More Challenges for Big More Challenges for Big CoalCoal
Tim Light
Senior Vice President
Fuel, Emissions, and Logistics
Southern Coals Conference
March 5, 2009
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“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995
This presentation contains forward-looking statements, which are subject to risks and uncertainties. These factors include electric load and customer growth; weather conditions, including storms; available sources and costs of, and transportation for, fuels andperformance of fuel suppliers and transporters; availability of generating capacity and performance of generating plants; the ability to recover regulatory assets and stranded costs in connection with deregulation; the ability to recover increases in fuel and other energy costs through regulated or competitive electric rates; the ability to build or acquire generating capacity (including our ability to obtainany necessary regulatory approval and permits) when needed at acceptable prices and terms and to recover those costs (including thecosts of projects that are cancelled) through applicable rate cases or competitive rates; new legislation, litigation and governmentregulation, including requirements for reduced emissions of sulfur, nitrogen, mercury, carbon, soot or particulate matter and other substances; timing and resolution of pending and future rate cases, negotiations and other regulatory decisions (including rate or otherrecovery of new investments in generation, distribution and transmission service and environmental compliance); resolution of litigation(including disputes arising from the bankruptcy of Enron Corp. and related matters); our ability to constrain operation and maintenancecosts; the economic climate and growth or contraction in our service territory and changes in market demand and demographicpatterns; inflationary and interest rate trends; volatility in the financial markets, particularly developments affecting the availability of capital on reasonable terms and developments impacting our ability to refinance existing debt at attractive rates; our ability to developand execute a strategy based on a view regarding prices of electricity, natural gas, coal, nuclear fuel and other energy relatedcommodities; changes in the creditworthiness of the counterparties with whom we have contractual arrangements, includingparticipants in the energy trading market; actions of rating agencies, including changes in the ratings of debt; volatility and changes inmarkets for electricity, natural gas and other energy-related commodities; changes in utility regulation, including the implementation ofthe recently-passed utility law in Ohio and the allocation of costs within regional transmission organizations; accountingpronouncements periodically issued by accounting standard-setting bodies; the impact of volatility in the capital markets on the value ofthe investments held by our pension, other postretirement benefit plans and nuclear decommissioning trust and the impact on futurefunding requirements; prices for power we generate and sell at wholesale; changes in technology, particularly with respect to new,developing or alternative sources of generation; other risks and unforeseen events, including wars, the effects or terrorism (includingincreased security costs), embargoes and other catastrophic events; and other factors discussed in the reports, including Forms 10-K and 10-Q, filed from time to time by the company with the SEC.
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Coal/Lignite
66%
Nat. Gas/Oil
23%
Nuclear
6%Pumped Storage/
Hydro/Wind
5%AEP’s Generation
Fleet
38,721 MW Capacity
Company Overview
5.1 million customers in 11 statesIndustry-leading size and scale of
assets:Asset Size
IndustryRank
Domestic Generation ~38,700 MW # 2Transmission ~39,000 miles # 1Distribution ~213,000 miles # 1
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Coal Procurement – 2009 Projected
Coal Stats:
98+% contracted for 2009
Avg. delivered price ~ $47/ton in 2008
Projecting 15% increase in 2009 ~ $52/ton
AEP burns ~ 77 million tons of coal per year
AEP West
AEP East
Total AEP System
Northern Appalachia
30%
Powder River Basin 35%
Central Appalachia
26%
Lignite 6%Colorado/Utah 2%Illinois Basin 1%
Northern Appalachia
39%
Illinois Basin 1%Colorado/Utah
3%Powder River Basin 23%
Central Appalachia
34%
Powder River Basin 75%
Lignite 25%
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Controlled Assets
Approximately 9,100 Railcars - owned & leased Approximately 2,800 Barges - commercial & captive 82 Boats - commercial & captive Cook Coal Terminal with an annual transload capacity of
approximately 18 Million Tons Alliance Railcar Maintenance Facility maintains
approximately 7,000 railcars annually Dolet Hills Lignite Company with approximately 3.3 Million
tons production annually Conesville Coal Preparation Plant with approximately 2
Million tons processed annually Central Coal Lab with approximately 28,000 samples
processed annually
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The New Administration—Energy and the Environment
Energy Legislation -- A First Priority For electric utilities: Federal RPS likely
Climate Legislation -- Also a Priority Passage is complex
Further Air Emissions Requirements -- SO2, NOx, and Hg???
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The Coal Gap(Electric Perspectives – 3rd Quarter 2008 Survey)
69% of those surveyed think of climate change as fact
72% of these believe the matter is urgent
Coal only accounts for ~20% of power generation
Climate change can be addressed through renewables and energy efficiency, and
2/3 think climate change can be addressed
“without serious negative consequences”
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Our Position On Climate Change
The scientific community, led largely by the Intergovernmental Panel on Climate Change, has provided scientific evidence that human activity has contributed to global warming. AEP is helping to lead the discussion nationally and internationally to find a reasonable, achievable approach and enact federal energy policy that is realistic in time frame and does “not” seriously harm the U.S. economy. We also are developing advanced coal technologies so that “coal” can continue to be the important energy resource it is today. We support the adoption of an economy wide, cap-and-trade greenhouse gas reduction program that allows us to provide reliable, reasonably priced electricity to our customers and that fosters the international participation that is necessary to make meaningful progress.
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0
500
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1990 1995 2000 2005 2010 2015 2020 2025 2030
U.S
. Ele
ctri
c S
ecto
rC
O2 E
mis
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(mill
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met
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s)
EIA Base Case 2007
A Portfolio is Needed and CCS is Key
Technology EIA 2007 Reference Target
Efficiency Load Growth ~ +1.5%/yr Load Growth ~ +1.1%/yr
Renewables 30 GWe by 2030 70 GWe by 2030
Nuclear Generation 12.5 GWe by 2030 64 GWe by 2030
Advanced Coal GenerationNo Existing Plant Upgrades
40% New Plant Efficiency by 2020–2030
150 GWe Plant Upgrades
46% New Plant Efficiency by 2020; 49% in 2030
CCS None Widely Deployed After 2020
PHEV None10% of New Vehicle Sales by 2017;
+2%/yr Thereafter
DER < 0.1% of Base Load in 2030 5% of Base Load in 2030
Achieving all targets is aggressive, but potentially feasible
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AEP’s GHG Reduction Portfolio
Renewables(e.g. 800 Mw of Existing Wind
1000 Mw New Wind PPA by 2011Biomass Co-firing)
Offsets & GHG Markets(e.g. Chicago Climate Exchange,
Forest Preservation and Tree Planting,Methane Capture from Livestock,
2.5 MM CO2eTons/yr by 2011 Goal)
New Technology:Clean Coal/CCS
(e.g. Chilled Ammonia Retrofit, IGCC)
Efficiency(e.g. Coal Plant Heat Rate Improvements
DSM and Energy Efficiency)
AEP is investing in a portfolio of GHG reduction alternatives
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The Challenge: CCS is Expensive
CCS w/ Geologic Sequestration
Other renewable, advanced geothermal and/or solar
Carbon Capture for Enhanced Oil Recovery
New Biomass Generation
Dispatch of additional gas vs. inefficient coal
Biomass Co-firing
Forestry
New Wind
Nuclear
Energy Efficiency
Methane Offsets
$/ton CO2e
$0
$50+
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Key Points
Expected federal environmental policy will require further emissions reductions from existing and future coal and natural gas fired power plants
No silver bullet – Portfolio mix of resources will be required to satisfy future energy needs
Carbon capture and storage and enhanced oil and natural gas recovery are critically needed technologies for baseload generation to comply with anticipated federal CO2 emissions reduction requirements
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Mind the Gap !!!