reduce the increase of CO2 emissions from the U.S. electric sector. But it requires: • Commitment to aggressive public and private sector RD&D. • Accelerated commercial deployment of advanced technologies. • Meeting future CO2 constraints will increase the cost of electricity. The magnitude of the increase depends on: • CO2 policy and it’s timing. • The availability of advanced electricity technologies and the timing of their commercial deployment. Technology is critical to managing the cost of CO2 policy

13. Global cost curve of GHG abatement opportunities beyond business as usual • 2030 • AvoiddeforestationAsia • CCS; • early retirement • Coal-to-gas shift • Industrial feedstock substitution • Cost of abatement • EUR/tCO2e • CCS; coal retrofit • Soil • Forestation • Waste • Livestock/soils • Wind;lowpen. • CCS EOR;New coal • 40 • Smart transit • Solar • 30 • Small hydro • Forestation • Nuclear • Industrial non-CO2 • 20 • Airplane efficiency • 10 • Stand-by losses • 0 • 0 • 1 • 2 • 3 • 4 • 5 • 6 • 7 • 8 • 9 • 10 • 11 • 12 • 13 • 14 • 15 • 16 • 17 • 18 • 19 • 20 • 21 • 22 • 23 • 24 • 25 • 26 • 27 • -10 • Avoided deforestation America • -20 • Industrial CCS • Celluloseethanol • Industrialnon-CO2 • -30 • Co-firingbiomass • CCS;new coal • Sugarcanebiofuel • AbatementGtCO2e/year • -40 • -50 • Industrial motorsystems • Fuel efficient vehicles • -60 • Water heating • -70 • -80 • Air Conditioning • -90 • Lighting systems • -100 • ~27 Gton of abatement below 40 EUR/ton (relative to 58 Gton under BAU) • ~7 Gton of negative and zero cost opportunities • Fragmentation of opportunities across sectors and geographies • -110 • Fuel efficient commercial vehicles • -120 • -130 • -140 • Insulation improvements • -150 • -160

14. Minimizing Costs for Consumers Under a Global Warming Pollution Cap Dale S. Bryk Natural Resources Defense Council NARUC Summer Conference July 16, 2007

16. Driving Investment in Least Cost Solutions • Price signal of cap or tax (does not overcome market barriers) • Allowance revenue • Essential complementary policies • Energy efficiency procurement standards • Remove utility disincentives (revenue decoupling) • System benefit charge programs • Codes and standards

17. Allowance Distribution Objectives • Protect consumers • Reduce overall program costs • Advance program goals/ promote clean energy • Avoid windfall profits • Avoid perverse incentives • Transition assistance for workers

18. ElizabethA. Moler, Executive V.P. Exelon, Corp.