Federal Climate Change Legislation – Charlotte Chamber September 22, 2009

1. Federal Climate Change Legislation – Charlotte ChamberSeptember 22, 2009 Mike Stroben Director, EHS Policy

2. Key Provisions of H.R. 2454 (Waxman/Markey) • Renewable Electricity and Energy Efficiency Standard • Standard begins at 6% of retail sales in 2012, rises to 20% in 2020 • 25% of requirement can be met with demonstrated energy efficiency • Can buy renewable energy credits from others or pay an Alternative Compliance Payment • Greenhouse gas cap-and-trade program – covers ~ 85% of emissions • Electric generation and fuel producers and importers covered in 2012 • Industrial stationary sources covered in 2014 • Natural gas local distribution companies covered in 2016 • Emission caps expressed as a percentage of 2005 emissions • 97% in 2012 • 83% in 2020 • 58% in 2030 • 17% in 2050

3. Electric Sector Allowance Allocation • The 2012 electric sector allowance allocation is equal to about 84% of sector’s 2005 CO2 emissions – about 35% of the cap • 85.7% of the electric sector allowances allocated to local distribution companies • 10% allocated to merchant coal generating units • 4.3% set aside for long-term contract generators • Local distribution company allocation is split 50/50 between historical emissions and historical retail sales • Allocation must be used to benefit consumers • Allocation phases out entirely in 2030 • Duke Energy Carolina customers do relatively well under this allocation formula because of nuclear generation • Allocation much improved from where debate began

4. Industrial Sector • Legislation includes a list of default industrial sectors that are covered entities • If not part of one of the listed industrial sectors the threshold for being a covered entity is 25,000 tons or more of CO2 equivalent emissions • 2008 is the test year - once in - always in • All covered entities have an annual compliance obligation • Must turn in allowances/offsets every year equal to annual emissions • Allowances allocated only to “energy-intensive, trade-exposed entities” • In 2011 EPA to publish a list of sectors eligible to receive an allocation • EPA is to update the list in 2013 and every 4 years thereafter • Allocations set on a per unit of production basis

5. Duke Energy Position on Climate Change Legislation • Duke Energy supports passage of economically and environmentally sustainable climate change legislation • The question of whether GHG regulation is coming is settled • EPA is currently moving to regulate – set to do so in March of 2010 • Duke Energy prefers a legislative approach • EPA lacks the legislative authority to craft an environmentally sound program that minimizes costs to consumers and our economy • HR 2454 can be improved • As the legislative process moves forward in the Senate Duke Energy will work to win improvements to the legislation to benefit our customers • Implementation schedule and cap trajectory • Allocation phase-out • Offset provisions • Cost-containment mechanism (price collar)

6. What Will the Senate Do and When? • Senators Boxer and Kerry are drafting a bill • Expect it to be introduced the week of September 28th • Senate EPW Committee to mark-up sometime in October • Five other committees with jurisdiction might also work on legislation • Finance, Commerce, Energy and Natural Resources, Agriculture, and Foreign Relations • Timeline for floor action is uncertain – might not occur in 2009 • Copenhagen influence • Health care fatigue • Other legislative priorities • Expect any bill passed by the Senate to be more favorable to consumers than HR 2454 • If Senate does at some point pass a bill, House-Senate conference would try to work out differences

7. Impacts of Legislation • Duke Energy will face both a CO2 emissions and a renewable energy compliance obligation • Develop least-cost strategy to meet both requirements • The North Carolina RPS will help Duke meet the federal renewable requirements • Duke’s energy efficiency initiatives will play a role • Near-term focus will need to be on allowance/offset purchases to make up for the expected allocation shortfall • Can’t change out the existing generation fleet over night • Allowance/offset prices will dictate near-term compliance costs and cost to customers • Longer term – new generation deployment will play a key role in compliance • New nuclear • Additional cost effective renewable generation and energy efficiency • New gas-fired generation

8. Impacts of Legislation on Business • Increased energy costs for everyone • The size of increase will depend on the final program details • More stringent program = higher costs • Allowance allocations to electric and natural gas local distribution companies will moderate impacts • Larger allocation = greater cost mitigation • Direct compliance obligation for sources that are covered entities • Sources that don’t receive an allocation as an energy-intensive or trade-exposed industrial sector will be required to purchase all the allowances /offsets needed to cover their emissions • Could be required to install emissions monitoring equipment • EPA regulations will specify how emissions are to be determined