TwentyTwenty--Third Annual InternationalThird Annual InternationalPittsburgh Coal ConferencePittsburgh Coal Conference

COALCOAL-- Energy, Environment and Energy, Environment and Sustainable DevelopmentSustainable Development

Hosted byHosted byUniversity of PittsburghUniversity of PittsburghSchool of Engineering School of Engineering

Kim WissmanKim WissmanPublic Utilities Commission of OhioPublic Utilities Commission of Ohio

THE ENERGY FOOD CHAIN

Explore...Extract...Transport…Generate...

…Transmit…Distribute...Consume.......

ENVIRONMENTENVIRONMENT

““AA lie gets half way around the lie gets half way around the world before the truth has a world before the truth has a chance to put its pants onchance to put its pants on..””

-- Winston ChurchillWinston Churchill

EXPLORATIONEXPLORATION

Access RoadsAccess Roads

LayLay--down Areasdown Areas

Waste DisposalWaste Disposal

EXTRACTIONEXTRACTION

Deep Mine SubsidenceDeep Mine Subsidence

Mountain Top RemovalMountain Top Removal

Surface Mine ReclamationSurface Mine Reclamation

Acid Mine DrainageAcid Mine Drainage

PROCESSINGPROCESSING

Slurry PondsSlurry Ponds

Gob PilesGob Piles

Acid Mine DrainageAcid Mine Drainage

Surface Water ContaminationSurface Water Contamination

SHIPPINGSHIPPING

Fugitive DustFugitive Dust

DieselDiesel

TruckTruck

RailroadRailroad

BargeBarge

ENERGY PRODUCTIONENERGY PRODUCTION

SoxSox

NOxNOx

PMPM

CO2 [?]CO2 [?] “The devil with the food chain.

I like mercury.”

DISPOSALDISPOSAL

FGD FGD WallboardWallboardSludge pondSludge pond

PM (flyPM (fly--ash or bottomash or bottom--ash)ash)CementCementSludge pondSludge pond

CO2CO2An issue with an AnswerAn issue with an Answer

Capture and StorageCapture and StorageTerrestrialTerrestrialGeologicalGeologicalOceanOcean

ENERGY DELIVERYENERGY DELIVERY

TRANSMISSION TRANSMISSION Environmental SITING Environmental SITING CONSIDERATIONSCONSIDERATIONS

The probable environmental impact The probable environmental impact of the proposed facility;of the proposed facility;Whether the facility represents the Whether the facility represents the minimum adverse environmental minimum adverse environmental impact considering the technology impact considering the technology that is available and the nature and that is available and the nature and economics of the various economics of the various alternatives;alternatives;

The facility will comply with all air and The facility will comply with all air and water pollution control and solid waste water pollution control and solid waste disposal laws and regulationsdisposal laws and regulationsThe facility will serve the public interest, The facility will serve the public interest, convenience and necessity;convenience and necessity;The facilityThe facility’’s impact on agricultural lands; s impact on agricultural lands; andandThe facility incorporates maximum feasible The facility incorporates maximum feasible water conservation practices.water conservation practices.

DISTRIBUTIONDISTRIBUTION

Rate and Tariff IssuesRate and Tariff Issues

Cost Recovery Cost Recovery –– Environmental Environmental ControlsControls

Fuel Mix Reporting RequirementsFuel Mix Reporting Requirements

ENVIRONMENTAL DISCLOSUREENVIRONMENTAL DISCLOSURE

AEP (East) 2006 Projected Generation Mix

89%

10% 1%

Coal Nuclear Hydropower

FirstEnergy 2006 Projected Generation Mix

69%

24%

6% 1%

Coal Nuclear Unknown Purchased Hydropower

Ohio Electric Industry Capability (2004)

Coal67%

Petroleum3%

Natural Gas15%

Other Gases0%

Dual Fired9%

Other Renewables0%

Nuclear6%

Hydroelectric0%

Coal Petroleum Natural Gas Hydroelectric Nuclear Other Renewables Dual Fired Other Gases

CONSUMPTIONCONSUMPTION

Energy EfficiencyEnergy Efficiency

Energy ConservationEnergy Conservation

Efficient UseEfficient Use

““ When I heated my home with oil, I used an When I heated my home with oil, I used an average of eight hundred gallons a year. I have average of eight hundred gallons a year. I have found that I can keep comfortably warm for an found that I can keep comfortably warm for an entire winter with slightly over half that quantity entire winter with slightly over half that quantity of beer.of beer.””

--Dave BarryDave Barry

THE THE ““NEW KID on the BLOCKNEW KID on the BLOCK””CoalCoal--toto--LiquidsLiquids

Displaces imported oilDisplaces imported oilServing domestic gas useServing domestic gas useProviding clean energy for Providing clean energy for transportation, industry and the transportation, industry and the electricity sectorselectricity sectorsMinimizing traditional effluent Minimizing traditional effluent streamsstreams

““There is only one thing more powerful There is only one thing more powerful that all the armies of the world, that that all the armies of the world, that is an idea whose time has come.is an idea whose time has come.””

-- Victor HugoVictor Hugo

Natural Gas Price VolatilityNatural Gas Price Volatility

1

2

3

4

5

6

7

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003YTD

$/mmBtu

Natural gas

Coal

Average Delivered Fuel Prices to U.S. Electric Generators

Domestic NG Consumption Domestic NG Consumption vs. Productionvs. Production

Projected Increase in Demand Projected Increase in Demand for NG by Sectorfor NG by Sector

Synthetic natural gas (or syngas) is Synthetic natural gas (or syngas) is needed in the chemical industry to reduce needed in the chemical industry to reduce loss of jobs and manufacturing, and loss of jobs and manufacturing, and reduce balance of payments deficit.reduce balance of payments deficit.Industrial gasification programs and Industrial gasification programs and military fuels programs can be drivers to military fuels programs can be drivers to hasten deployment of clean coal hasten deployment of clean coal technologies.technologies.Coal to hydrogen, SNG, liquids, and Coal to hydrogen, SNG, liquids, and chemicals promotes selfchemicals promotes self--sufficiency for sufficiency for energy and economic security. energy and economic security.

While technology is available to produce While technology is available to produce hydrogen, liquids, coal products, the focus of a hydrogen, liquids, coal products, the focus of a fuels program is to make these technologies cost fuels program is to make these technologies cost competitive and deployable. competitive and deployable. Polygeneration will reduce the cost of power Polygeneration will reduce the cost of power plants through valueplants through value--added products.added products.Programs should focus on eliminating barriers to Programs should focus on eliminating barriers to deployment.deployment.Liquids and chemicals will remain part of the Liquids and chemicals will remain part of the national need for energy for the long term, even national need for energy for the long term, even with the availability of hydrogen.with the availability of hydrogen.

VALUE ADDED CHOICESVALUE ADDED CHOICES

Chemicals/Fertilizers

SyntheticNatural

Gas for Fuel

Clean Transportation

Fuels

Clean Electricity

SYNGAS

U. S. Department of DefenseU. S. Department of DefenseEnergy Policy Act 2005, Section 369Energy Policy Act 2005, Section 369

MultiMulti--year contract Authorityyear contract Authority--Subject to applicable Subject to applicable provisions of law, any contract or other agreement for the provisions of law, any contract or other agreement for the procurement of covered fuel under subprocurement of covered fuel under sub--section (b) may be section (b) may be for 1 or more years at the election of the Secretary of for 1 or more years at the election of the Secretary of Defense.Defense.–– Secure and reliable sources of energy Secure and reliable sources of energy

Dependent on foreign oilDependent on foreign oilBecoming dependent on foreign refined fuels Becoming dependent on foreign refined fuels

–– Supply chain vulnerabilitySupply chain vulnerabilityDependent on mega refineries Dependent on mega refineries Terrorist threats or natural disastersTerrorist threats or natural disasters

–– Need for cleaner fuelsNeed for cleaner fuelsDoDDoD exempt from some EPA regulationsexempt from some EPA regulations

–– Need for Better FuelsNeed for Better FuelsThermal Stability, Fuel Cells, Advanced EnginesThermal Stability, Fuel Cells, Advanced Engines

–– Need for Fewer FuelsNeed for Fewer Fuels77--9 Fuels presently in AOR9 Fuels presently in AOR

–– Potential limits on deploymentsPotential limits on deploymentsPossible Conflict with EU rulesPossible Conflict with EU rules

Public and private leadership, Public and private leadership, consumer and citizen involvement, consumer and citizen involvement, engagement of the research engagement of the research community, and international community, and international cooperation will also be key to such a cooperation will also be key to such a transition.transition.Most importantly, it critical to start Most importantly, it critical to start now on all fronts now on all fronts –– policy and policy and education, and research, education, and research, demonstration, and deployment demonstration, and deployment –– to to spur the investment necessary to spur the investment necessary to provide for this future.provide for this future.

ABUNDANT NATURAL ABUNDANT NATURAL RESOURCERESOURCE

Abundant supplies Abundant supplies ---- ample reserves for ample reserves for years to comeyears to comeSecure Secure ---- provides energy security and provides energy security and independence in domestic suppliesindependence in domestic suppliesSafe Safe ---- Coal is safe to transport, store and Coal is safe to transport, store and useuseClean Clean ---- existing technologies allow clean existing technologies allow clean use of coaluse of coalCostCost--effective effective ---- coal is the lowcoal is the low--cost fuel cost fuel source for most of the affordable energy source for most of the affordable energy consumption in the country. consumption in the country.

Proposed Coal PlantsProposed Coal Plants

129 Plants129 Plants77 77 GegawattsGegawatts$104 Billion$104 Billion

What the Future HoldsWhat the Future HoldsCoal can help meet current and future needs of Coal can help meet current and future needs of increased energy consumption with growing increased energy consumption with growing population and standard of livingpopulation and standard of livingCoal can help meet the need for cleaner Coal can help meet the need for cleaner transportation fuels.transportation fuels.Coal can displace industrial gas usage to afford Coal can displace industrial gas usage to afford more efficient and effective gas consumption for more efficient and effective gas consumption for domestic usage.domestic usage.It is getting cleaner all the time, continuing to It is getting cleaner all the time, continuing to respond to environmental issuesrespond to environmental issuesCompetitive benefits accrue on a global basisCompetitive benefits accrue on a global basisIt is the single best answer for the environment, It is the single best answer for the environment, healthy affordable living conditions and a robust healthy affordable living conditions and a robust economy.economy.

Deployment Obstacles Deployment Obstacles

EconomicsEconomics

Technology RisksTechnology Risks

Declining CreditDeclining Credit

Environmental SkepticismEnvironmental Skepticism

Transitioning to this future will require concerted Transitioning to this future will require concerted efforts in four interefforts in four inter--dependent areasdependent areasDeveloping public/private partnerships to fund Developing public/private partnerships to fund technology deploymenttechnology deploymentCreating tax and other incentives to encourage Creating tax and other incentives to encourage investment in needed infrastructureinvestment in needed infrastructureDesigning a technology rollout strategy for Designing a technology rollout strategy for deploymentdeploymentManaging an institutional transition to address Managing an institutional transition to address public policy, regulatory, and environmental public policy, regulatory, and environmental ecological issuesecological issues

Energy Policy Act of 2005 - SEC. 1307Credit for Investment in Clean Coal Facilities

$30 $30 GasificationGasification

$22.20 $22.20 IGCCIGCC

$5.472 $5.472 NonNon--IGCCIGCC

$27.689 $27.689 Advanced CoalAdvanced Coal

TOTAL VALUE BY MAJOR AREA ($B)TOTAL VALUE BY MAJOR AREA ($B)

$267 $267 22LigniteLignite

$652 $652 66SubbituminousSubbituminous

$971 $971 1010BituminousBituminous

Tax Credits ($M)Tax Credits ($M)Number of ProjectsNumber of ProjectsOperating OnOperating On

TOTAL TAX CREDIT REQUEST FOR IGCC PROGECTSTOTAL TAX CREDIT REQUEST FOR IGCC PROGECTS

$458 $458 44CoalCoal--Based GenerationBased Generation

Tax Credits ($M)Tax Credits ($M)Number of ProjectsNumber of ProjectsOperating OnOperating On

TOTAL TAX CREDIT REQUEST FOR NONTOTAL TAX CREDIT REQUEST FOR NON--IGCC PROGECTSIGCC PROGECTS

$2.70 $2.70 2727GasificationGasification

Tax Credits ($B)Tax Credits ($B)Number of ProjectsNumber of ProjectsOperating OnOperating On

TOTAL TAX CREDIT REQUEST FOR GASIFICATION PROGECTSTOTAL TAX CREDIT REQUEST FOR GASIFICATION PROGECTS

EPACT Gasification Investment Tax Credits EPACT Gasification Investment Tax Credits ““OversubscribedOversubscribed””EPACT Authorized $1.15 billion in tax credits for gasificationEPACT Authorized $1.15 billion in tax credits for gasification--based projects. based projects.

Proposed gasification projects have requested almost $4.6 billioProposed gasification projects have requested almost $4.6 billion in tax n in tax credits and represents $52.2 billion in potential capital investcredits and represents $52.2 billion in potential capital investment. ment.

U.S. Department of Energy, NETLU.S. Department of Energy, NETL

Department of Defense Department of Defense –– Long Term offLong Term off--take agreementstake agreements

What can the States do? The SAMEWhat can the States do? The SAMETransportation Fleet CommitmentsTransportation Fleet CommitmentsFirst RespondersFirst RespondersNational GuardNational GuardElectric Power needsElectric Power needs

REGULATORY RATE RECOVERY AND OTHER REGULATORY RATE RECOVERY AND OTHER OPPORTUNITIES FOR INVESTMENT IN CLEAN OPPORTUNITIES FOR INVESTMENT IN CLEAN

COAL FACILITIESCOAL FACILITIES

ThreeThree--Party Covenant and the Regulatory CompactParty Covenant and the Regulatory CompactRate (base) Recovery Rate (base) Recovery Gas Cost Recovery Mechanism for Synthetic Natural Gas Gas Cost Recovery Mechanism for Synthetic Natural Gas Long Term Fuel ContractsLong Term Fuel ContractsElectric Power AgreementsElectric Power AgreementsPurchase Power AgreementsPurchase Power AgreementsEnergy Fuel AgreementsEnergy Fuel AgreementsTransportation Fuel Agreements Transportation Fuel Agreements Conduit FinancingConduit FinancingMechanism: project revenue bondsMechanism: project revenue bondsTaxTax--exempt or taxableexempt or taxable

Tax incentivesTax incentives

Real property taxesReal property taxesTangible property taxesTangible property taxesSales and use taxesSales and use taxes100% exemption from assessment100% exemption from assessmentLife of the loanLife of the loanIncome tax on interest payments Income tax on interest payments (state and/or federal)(state and/or federal)

Sources and structuresSources and structures

National and National and regional regional underwritersunderwritersInsurance Insurance companiescompaniesBanksBanksCorporationsCorporations

Traditional bondTraditional bondDirect loanDirect loanLeaseLeasePerformance based Performance based contractcontractTurnkeyTurnkeyOff balance sheetOff balance sheet

States should work together with States should work together with appropriate agencies of the federal appropriate agencies of the federal government to establish a well crafted, government to establish a well crafted, streamlined approach to emissions streamlined approach to emissions control. control.

This should include: This should include: simplify the multiple and sometime simplify the multiple and sometime

conflicting regulations currently in place;conflicting regulations currently in place;stress the importance of the use of stress the importance of the use of

market based mechanisms as a way to market based mechanisms as a way to reduce regulatory compliance costreduce regulatory compliance cost

It is envisioned that a wellIt is envisioned that a well--crafted crafted approach that will improve approach that will improve regulatory certainty, foster increased regulatory certainty, foster increased investment in new generation, investment in new generation, increase operational flexibility of the increase operational flexibility of the grid resulting in compliance cost grid resulting in compliance cost reductions, maintain fuel diversity to reductions, maintain fuel diversity to avoid price spikes, and sustain avoid price spikes, and sustain reliable generationreliable generation

NO matter where you areNO matter where you areCradleCradle--toto--gravegrave

Not only you own behavior, but the Not only you own behavior, but the behavior of those you are purchasing behavior of those you are purchasing from and selling to, matters.from and selling to, matters.

This chain will result in sound This chain will result in sound environmental policy.environmental policy.