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Kennecott Energy Company
505 South Gillette Avenue
P.O. Box 3009
Gillette, WY 82717-3009
307-687-6000
www.kennecottenergy.com
A member of the Rio Tinto Group
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LETTER FROM THE PRESIDENT2004 was a good year for Kennecott Energy Company
from both financial and operating perspectives. We
received benefits from better prices and higher volumes,
and our Business Improvement efforts produced good
results. We also sustained safety improvements made in
earlier years and have set new goals for 2005 that will
help us increase our momentum toward a safer, better
environment in which to work.
Kennecott Energy Company is one of the safest and most
efficient energy producers in the world and will continue
to be an energy leader through its People, Partnershipsand Process Excellence.
Our People remain
committed to safety,
which continually
adds to our success.
Employees actively
strive to improve
their safety
performance by
viewing safety as the
core element of the
company's business
culture. We believe
all injuries are
preventable and, in
turn, we devote
considerable
resources to
maintaining a safe,
incident-free
workforce.
Kennecott Energy continues to develop a high quality
workforce by effective recruiting, skills development and
performance management.
Kennecott Energy also places a high priority on
Partnerships with our communities, neighbors and other
key stakeholders. We are serious about developing,
maintaining and even bettering our external relationships
through the strategies we practice. For example, we
support the global initiative to make sustainable
development part of our everyday activities. We are
systematically incorporating sustainable development
practices into our daily processes even while we contin-
ue our best practice in the environmental area. Our
motto is to Provide for Today, Protect for Tomorrow.
We are also working to increase the acceptance of coal
as a fuel source in America. This is vital to building a
sustainable business and to providing affordable, secure
energy for the world. While we have already achieved
great progress in making coal one of our nation's cleanest
and most reliable energy sources, we understand
continued improvement is necessary to make coal even
cleaner. We continue to work on environmental issues
that will create a clean coal future.
We strive to improve the environmental performance of
our operations. Employee dedication in our workplaces
has resulted in meeting or exceeding our 2004 environ-
mental targets. Employee efforts have realized reductions
in on-site freshwater
use, energy use, green-
house gas emissions
and increases in
reclamation rate. Our
commitment to
improving our local
environment is
exemplified by the
2004 National
Excellence in Surface
Mining and
Reclamation Award
presented to Jacobs
Ranch Mine for its
playa/wetland
reconstruction.
Finally, Kennecott
Energy continues its
quest for Process Excellence by constantly improving the
way it does business. The company's Business
Improvement Process (BIP) takes a team approach to
business excellence by involving the employees in con-
fronting cost pressures, delivering an economic product,
and building a sustainable future. As our mine sites age,
we face gradually increasing strip ratios, longer haul dis-
tances, increasing capital and operating costs, and a very
competitive marketplace. The BIP helps our company
combat these issues and continually pursues operational
improvements, capital productivity and enhanced market-
ing and sales capabilities.
KEC is forging ahead and will continue to maintain
stewardship, gain strength and offer competitiveness in
the coal industry. I hope you enjoy reading more about
our company.
3
OUR HISTORYWho We Are Kennecott Energy Company is a Delaware corporation
with headquarters in Gillette, Wyoming, and is part of
the Rio Tinto Group. Rio Tinto is a world leader in find-
ing, mining and processing the earth's mineral resources.
Rio Tinto's worldwide operations supply essential miner-
als and metals that help to meet global needs and con-
tribute to improvements in living standards.
Kennecott Energy is the largest producer of low sulfur,
subbituminous Powder River Basin coal and is one of the
safest and most efficient energy producers in the world.
With a combined workforce of more than 1,800 employ-
ees and with the assistance of hundreds of contractors
and suppliers, the company provides the fuel to generate
nearly six percent of the nation's electricity.
How We StartedRio Tinto founded Kennecott Energy when it acquired the
Spring Creek and Antelope coal mines from PacifiCorp
Holdings, Inc., on June 2, 1993, as part of the purchase
of NERCO, Inc. Two days later the Cordero Mining Co.
was purchased from Sun Company, Inc. The company
then acquired Colowyo Coal Company L.P. in 1994 from
W.R. Grace Company, and Caballo Rojo, Inc. from
Drummond Company, Inc. in 1997. Management of
Cordero and Caballo Rojo merged in 1997 to form the
Cordero Rojo mine. Kennecott Energy acquired the
Jacobs Ranch mine from Kerr-McGee Corporation in
1998. Production from each acquired mine increased
substantially after its acquisition.
RIO TINTO OPERATIONS
US CoalOperations
2004
KECMANAGEMENT TEAM
BRET CLAYTONPresident & CEO
RICK BLAKEVice President,
Human Resources
KELLY COSGROVEVice President,
Marketing, Government &Public Affairs
ALAN DAVIESVice President, Finance,
Strategy & Law, CFO
JEANE HULLVice President, Technical
Services & BusinessImprovement
LYLE RANDENVice President, Powder River
Basin Operations
KELLY SANDERSVice President,
Colowyo Operations
KENNECOTT ENERGY IS MINING
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2004 Coal Production
In 2004, the Powder River Basinproduced 400 million tons of low sulfur,subbituminous coal. Kennecott Energy’s
contribution to this was:
�� Antelope - 29.7 million tons�� Cordero Rojo - 38.8 million tons�� Jacobs Ranch - 38.6 million tons�� Spring Creek - 12.0 million tons�� Decker - 4.3 million tons
The company’s Colowyo Mine produced6.4 million tons, for a total production of
129.7 MILLION TONS.
Kennecott Energy entered the coal market in1993 producing just 26 million tons.
CoalKennecott Energy oversees operations of five surface coal
mines in the Western United States. The company's
Powder River Basin mines, overseen by Lyle Randen,
Vice President, Powder River Basin Operations, are: the
Spring Creek mine, located in Montana's Big Horn
County near Decker, in the state's southeast corner; and
the Cordero Rojo, Jacobs Ranch and Antelope mines,
located south of Gillette in northeastern Wyoming's
Campbell and Converse counties. The Colowyo Mine,
overseen by Kelly Sanders, Vice President, Colowyo
Operations, is located in the Uinta Basin of northwest
Colorado near the communities of Craig and Meeker.
Kennecott Energy also owns 50 percent of Decker Coal
located in southeastern Montana.
After selling its remaining reserves at the Fort Union
Mine near Gillette in 2004, Kennecott Energy's only
inactive coal property is Sequatchie Valley Coal
Company, a mine in Dunlap, Tennessee, that was
reclaimed using state-of-the-art techniques that
addressed acid mine drainage utilizing environmentally-
friendly buffering designs.
UraniumKennecott Energy oversees two inactive uranium
ventures: the Green Mountain Mining Venture in
southwest Wyoming; and the L-Bar Uranium site in
northwest New Mexico.
The Green Mountain site includes a licensed uranium
mill and tailings facility and three mine sites where
reclamation is underway and scheduled for completion
in 2007.
Kennecott Energy has completed reclamation at L-Bar.
During 2004, the company transferred the mill site to the
U.S. Department of Energy for long-term stewardship.
The Mining ProcessProductionAt each of Kennecott Energy's five surface coal mines,
topsoil is carefully removed and is either stockpiled or
redistributed on reclaimed land. The overburden (soil
and other material above the coal) is cast-blasted at
three operations into adjacent, already mined areas, and
the coal seam is exposed by a dragline and/or a truck-
shovel fleet. Additional blasting occurs to free the coal,
which is then transported using conventional load and
haul techniques to nearby crushers. At some operations
conveyors then transport the coal to a secondary crusher
and to storage facilities. At the coal handling facility, the
coal is crushed, blended and loaded into trains to meet
customer specifications.
ReclamationAfter mining is complete, topsoil and overburden are
replaced and contoured to approximate the preexisting
landscape. The soil is seeded with native plants providing
diverse vegetation for livestock or wildlife grazing.
Reclamation sites are monitored and maintained until
plant growth regains its natural state.
COMMUNITY COMMENTS
““Kennecott Energy's presence is woven intothe social fabric that is Douglas and
Converse County. The company's and its
employees' deep involvement in activities
and community events drives much of what
makes this a special place to live. Their
support, financial and through many hours
of volunteer time, is invaluable in a small
community.
Kennecott and its workforce are integral to
Converse County's economic health as well.
Aside from the obvious economic impact,the company frequently steps up to the plate
whenever the need arises, making Kennecott
a great corporate neighbor that is truly
appreciated by all.””
Matt Adelman, Publisher, Douglas Budget
KEC FINANCIAL RESULTS
photo courtesy of the
Douglas Area Chamber of Commerce
KEC FINANCIAL RESULTS
2004 2003 2002 2001
Production (Mt) 130 119 116 118
Revenue (US $M) $1,097 $951 $950 $882
Net Earnings (US $M) $119 $88 $90 $84
Reserve Base (Mt) 1,5151 1,646 1,888 1,563
Plants Served 145 130 120 124
1Does not include 195 million mineable tons in West Antelope purchased in late 2004
and finalized in early 2005.
5
ANTELOPE MINE
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LocationFifty-five miles north of Douglas (Converse County), Wyoming, in the south-central portion of the Powder River Basin.
Mine ManagerGary Rivenes
HistoryAcquired by Kennecott Energy in 1993, Antelope was previously owned by Northern Energy Resource Company
(NERCO), a mining and natural resource company owned by PacifiCorp. Its current permitted mine area covers
10,848 acres. In December 2004, Antelope Mine was the successful bidder for the West Antelope lease tract
containing 195 million mineable tons of coal.
GeologyAntelope is located at the south end of the Wyodak seam outcrop, the principal economic coal seam in the Wyoming
portion of the Powder River Basin. Antelope mines two different seams, the Anderson and Canyon, which are 40 and
35 feet thick, respectively.
Coal Quality8,850 Btu subbituminous thermal coal
Ash and Sulfur content:
5.25% Ash
0.22% Sulfur
ProductionAntelope's production has increased each year for the past 19 years.
The mine is permitted for 32 million tons of coal annually and has a
reserve of 274 million recoverable tons as of December 31, 2004.
Coal mined from Antelope is shipped primarily to Illinois,
Oklahoma, Michigan and Texas.
WorkforceAntelope employs 300 people (85% male, 15% female). Sixty-five
percent of employees reside in Converse County, and thirty-five
percent reside in Campbell County. The mine is a nonunion
operation.
Awards2004 - Four environmental awards for Excellence in Surface Mine
Reclamation
2000 - Safe Sam & Safest Coal Mine in Wyoming
2000 - Sentinels of Safety award by the U.S. Department
of Labor and the National Mining Association
7
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Mine Equipment
1 Dragline4 Shovels1 Front-End Loader
20 240-ton Haul Trucks5 190-ton Haul Trucks
Production History
1994 8.2 million tons1995 10.8 million tons1996 12.0 million tons1997 13.6 million tons1998 19.4 million tons1999 22.7 million tons2000 22.9 million tons2001 24.6 million tons2002 26.8 million tons2003 29.5 million tons2004 29.7 million tons
COLOWYO MINE
Outstanding EmployeeIn 2004, Kennecott Energy
searched for an Outstanding
Employee on and off the job.
The criteria specified that this
person, nominated by their
peers, should represent a
hard-working, motivated
employee and community
volunteer. Jaime Gish,
equipment operator on
Production A crew at Colowyo
Mine, was selected as Kennecott Energy's 2004 Outstanding
Employee.
Jaime is a safety-focused, dedicated employee who is always
interested in increasing her work knowledge and experience.
She has submitted many safety improvement ideas that have
been implemented to ensure a safer work environment.
Jaime has operated a variety of equipment and has actively
participated in driving forward the risk assessment process
and procedures.
Jaime spends much of her free time with United Way of
Moffat County. She has served on the Board of Directors as
Campaign Chair, Vice President and past President. Jaime is
currently a member of the Allocations Committee and has
played an important part in increasing employee United
Way contributions from a level of $15,000 to over $35,000.
She maintains a busy schedule with community organiza-
tions while working a 12-hour day/night rotating shift sched-
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LocationNorthwest section of the Uinta Basin, between Craig and Meeker (Moffat County), Colorado.
Mine ManagerKeith Haley
HistoryKennecott Energy Company acquired the Colowyo Mine in 1994 from the W.R. Grace Company.
GeologyEight different coal seams are mined sequentially at Colowyo.
The seams range from 18 inches to 14 feet thick.
Coal Quality10,450 average Btu subbituminous thermal coal
Ash and Sulfur content:
5.50% Ash
0.40% Sulfur
ProductionColowyo is permitted to mine 9 million tons of coal annually and
has a reserve of 27 million recoverable tons as of December 31, 2004. In addition to reserves, Colowyo controls 221
million tons classified as resource that has potential for future development. Coal mined from Colowyo is sold to
utilities in the western half of the United States, primarily in Colorado, Texas, Kansas and Arizona.
WorkforceColowyo employs 272 people (92% men, 8% women) in a
nonunion environment. The majority of employees work in
production and maintenance with a small number employed in
management and administration.
Safety Awards1991, 1995 & 1997 - Sentinels of Safety1998 - All-time U.S. Department of Labor safety record for a single surface mine by working 2.6 million hours over a three-year period without a lost-time accident.1996, 1997 & 2000-2004 - Colorado Mine Health and SafetyRecognition award
Special RecognitionSince 1983, Colowyo has received numerous reclamation awards from the Colorado Division of Mining and Geology
and Colorado Mining Association. The most recent award, in 2004, was for being the first Colorado coal company to
use modern highwall coal mining techniques.
9
Production History
1996 5.7 million tons1997 5.6 million tons1998 5.8 million tons1999 5.6 million tons2000 5.2 million tons2001 5.8 million tons2002 5.3 million tons2003 5.0 million tons2004 6.4 million tons
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Mine Equipment
3 Draglines2 Shovels2 Loaders9 240-ton Haul Trucks4 170-ton Haul Trucks7 50-ton Trucks
10
CORDERO ROJO MINE
In 2004, Cordero Rojo
Mine was able to achieve
an average tire life of
8,187 hours on its 240 ton
truck fleet. This exceeded
the warranty target of
8,166 hours. Joe Vaccari,
Cordero Rojo Mine
Manager, attributes the
success to a number of
factors, including: operator
awareness, good road
maintenance practices and
proactive maintenance
techniques.
Cordero Rojo reflects
Kennecott Energy's
commitment to sustainable
development through its many
reclamation efforts, including
a reclamation project along
the Belle Fourche River named
the Dean Dvorak Memorial
Valley, in honor of KEC's late
President and CEO, who at
one time served as the
Cordero Rojo Mine Manager.
LocationTwenty-four miles southeast of Gillette (Campbell County), Wyoming, in the southern portion of the Powder River
Basin.
Mine ManagerJoe Vaccari
HistoryKennecott Energy Company acquired the Cordero mine from
Sun Oil Company in 1993. It then purchased the adjacent
Caballo Rojo mine from the Marigold Land Company, a
subsidiary of Drummond Company, Inc., in 1997. The two
facilities merged operationally in 1997.
GeologyThe Cordero Rojo mine contains 15,800 acres. Cordero Rojo
mines the Wyodak seam, the principal economic coal seam in
the Wyoming portion of the Powder River Basin. The average
seam thickness at Cordero Rojo is between 55-70 feet.
Coal Quality8,420 Btu subbituminous coal
Ash and Sulfur content:
5.50% Ash
0.30% Sulfur
ProductionCordero Rojo is permitted to mine 65 million tons of coal
annually and has a reserve of 402 million recoverable tons as
of December 31, 2004. Cordero Rojo sells its coal primarily to
electric utilities in the southern and midwestern United States.
WorkforceCordero Rojo employs a union-free workforce of 470
employees (86% male, 14% female).
AwardsCordero Rojo has won the Sentinels of Safety Award an
unprecedented five times. This award, given by the U.S. Department of Labor, recognizes the U.S. surface coal mine
with the best safety performance for the year. Cordero Rojo also received the 1998 Wildlife Habitat Reclamation and
Stewardship Award from the Wyoming Game and Fish Department for accomplishments in establishing wetlands
using detention dikes and pit pumpage water.
11
Production History
1994 16.4 million tons1995 14.6 million tons1996 13.0 million tons1997 28.1 million tons1998 37.0 million tons1999 45.7 million tons2000 38.6 million tons2001 43.5 million tons2002 38.0 million tons2003 36.0 million tons2004 38.8 million tons
Mine Equipment
3 Draglines7 Electric Shovels1 Front-End Loader
30 240-ton Haul Trucks2 170-ton Haul Trucks
16 Dozers
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JACOBS RANCH MINE
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LocationFifteen miles southeast of Wright (Campbell County), Wyoming, in the southern portion of the Powder River Basin.
Mine ManagerDon Vissat
HistoryKennecott Energy Company acquired the mine's 9,284 acre permitted area from Kerr-McGee Coal Corporation in
1998. In 2001, Jacobs Ranch was the successful bidder for the
North Jacobs coal lease tract. This added 537 million tons of in-
place coal to the reserve. The permitted area has more recently
been expanded to encompass an area of 15,625 acres.
GeologyThree seams of coal from two pits. The seams are the Upper,
Middle and Lower Wyodak. The Wyodak seam is the principal
economic coal seam in the Powder River Basin. Seams range
from 5 to 60 feet in thickness.
Coal Quality8,750 Btu subbituminous coal
Ash and Sulfur content:
5.50% Ash
0.44% Sulfur
ProductionJacobs Ranch is permitted to produce 55 million tons of coal a
year and has a reserve of 551 million recoverable tons as of
December 31, 2004. Coal mined from Jacobs Ranch is primarily
shipped to the midwestern and southeastern United States.
Reclaimed LandsJacobs Ranch has 4,545 acres of permanently reclaimed land.
The majority of the reclaimed acres are used to summer-graze
approximately 1,000 head of cattle.
WorkforceJacobs Ranch currently employs 496 people in a nonunion
environment (86% male and 14% female).
Special Recognition2004 - Office of Surface Mining National Award - Outstanding Reclamation Efforts and Exemplary Stewardship
2003 - Excellence in Rangeland Stewardship Award - Wyoming Section of the Society for Range Management
2001 - Excellence in Surface Coal Mining Reclamation - Wyoming Department of Environmental Quality, Land
Quality Division (WDEQ-LQD)
2000 - Wyoming Game and Fish Department - Wildlife Habitat Reclamation and Stewardship Award
1997 - U.S. Dept. of the Interior Office of Surface Mining & Excellence in Surface Coal Mining Reclamation -
WDEQ-LQD - Hall of Fame Reclamation and Stewardship Award
1996 - U.S. Department of Labor - Sentinels of Safety Award
1995, 1996 & 1997 - Wyoming State Mine Inspector's Office - Safest Wyoming Mine Award
13
Production History
1994 20.5 million tons1995 24.6 million tons1996 24.6 million tons1997 27.1 million tons1998 29.1 million tons1999 29.1 million tons2000 28.3 million tons2001 29.3 million tons2002 31.7 million tons2003 35.7 million tons2004 38.6 million tons
Mine Equipment
8 Shovels1 Front-End Loader
10 Dozers42 240-ton Haul Trucks1 170-ton Haul Trucks
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14
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SPRING CREEK MINE
LocationNorthwest of Decker (Big Horn County), Montana, in the northern section of the Powder River Basin
HistoryAcquired by Kennecott Energy Company in 1993 and previously
owned by NERCO Mining Company, a mining and natural
resource company of PacifiCorp.
Mine ManagerClayton Walker
GeologyThe Anderson-Dietz seam is the only seam mined from four pits on
the 6,700-acre site. The average thickness of the seam is 80 feet. The
seam ranges from approximately 50 to 220 feet below the surface.
Coal Quality9,350 Btu subbituminous thermal coal
Ash and Sulfur content:
4.00% Ash
0.33% Sulfur
ProductionSpring Creek is permitted for 15 million tons of coal annually and has
a reserve of 248 million recoverable tons as of December 31, 2004.
Coal mined from Spring Creek is sold to electric power generation
and heating utilities, industrials, schools, and hospitals in the states of
Wyoming, Montana, Washington, Arizona, North Dakota, South
Dakota, Kansas, Minnesota, Wisconsin, Michigan, Illinois, New
Hampshire and various Canadian provinces.
ReclamationSpring Creek has approximately 3,000 acres disturbed and 550 acres completely reclaimed.
WorkforceSpring Creek employs 141 people (94% male, 6% female) in a nonunion environment. Thirty-two percent of the
Spring Creek workforce has 15 plus years of service with Kennecott Energy.
Safety MilestonesIn May 2004, Spring Creek employees completed two years with no lost-time incidents. Spring Creek completed
2004 with no lost-time incidents, bringing its total to 986 days without a lost time and 533 days without a medical
reportable.
15
Production History
1994 9.9 million tons1995 8.5 million tons1996 9.0 million tons1997 8.3 million tons1998 11.3 million tons1999 11.0 million tons2000 11.3 million tons2001 9.7 million tons2002 8.9 million tons2003 8.9 million tons2004 12.0 million tons
Mine Equipment
1 Dragline3 Electric Shovels1 Hydraulic Backhoe7 190-ton Haul Trucks
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COMMUNITY COMMENTS““The Sheridan County Chapter of theWyoming State Historical Society was chartered in 1960 and is the largest chapterin the state with over 200 members. Ourmission statement is: to preserve and shareour rich heritage with present and futuregenerations. With the generous support ofour community and area donors, we wereable to keep our Wyoming history alive withvisitors from 24 states and seven foreigncountries.
Kennecott Energy Company gave a generous
donation of $5000 over two years. With this
kind donation, we have been able to pur-
chase conservation and preservation materi-
als for proper storage and display artifacts
on and off exhibit.””
Linda Prill, President,
Sheridan County Historical Society
SUSTAINABLE DEVELOPMENT
As part of the Rio Tinto Group, Kennecott Energy is
committed to sustainable development. The company
continually strives to maintain a balance between the
safe, responsible development of mineral resources, meet
the nation's growing energy needs, and build long-lasting
relationships with its local communities. Sustainable
development is defined as "meeting the needs of the
present without compromising the needs of future
generations." Kennecott Energy's motto is Provide for
Today, Protect for Tomorrow. The company
incorporates sustainable development into everyday
business by balancing economic, social, environmental
and good management practices. These sustainable
development principles are based on an understanding
that the company is part of an ever-growing global and
local community, and that environmental health and
economic stability are mutually dependent, not mutually
exclusive.
By focusing on people, the environment, resource
stewardship and management systems, Kennecott Energy
can better manage risk, create business options, reduce
costs, attract the best employees, gain access to new
markets and resources, and deliver a better product to its
customers. In short, Kennecott Energy establishes
long-term sustainable value in the company.
photo courtesy of Craig Chamber of Commerce
photo courtesy of the Sheridan Historical
OUR COMMUNITIES AND OUR PEOPLE
Kennecott Energy is a part of an ever-changing global and
local community. As part of that community, the
company has an obligation to help ensure the community
continues to grow and becomes vibrant, both
economically and socially. Kennecott Energy realizes it
depends on the viability of its local communities to
conduct its business as much as the community relies on
the company to help it meet its needs by paying wages
and taxes. Community giving is good, community
planning is better. Kennecott Energy wants to help its
communities and employees become sustainable and
viable well into the future, so the company gets involved
in a variety of ways. It also focuses on community
planning; encouraging economic diversity by helping
attract new businesses; supporting social services through
volunteer work; emphasizing safety at home and at work
as a key part of Kennecott Energy culture; and by
minimizing any local environmental impact from its
operations.
KEC is committed to building long-lasting
relationships with our local communities,
especially those communities where a large
number of our employees live and where our
principal business transactions occur.
Kennecott Energy Community Giving
� Since 1994, Kennecott Energy has directly invested more than $4 million in community
involvement and local charities. In 2004, the
company gave $383,886.
� Tsunami relief
� Matching gift plan - Employees contributed more than $150,000 of their own funds to charities,
which was matched by corporate dollars.
The Matching Gift Plan was put in place to encourage our
employees to donate to charitable and needy
organizations. Kennecott Energy will match all employee
contributions one hundred percent, up to $5,000 per
employee and $40,000 annually.
Global Principles Rio Tinto Processes Kennecott Goals
The Sustainable Development Journey
Environment
Product Stewardship
‘Sustainable Value’
Health & Safety
Operational Excellence
People Commitment
Economic Viability
Stewardship
Communities
Management
People Systems
Value Chain
Create businessopportunities
Reduce business risks
Attract & retain best employees
Access new markets and resources
Deliver better product
Reduce costs
Gov
erna
nce
Communities
photo courtesy of Children's Developmental Services of Campbell County
Kennecott Energy employees live in seven different
communities to support the work done at the
company's five mine sites. To better understand the
needs of the communities and to improve its many
community efforts, Kennecott Energy conducted
Community Needs Assessments in five of those
communities. This process involved interviewing
community leaders to discuss the most significant
challenges they saw for the region. Kennecott Energy
then sent employees out into the community to
interview a broad cross section of its neighbors.
The company is grateful to communities who helped
gather people's opinions and share their insights.
Kennecott Energy's commitment to sustainable
development means it is committed to the long-term
health of the communities where it operates and
where its employees live. The company looks
forward to working with its communities to identify
and support projects that will be of lasting benefit to
everyone.
The Community Needs Assessments identified some
real challenges for local communities. Evaluating and
sharing the results of the surveys is the first step to
identifying which issues can be addressed through the
combined resources of the community, the local
government and neighboring businesses.
Kennecott energy is pleased with the response to this
effort and hopes the results will help drive further,
meaningful discussion. The result of the assessments
will be used to help find the best way for Kennecott
Energy to fulfill its role as a good citizen within its
communities, with a focus on sustainable
development.
Assessment ProcessThe Community Needs Assessments involved a cross
section of Kennecott Energy's neighbors, including
representatives of local business, community groups,
financial organizations, health professionals,
government officials and educators. Community
leaders were asked to participate in
an interview conducted by
Kennecott Energy
managers
and
employ-
ees. The
interviews
explored
various
issues facing
local commu-
nities ranging
from "drug and
Leaders were asked to discuss fifteen economic,
environmental and social issues as strengths or
weaknesses. The interviewees rated each issue based
on the nature of the challenge it presents to the
community. They then were asked to comment on
each issue and suggest possible solutions.
18
KEC COMMUNITY
CRAIG - DOUGLAS - GILLETTE - MEEKER -
alcohol abuse"
to "quality of life."
19
NEEDS ASSESSMENTS
NEWCASTLE - SHERIDAN - WRIGHT
COMMUNITY COMMENTS
““In 2004, Kennecott Energy played a major role inhelping the Boys and Girls Club of CampbellCounty reach its goal of building a $100,000endowment fund. Working with the WyomingCommunity Foundation, Kennecott Energy helpedthe Boys & Girls Club host a breakfast endowmentfundraiser with Governor Dave Freudenthal as the
guest of honor. Kennecott Energy provided
meeting space to organize the event and kicked off
the fundraising effort by donating the first $10,000
for the cause. Overall, the event raised nearly
$40,000 in just two weeks.
Kennecott's leadership and generosity toward the
youth of Campbell County were the true key to the
incredible success of this important fundraising
event.””
Eric Scalzo, Executive Director,
Campbell County Boys and Girls Club
Wyoming State Governor Dave Freudenthal with Bret
Clayton, KEC President & CEO, at Endowment Breakfast.
Looking ForwardIn 2005, we will further explore ways to utilize theresults of the Community Needs Assessments in ourcommunity planning process.
OUR CUSTOMERS
18%
Kennecott Provides Coal to 28 States
Fuels approximately 6% of US Electric Generation
Supplies 145 industrial, utility and merchant Plants i n the US, Canada, and South America
14%
9% 8%
7%
8%
5%
5%
3%
2%
4%
5%
4%
3%
3%
<1%
<1%
<1%
<1%
<1%
<1%
<1%
<1%
<1%
Export <1%
<1%
<1% <1%
(Percent of Kennecott Energy Production sent to each state.)
Fuels approximately 6% of US Electric Generation
Supplies 145 industrial, utility and merchantplants in the US, Canada and South America
21
SERVICEIn 2004, Kennecott Energy shipped thermal coal to elec-
tric utilities and some industrial customers in 28 states,
two Canadian provinces and to South America. Kennecott
Energy products are shipped throughout the United States;
however, the company's primary markets are the nation's
south central, midwest, north central and western regions.
By targeting these areas, Kennecott Energy's marketing
strategy is focused on increasing value for its low sulfur
compliance coals and on optimizing the mix of sales
among its mines.
In 2004, Kennecott Energy's customer base included 63
electric utilities and industrial customers. Some of its
largest customers are American Electric Power (AEP),
Southern Company, Tennessee Valley Authority (TVA),
Detroit Edison and Ameren.
Customer Service
The Kennecott Energy Marketing Group is strongly
committed to ensuring it is recognized as an industry
leader for its professionalism and ethical operation and
that there is a high level of transparency in all it does.
Customer representatives are encouraged to visit company
operations and to meet and talk with personnel at all
levels of the organization. Technical reviews and audits
of mine loadout facilities, including product weigh stations
and laboratory operations, are welcomed.
Kennecott Energy values productive, long-term customer
relationships and is proud of the fact that a large
proportion of its customer base has purchased coal from
its mines since the company was formed in 1993.
Kennecott Energy seeks to maintain its position through a
commitment to provide a strong after-sales service to all its
customers. A key aspect of this service is maintaining
regular communications with both the railways and
logistics group within our customer base to ensure
deliveries are on time and in line with contract
expectations. The increased use of Western coal and, in
particular, Southern Powder River Basin coal, means close
attention to mine and rail activities is critical to
maintaining expected delivery service.
Prompt communication of coal quality data is another
important aspect of Kennecott Energy's customer service.
Information on the energy content (Btu level), sulfur,
sodium and ash levels of all shipments are relayed to
customers before the coal reaches their facilities. This
allows customers to make necessary product blending and
process adjustments and ensures their facilities can run at
maximum energy-generating efficiency while maintaining
low emission operations.
In the event of a process disruption at a customer facility,
Kennecott Energy places a high priority in assisting in
whatever manner possible and in seeking to resolve any
issues promptly and equitably.
Through regular interaction and visits to customer
facilities, Kennecott Energy works proactively to develop
product specifications and supply options that will provide
customers further efficiency improvements. This is
particularly important as the use of western coal continues
to grow and the legislative landscape for power generation
continues to change and evolve. Options provided to
customers include control of coal quality parameters,
innovative delivery options, flexible commercial and
supply arrangements, and technical expertise and support
where requested.
COMMUNITY COMMENTS
““Great River Energy's relationship withKennecott Energy Company (KEC) has been
pleasurable from the beginning, and our
contacts at KEC have always been
approachable. Even before we began to
receive deliveries from the Spring Creek
Mine, KEC was very responsive to our needs
and assisted us in addressing important
issues related to storing and burning coal
and transportation. Great River looks
forward to a continued successful
relationship with KEC.””
Carl SulzerManager of Generation Services
Great River Energy
photo courtesy of Great River Energy
22
ENVIRONMENTAL SUSTAINABILITY
Environmental PerformanceKennecott Energy recognizes it must conduct its business
in a way that minimizes impacts on the environment,
which means doing more than is required by law to
ensure reclamation efforts are successful. Excellence in
environmental performance is essential to Kennecott
Energy's business success.
Wherever possible the company prevents, or otherwise
minimizes, mitigates and remediates, harmful effects its
operations might have on the environment. Kennecott
Energy works with its customers to help them find better
ways to use the company's products so it can help
ensure all of their benefits are delivered. Kennecott
Energy regularly audits, reviews and reports on its envi-
ronmental initiatives to guarantee they are implemented
and effective.
� As with safety, it is the responsibility of all employees to conduct operations in a way that
protects the quality of the water, air and land in
the surrounding environment.
� Excellence in environmental performance is essential to Kennecott Energy's business success.
� Compliance with all environmental laws andregulations is the foundation on which Kennecott
Energy builds its environmental performance.
� Kennecott Energy has successful environmental stories to tell and is happy to share them
with
Colowyo Colowyo was also honored for developing an effective
pollution prevention (P2) program. Some elements of
the program include integrating the P2 program with
other plans and policies; intensive labeling procedures;
inclusion of contractors in the program; annual emissions
tracking and the Morgan Creek Ranching for Wildlife
project.
The Colorado Mining Association developed its Pollution
Prevention Program under a grant from the Colorado
Department of Public Health and Environment.
Companies voluntarily participating in the program must
submit a detailed certification demonstrating compliance
with one or more protocols designed to protect the
environment by reducing or eliminating the use of toxic
chemicals, reclaiming to the standards of the program
and other best management practices. Colowyo's plan
surpassed the pollution code objectives.
Jacobs Ranch Jacobs Ranch Mine received the Excellence in Surface
Mining award from the Wyoming Department of
Environmental Quality for reclamation of their
"playa-wetland." Playa-wetlands are large shallow lakes
that dry out during certain seasons. The Excellence in
Surface Mining awards are presented for development of
innovative techniques that have widespread application
to other areas and for outstanding on-the-ground
reclamation performance.
Spring CreekSpring Creek hosted nearly 20 people on a field
reclamation tour sponsored jointly with the Montana
Department of Environmental Quality. Participants in
the field tour included members of the Northern Plains
Resource Council and the Citizens Coal Council as well
as neighboring ranchers. The tour focused on
reclamation of mined lands.
23
SITE RECOGNITION
COMMUNITY COMMENTS““In 2004, Newcastle Elementary School tooka magical reading and math adventurethanks to the support of community spon-sors like Kennecott Energy.
The Polar Express Academic Challengeopened the doors to each child's heart andevery classroom as each child was grantedthe wish of having their very own The PolarExpress book to keep. We hope that this
Magical Polar Journey will last and last in
the memories of all our children who
experienced this Academic Blast. Believing
in children is what Kennecott Energy does
best and, thanks to their support, our
children read a grand total of 6,773 books,
which was much more than we ever would
have guessed.””
Michelle Ausmann, Title One Reading,
Newcastle Elementary School
photo courtesy of Newcastle Elementary School
2004 Target 1.15 gallons/mining unit
2004 Performance 0.88 gallons/mining unit (areduction of 24% from2003 due to identificationand priority use of poorquality water instead offreshwater. Freshwater isdefined as water with aquality with less than 1500parts per million TotalDissolved Solids).
2005 ObjectiveMaintain use rates at 0.88gallons per mining unit(representing a 23 percentuse reduction from the2004 target level) whileembedding water reductionpractices into theKennecott Energy culture.
2004 Target 0.558 ratio of open area tototal disturbed area.
2004 Performance0.517 ratio of open area tototal disturbed area (theinverse of the ratio represents the relative rateof contemporaneous reclamation; this represents a slightdecrease -- 2.4% -- inreclamation rate compared to the ratio of0.505 in 2003).
2005 ObjectiveMaintain the open to disturbed area ratio at0.517 (representing a 7%decrease in open areafrom the 2004 targetlevel).
ENVIRONMENTAL OBJECTIVES & TARGETS
CO2 Equivalent
Emissions
Freshwater
UseLand
Stewardship
Energy Use
2004 Target1.45 tonnes carbondioxide equivalent(CO2-e) emissions perthousand mining units.
2004 Performance 1.31 tonnes CO2-e perthousand mining units (areduction of nearly 10%from 2003 levels).
2005 Objective Maintain emission ratesat 1.31 tonnes CO2-eper thousand miningunits (representing a9.7% emissions reduction from the 2004target level) whileembedding emissionreduction practices intothe Kennecott Energyculture.
2004 Target 11.53 Gigajoules per thousand mining units (adjusted to address additional energy use directly required tostabilize a highwall at one oper-ation for safety and productivityreasons).
2004 Performance 11.09 Gigajoules per thousandmining units (this represents a1.6% increase over 2003,essentially demonstratingprogress of energy-saving actionplans to more than offset the5.7% additional energy use projected to accomplish thehighwall stabilization activities).
2005 Objective Maintain use rates at 11.09Gigajoules per thousand mining units (representing a3.8% use reduction from the2004 target level).
25
Partnerships
Gillette Nature Center Feasibility Project Kennecott Energy is located in the heart of one of the
most extensive and intact sagebrush prairies in the
contiguous lower United States. This makes the land a
priority habitat that supports a number of bird species
and which is constantly confronted with a variety of
competing land use priorities.
In an effort to increase public education about the role of
this habitat in important conservation efforts and to
increase community awareness of Kennecott Energy's
environmental sustainability efforts, Kennecott Energy
teamed up with the Rio Tinto Partnership Action Fund,
BirdLife International and Audubon Wyoming (a state
chapter of the National Audubon Society), to examine
the opportunities behind developing a Gillette-based
nature center.
The proposed center would become part of a network of
community-based programs across the United States that
focus on creating widespread appreciation for the
nation's natural resources and their role in conserving
bird habitat through careful and sustainable management.
The partnership was formed to take advantage of
National Audubon's unprecedented experience in setting
up and running similar nature centers. The proposed
Gillette Nature Center would be developed to target
audiences, including school children, families and com-
munity groups, and visitors traveling along Wyoming's
Interstate Highway 90.
The center would fulfill a number of Kennecott Energy
objectives, such as community resource and tourism
development and strategic biodiversity action planning.
It would also demonstrate Kennecott Energy's existing
land use and contiguous rehabilitation programs.
This new project is being developed under the direction
of Audubon Wyoming's Gillette Program Director Jim
Handley. Mr. Handley is developing a long-term vision
for the center and is working with Kennecott Energy to
determine the best options for program development and
to profile a range of center options and requirements.
Kennecott Energy also teamed up with Rio Tinto, BirdLife
International and the National Audubon Society in 2004
to conduct four public birding events in Wyoming and
Colorado.
One of the goals of the birding events is to provide
valued nature appreciation experiences for local
communities.
A total of 76 different bird species were sighted or
identified by call during the four events.
26
2004 HEALTH & SAFETY
How Safe Are We?Kennecott Energy believes all accidents are preventable and
devotes considerable resources to maintaining a safe,
accident-free workplace and an actively caring safety culture.
This culture requires the commitment of everyone in the
company, regardless of position. And, as a culture, employees
are trained and encouraged to consider safety when they are
off duty.
Numerous programs have been implemented to help KEC
eliminate injuries. While the company's performance sets the
standard for
safety in the
industry, the
company and its
workers continue
to strive for
higher levels of
excellence.
Kenecott Energy
has set a target of
reducing lost-time
incidents by 20
percent per
annum, with an
overall goal of zero accidents for all operations and contrac-
tors. Successful company safety elements include individual
accountability, performance recognition, safety system
enhancements and contractor safety measures. All sites
to implement individual, innovative systems to enhance
safety.
Because safety is a value, it is never compromised.
Considerable effort is made to minimize risk for employees
and others through the following systems.
Incident Investigation and Root Cause AnalysisIf an incident has occurred, root cause analyses are performed
to identify and correct any root causes and prevent any
reoccurrence.
Safety InteractionClose to 90 percent of injuries are caused by at-risk human
behavior. Kennecott Energy practices safety interactions to
recognize and reinforce safe behaviors. These interactions
help employees prevent injuries by committing to practice
safety.
Take 5The "Take 5" pre-task risk assessment program is a tool for
employees to identify and control previously unrecognized
hazards. Employees are to stop, analyze
the task, actively search for hazards and
then apply controls to reduce or
eliminate hazards prior to beginning
work. The process has a ranking system
to alert the employee to the level of risk
involved in the task.
1. THINK THROUGH THE TASK
2. SPOT THE HAZARD
3. ASSESS THE RISK
4. MAKE THE CHANGES
5. DO THE JOB SAFELY
Contractor Safety StandardsKennecott Energy Company's safety culture does not end at
its employees. Contractors are also considered to be members
of this important system. The culture continues to grow from
a commitment by employees and contractors to provide and
ensure a safe and healthy work environment.
Kennecott Wellness ProgramThe Kennecott Energy Wellness Program allows employees to
participate in a comprehensive health profile program that
measures health risks. These risks range from cardiovascular
disease to high blood pressure and elevated cholesterol to
weight problems. The goal of the program is to detect these
conditions early, then provide information on potential
solutions ranging from regular exercise to better nutrition.
0
1
2
3
4
5
6
7
8
9
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
NATIONAL AVERAGE
ALL INCIDENT FREQUENCY RATE (AIFR)
KEC EMPLOYEESKEC EMPLOYEES & CONTRACTORS
27
KENNECOTT ENERGY COMPANYHealth, Safety and Environmental Policy
Coal mining makes a vital contribution to world development by providing the fuel source for products nec-
essary for modern society. Kennecott Energy Company recognizes that extraction of the earth's coal
resources must be accomplished in a manner which minimizes impacts on the environment, local
communities, and its employees. Kennecott Energy Company believes that proper concern and regard for
health, safety and the environment is an essential element of a successful business strategy.
Every employee is expected to adhere to the spirit as well as the letter of this policy. Managers andSupervisors are expected to implement this policy, take responsibility for and be informed about health, safety, and environmental risks and standards, operate safe and environmentally sound facilities, ensure thatall contractors abide by this policy, and promptly advise senior management of any deviation from this poli-cy which comes to their attention. Kennecott Energy Company will assist its affiliates to develop and imple-ment health, safety, and environmental programs appropriate for their activities.
It is the policy of Kennecott Energy Company to conduct its affairs and to operate in a manner that protects the environment and safeguards employees and the public from unacceptable risk. KennecottEnergy Company will:
Kennecott Energy Company’s guidel ines to carry outthis policy are to:
Establish processes to ensure that laws and regulationsapplicable to operations are known and implemented;
Protect people, property and the environment by conducting programs for occupational health, safe ty,and environmental excellence, and continue to improve the effectiveness of its health, safety, and environmental processes;
Adopt health, safety, and environmental standards that build from a foundation of compliance with applicable laws and regulations;
Identify and minimize health, safety, or environmental risks related to operations, and support appropriate scientific research thereon;
Integrate health, safety, and environmental considerations into business planning;
Communicate health, safety, and environmental information about operations to employees, government agencies, and the public, and contribute to local community life and the development of sound legislation and regulation;
Design facilities and processes that pro tect health andsafety, prevent pollution, conserve resources and energy, minimize the use of hazardous materials, reduce waste, and exemplify appropriate best available practice.
Regularly report to its Board of Directors, on health, safety, and envir onmental performances, financial implications, results of regular reviews, and any related incidents.
28
ECONOMIC
COAL AS A VIABLE INVESTMENT
Coal produced in the United States generates more than half
of the nation's electricity. Demand for electricity continues
to grow, and an affordable, stable energy supply continues
to be an important factor in a healthy US economy. For our
nation to maintain its energy independence, coal must
continue to play an important role in a balanced national
energy portfolio. Kennecott Energy mines are prepared to
help supply economical fuel to meet energy needs, although
fuel alone will not meet future energy demands. Capacity to
generate and transport energy must be added in an
environmentally responsible manner to maintain a healthy
national economy and all that it provides. Kennecott Energy
is committed to investing in new technologies that will
enable building new, cleaner power plants.
� In 2004, 52% of the nation's electricity was produced by coal-fired generators.
� More than 30% of the nation's coal is produced each year by the Powder River Basin.
� 6% of the nation's electricity is derived from coal produced by Kennecott Energy.
� Coal continues to be a reliable/abundant/safe andincreasingly clean energy source.
� America has a far larger domestic supply of coal than of any other fossil fuel used to produce
electricity. Based on the current rate of
consumption, US coal supplies could last for more
than 250 years.
COMMUNITY COMMENTS
““In January 2004 the Campbell CountyEconomic Development Corporation, togeth-er with leadership from Kennecott Energy,held a community forum to discuss housing
in our community and its importance in
workforce recruitment. As a result of those
discussions, a Housing Task Force was
formed, again with Kennecott Energy staff
playing a lead role. As a community leader
Kennecott Energy stepped up to the plate,
generously contributing $15,000 toward the
cost of a housing needs assessment. The
assessment was completed in December
2004 and provides the community with a
wide array of tasks and directions for meet-
ing their housing needs now and into the
future.
Kennecott Energy's commitment to their
communities and their workforce spearhead-
ed this effort and sparked other funding con-
tributions as well.””
Susan Bigelow, Executive Director ofCampbell County Economic Development
Corporation
The Journey towards Sustainable Business
Improvement
In 2004, Kennecott Energy embarked on a wide-
reaching exercise to improve its financial performance.
The company realized its entire organization had to
evolve for it to effectively tackle the challenges of 2004
and beyond. The Business Improvement Process (BIP)
was launched to address efficiency and effectiveness at
our operating sites and to address similar opportunities in
marketing, logistics, human resources, technical services,
finance and other support groups. BIP was designed as a
structured approach to addressing Kennecott Energy's six
elements of sustainable development, namely
economic viability, product stewardship, asset use and
resource efficiency, organizational culture, environmental
stewardship, and community relationships.
Based on the analysis performed in early 2004, Business
Improvement teams held numerous brainstorming
sessions with employees across the organization to help
Kennecott Energy attain best-in-class performance. With
the tremendous participation of our workforce, more than
1000 distinct ideas were generated with a large portion
of those evaluated for impact. Key selection criteria for
an idea to become a project were: the idea's inherent
value
to the organization, its ability to be sustainable and its
potential for positive safety and environmental impact.
By year's end, more than 150 projects were either being
implemented or were in the process of being implement-
ed. Each project was managed internally, demonstrating
the project management and leadership capabilities of
Kennecott Energy's employees.
BIP projects helped deliver close to $30 million in added
value with efforts that cut across key business drivers,
including revenue enhancement, productivity, capital and
cost savings. BIP has allowed Kennecott Energy to share
best practices internally and to benchmark itself against
other business units in and outside Rio Tinto.
The Future of Business ImprovementKennecott Energy has set high but achievable targets for
delivering sustainable value in 2005. All aspects of the
company will be called on to maintain a focus on
business improvement to sustain the benefits realized in
2004. Company leaders will be challenged to conduct
timely and frequent interactions, employees will be asked
to identify more ways for the company to improve, and
performance reporting systems will be integrated to
monitor progress. Other essential cornerstones for
continued sustainability will be a focus on investing in
skills that will help sustain Business Improvement and the
integration of Rio Tinto corporate business
improvement initiatives.
29
SUSTAINABILITY
Jeane Hull, Vice President, Technical Services & Business Improvement
BUSINESS IMPROVEMENT
KEC IS CLEAN COAL
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31
TECHNOLOGYKennecott Energy Company believes that, as we look for
ways to improve the way coal is utilized, it is important
to address the following issues:
� Short-term emissions reductions of conventional pollutants. Reforming the Clean Air Act will
help accomplish this goal in a more rapid and
cost effective manner. Kennecott Energy
believes market-based mechanisms, such as
cap-and-trade, are the most effective way to
reduce emissions from coal-fueled generation.
� Longer-term needs to develop near-zero
emissions technologies. Although the benefits
from this effort will not be felt immediately,
immediate action is required to begin
developing these technologies or they will not
be available when required, resulting in higher
energy and environmental costs for US
taxpayers. If we are going to maximize the
value of the extensive US coal
reserves, deep cuts in emissions are needed.
Efforts to reduce SO2, NOx and mercury
eventually will have to be expanded to include
cuts in CO2 emissions.
Long-term CommitmentKennecott Energy believes immediate action is needed to
identify cost effective, long-term solutions that minimize
the overall costs to society. Short term, policies that
result in inappropriate investment decisions have the
potential of adding significant national costs. Kennecott
considers CO2 to be a long-term issue that ultimately will
require setting long-term goals and long-term policy
approaches. Immediate efforts must focus on identifying
and developing a portfolio of technologies that will allow
significant reductions in future emissions. For this effort
to be effective it ultimately will require participation and
emissions reductions from all sectors of the economy.
Addressing coal emissions will require a balanced, broad-
based approach. Effective reductions that will not cause
undue harm to local communities will require a broad
portfolio of options, all of which must be pursued.
These options will necessarily include: increased
energy efficiency, demand-side management, advanced
conventional coal technologies, and renewable
technologies. Near-zero emissions technologies, such as
integrated gasification combined cycles (IGCC) combined
with geo-sequestration, offer significant potential to
contribute to a sustainable energy future.
Short-term Needs
In order to provide options and opportunities for the
future, the US will need to accelerate development and
deployment of low-emission technology generally and,
more specifically, carbon capture and storage (CCS or
geo-sequestration) technology. (CCS is technology that
can allow industry to capture the CO2 before it leaves
their facilities and store in deep underground reservoirs
similar to those that have held oil and natural gas for
millions of years.) Support for development of these
technologies can come in many forms from tax
incentives to direct subsidies; however, industry must not
be burdened in ways that places it in a competitive
disadvantage internationally.
Developing short-term, low-emission technology with a
focus on CCS is important for the long-term sustainability
of the nation's energy supply. Geo-sequestration has
been identified by industry experts as the key enabling
technology for the development of near-zero emission
coal-fired generation. Through the development of this
technology, CCS is expected to reduce the global cost of
emissions reductions which, in turn, will allow a more
rapid reduction in emissions.
Diversity of TechnologyGeo-sequestration, however, is only one technology in a
broad portfolio of options the US and other nations will
need to pursue in order to minimize the cost of emissions
reductions. Kennecott Energy believes the guiding
principle in this effort should be to support the lowest
cost emissions reductions wherever they may occur.
New technologies, whether they are renewables or
low-emission fossil fuel technologies, tend to have higher
costs early in their development cycle. Policies to
support the deployment of technologies that contribute to
lower emissions should apply to all technologies that
meet emissions criteria in preference to specific policies
targeting one technology.
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