Public Policy Drivers and Other Trends in Renewable Energy

1. Public Policy Drivers and Other Trends in Renewable Energy IPED Managing Your Energy Portfolio in a Greener World Presented by: Mon-Fen Hong La Capra Associates, Inc. Presented to: January 19, 2007

2. Today’s Discussion • Renewable Energy Portfolio Requirements • Emerging Emissions Considerations • Increasing Renewable Resources in Utility Resource Portfolios • Utility Ownership of Renewable Projects • Conclusions

3. State Renewable Energy Requirements are Increasing

4. RPS Key Points • Every state RPS is different • Rising energy costs and available local resources motivate RPS • Map is already out-of-date (Washington state just passed RPS by vote) • Many states exempt or limit applicability for municipalities, co-ops and public power agencies • Growing push for federal RPS

5. Maine Vermont New Hampshire New York Connecticut New Jersey Delaware Greater Attention to Emissions: Some Examples • Rating agencies looking at company carbon risk • California: reduce CO2 25% by 2020 • RGGI (seven northeast states): reduce CO2 10% by 2019 • Increasing expectation of federal action Seven Participating States of RGGI:(Regional Greenhouse Gas Initiative)

6. Until Recently: Utilities Hesitant with Renewable Energy • Before 2005, very few large non-hydro renewable energy projects owned by utilities • Mid-American Energy: 360 MW of wind-power projects in Iowa • 50 MW wood plant in Vermont • 2 geothermal plants (Utah and CA) • Utilities regarded renewables as outside mainstream and perhaps not a reliable resource

7. Now: Renewables Significant Part of Resource Plans • Integrated resource plans find renewables are cost effective option • Lawrence Berkeley National Lab: Western utility plans show 8,000 MW of new renewable energy projects by 2014 • See http://eetd.lbl.gov/ea/ems/re-pubs.html • Very high percentage from wind

8. Utility Ownership of Wind Projects:A New Trend? • Last 18 months have seen a dramatic shift • Utilities complete or announce start of over 600 MW of wind projects • Puget Sound Energy • Oklahoma Gas & Electric • Kansas City Power & Light • Capital cost of almost $1 billion • Also note: PSNH* has converted 50 MW coal plant to biomass *Public Service of New Hampshire

9. Is the TrendAccelerating? • Utilities announce acquisition of development rights to over 1,100 MW of wind projects having a capital cost of almost $2 billion • Wisconsin Power & Light • Wisconsin Electric • Portland General Electric • Mid-American

10. Issues for Customers • Potentially big rate base addition • More than 50% of wind project cash-flow value derives from tax benefits • How best to structure transaction for non-taxable utilities? • CREBs financing for smaller projects? • Utilities have little experiencewith renewables

11. Opportunities for Customers • Utilities’ involvement may be a significant step to development of relatively new but promising resource • Long-term value of no fuel-cost resource • Price suppression • Emission-free or reduced emissions risk

12. So . . . QUESTION: Ownership vs. PPAWhat is best for customers? ANSWER: As always, it depends! Details count.

13. A Representative Cost Profile

14. Development and Operating Risks of Ownership • Development risk • Construction cost overruns (capital at risk) • Actual wind performance • Cost of capital and other costs can increase over time • Ability to use taxes/AMT issues (if applicable) • Unscheduled maintenance/longevity of equipment • Incentive to run efficiently

15. PPA Some Conclusions • Growing national trend in RPS and other emissions-related policies • Utilities seeing that addition of wind and other renewables to the resource mix can be beneficial • Whether such additions should be by means of power purchase agreement (PPA) or ownership must be carefully considered

16. End of Presentation    Thanks! Mon-Fen Hong La Capra Associates Twenty Winthrop Square Boston, MA 02110 617-557-9100, ext. 22 mhong@lacapra.com Contact Information:  