Indiana Energy Association Coal, Energy Security and Carbon The Path Forward

1. I thank you for your interest, and appreciate the opportunity to talk with you this morning.I thank you for your interest, and appreciate the opportunity to talk with you this morning.

2. 2 Coal: Homegrown Energy Abundance in a World of Energy Shortfalls At the root of our recommendations is an understanding of America�s unique energy abundance. [SLOW] America�s unique energy abundance� how often do you hear these words? Yet it�s true. Just as America is the breadbasket to the world� beneath the fruited plains lay the largest coal reserves in the world. America has 27% of global coal reserves, and coal is found in more than half of the states. Some people call the U.S. the Saudi Arabia of coal� but that doesn�t really do us justice. America has more coal than any nation has any single energy resource. And just the state of Illinois has more coal resources than all the oil in Saudi Arabia, Iran, Iraq and Kuwait combined.At the root of our recommendations is an understanding of America�s unique energy abundance. [SLOW] America�s unique energy abundance� how often do you hear these words? Yet it�s true. Just as America is the breadbasket to the world� beneath the fruited plains lay the largest coal reserves in the world. America has 27% of global coal reserves, and coal is found in more than half of the states. Some people call the U.S. the Saudi Arabia of coal� but that doesn�t really do us justice. America has more coal than any nation has any single energy resource. And just the state of Illinois has more coal resources than all the oil in Saudi Arabia, Iran, Iraq and Kuwait combined.

3. 3 Energy is Key to All Human Activity Man�s first great invention was also its first energy resource: the ability to create and harness fire using wood Modern energy is responsible for everything from: Transportation Manufacturing Heating & Cooling Communications Medical Advancements Education Clean Water / Sewage Treatment The list goes on and on and on �

4. 4 Electricity = Life; In America, Coal is Electricity �The top-rated engineering improvement to the life of earthlings in this century was electrification� If anything shines as an example of how engineering has changed the world during the twentieth century, it is clearly the power that we use in our homes and businesses.�

5. 5 China and India Driving Global Demand Growth for Energy How long can China and India continue their torrid pace of energy growth? These statistics suggest that this trend can continue a long, long time. Consider that, for all the growth of electricity in recent years in China and India, China uses just one-tenth the per-capita of the U.S., while India is just one-thirtieth the U.S. Overall per-capita energy use is also just a fraction of U.S. use. We believe the world is only at the beginning of long-term growth in global energy demand� following a decade when oil and natural gas have already reached record prices. How long can China and India continue their torrid pace of energy growth? These statistics suggest that this trend can continue a long, long time. Consider that, for all the growth of electricity in recent years in China and India, China uses just one-tenth the per-capita of the U.S., while India is just one-thirtieth the U.S. Overall per-capita energy use is also just a fraction of U.S. use. We believe the world is only at the beginning of long-term growth in global energy demand� following a decade when oil and natural gas have already reached record prices.

6. 6 On the Road to Peak Oil � Driver A: The Inexorable Growth of Population

7. 7 On the Road to Peak Oil � Driver B: The Momentum of Economic Growth

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9. 9 Demand for Energy: The Rising Tide

10. 10 U.S. is Past Peak for Oil and Natural Gas Production

11. 11 Matt Simmons: World Crude Oil Production Peaked in May 2005

12. 12 Our Growing Dependence on Foreign Oil Has Been Bipartisan and Is Not Sustainable

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14. 14 Peak Natural Gas a Reality in U.S. Leaving Uncertain Imports for New Supply

15. 15 Iran, Russia, Qatar, Algeria & Indonesia Have Announced an LNG Cartel

16. 16 Expensive Natural Gas Now Limits Usefulness of Most Gas Generating Plants

17. 17 LNG Becomes Default Fuel for Generation if Coal Use is Limited for Any Reason U.S. will voluntarily cede control of it�s energy future to a foreign energy cartel Project Energy Independence led to a reduction of oil used for electricity generation LNG is global & priced off of oil benchmarks LNG risks: Political Risky regions Physical Security of terminals Financial Balance of payments

18. 18 Clean Coal Technologies are Only Path for Affordable & Adequate Energy Supply Coal-to-Liquids � CTL with CCS can produce better fuels at the same rate of CO2 emissions as imported oil. Adding biomass increases cost but improves CTL�s carbon footprint. Coal-to-Gas � Coal can be gasified to create NG for power plants and the CO2 can be captured and stored. SNG from coal with CCS has a better carbon footprint than natural gas and much better footprint than LNG. Coal-to-Electricity � New clean coal plants emit 15% less CO2. FutureGen plants will have near-zero emissions.

19. 19 States that Rely on Coal Have Low-Cost Electricity Coal is the reason the US electricity prices are low. This map represents the retail electricity prices by state in the US with the green and blue states being those with electricity cost of less than 7 cents per kWh. Those in orange being 7 � 9 cents per kWh and those in red being greater than 9 cents/kWh. The second number for each state is the percentage of state�s generation from coal based generation. What you will note is almost all of the low cost electricity states have a high percentage of generation is coal based. In fact the two lowest cost states are Kentucky and Wyoming and they both have over 95% of their generation from coal based generation. The only exception are blue states are those have over 90% of its generation from hydro. On the other end of the spectrum the high cost states have less than ___ % of the generation from coal based generation.Coal is the reason the US electricity prices are low. This map represents the retail electricity prices by state in the US with the green and blue states being those with electricity cost of less than 7 cents per kWh. Those in orange being 7 � 9 cents per kWh and those in red being greater than 9 cents/kWh. The second number for each state is the percentage of state�s generation from coal based generation. What you will note is almost all of the low cost electricity states have a high percentage of generation is coal based. In fact the two lowest cost states are Kentucky and Wyoming and they both have over 95% of their generation from coal based generation. The only exception are blue states are those have over 90% of its generation from hydro. On the other end of the spectrum the high cost states have less than ___ % of the generation from coal based generation.

20. 20 EIA: Coal Generation to Outpace All Other Forms Three to One Through 2030

21. 21 Increased Long-Term Coal Demand Due to Increased Coal Generation This chart shows an individual breakout of the late-stage coal plants. They represent 41 units in 21 states across America. These plants alone require an extra 90-million-plus tons of coal per year. And 60% of that will be sourced by PRB or Illinois Basin coal regions, where Peabody has the number one position. This chart shows an individual breakout of the late-stage coal plants. They represent 41 units in 21 states across America. These plants alone require an extra 90-million-plus tons of coal per year. And 60% of that will be sourced by PRB or Illinois Basin coal regions, where Peabody has the number one position.

22. 22 Reserve Margins Have Reached Dangerously Low Levels U.S. baseload generation capacity reserves margins have greatly declined Generation capacity to grow just 6% in the next 10 years while demand grows 19% 2006 North American Electric Reliability Council study �Brace yourselves�: FERC says consumers to face 20-30% increase in electricity prices this summer due to natural gas Energy Daily May 18, 2007 Electricity generation reflects a major element of our failed natural gas strategy. Most new generation that has been built in the U.S. over the past 15 years is fueled by natural gas. U.S. generation capacity reserve margins are declining, and the North American Electric Reliability Council reports that U.S. electricity demand will outstrip new generation by a more than three-to-one margin in the next 10 years. Reserve margins will shrink past the safety margins within the next few years in most regions of the U.S. Our days of saying �no� to new baseload electricity are past. And using natural gas as a baseload fuel merely strains gas supplies and drives up prices for home use. In fact, an Energy Daily headline last week just warned about the �Summer Shocker� from the Federal Electric Reliability Council, warning that electricity would be 20 to 30 percent higher this summer due to the major increase in gas generation. Amid these rolling energy shocks that look to grow worse before they get better� it is time to analyze our resource balance sheet and put our assets to greater use. Electricity generation reflects a major element of our failed natural gas strategy. Most new generation that has been built in the U.S. over the past 15 years is fueled by natural gas. U.S. generation capacity reserve margins are declining, and the North American Electric Reliability Council reports that U.S. electricity demand will outstrip new generation by a more than three-to-one margin in the next 10 years. Reserve margins will shrink past the safety margins within the next few years in most regions of the U.S. Our days of saying �no� to new baseload electricity are past. And using natural gas as a baseload fuel merely strains gas supplies and drives up prices for home use. In fact, an Energy Daily headline last week just warned about the �Summer Shocker� from the Federal Electric Reliability Council, warning that electricity would be 20 to 30 percent higher this summer due to the major increase in gas generation. Amid these rolling energy shocks that look to grow worse before they get better� it is time to analyze our resource balance sheet and put our assets to greater use.

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24. 24 Emissions reduction targets (reduction from reference case assuming no GHG control legislation); for example: 2020 2030 Boxer- Sanders (S. 309) 42% 63% McCain-Lieberman (S. 380) 39% 59% Feinstein-Carper* (S. 317) 25% 45% Lieberman-Warner** 25% 52% These would require large reductions in fossil fuel electricity generation, reduce electric system reliability, and decrease capacity margins to dangerous levels They could also cause new coal plants planned or under construction to be halted, thus causing immediate reliability problems *Electricity only **To be introduced

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27. 27 Coal�s Future is Secure With Advanced Technologies These new plants bring about needed energy� and tremendous improvements in environmental performance. These plants represent the first of a three-step, technology driven, approach that Peabody believes is essential for continued emissions improvement and CO2 reductions. First: Build out the next generation of coal-fueled plants to ensure electric reliability and improve emissions. The vast majority of the plants proposed are �advanced combustion� featuring efficient supercritical technologies. Our Prairie State Energy Campus, for instance, will have carbon dioxide emissions 15% below those of the current fleet. Second: Demonstrate IGCC with carbon capture through FutureGen. Peabody is proud to be a founding member of FutureGen� and the final site location is expected to be announced later this year. Third: Aggressively pursue technologies to capture carbon dioxide from existing pulverized coal plants. These emerging technologies have the potential to remove up to 90% of CO2 and retrofit the existing fleet.These new plants bring about needed energy� and tremendous improvements in environmental performance. These plants represent the first of a three-step, technology driven, approach that Peabody believes is essential for continued emissions improvement and CO2 reductions. First: Build out the next generation of coal-fueled plants to ensure electric reliability and improve emissions. The vast majority of the plants proposed are �advanced combustion� featuring efficient supercritical technologies. Our Prairie State Energy Campus, for instance, will have carbon dioxide emissions 15% below those of the current fleet. Second: Demonstrate IGCC with carbon capture through FutureGen. Peabody is proud to be a founding member of FutureGen� and the final site location is expected to be announced later this year. Third: Aggressively pursue technologies to capture carbon dioxide from existing pulverized coal plants. These emerging technologies have the potential to remove up to 90% of CO2 and retrofit the existing fleet.

28. 28 U.S. Has Ample Room for Carbon Dioxide Sequestration

29. 29 $1 Billion FutureGen Plant to Capture and Sequester Carbon Dioxide

30. 30 Meeting America�s Energy Security & Environmental Goals

31. 31 Full Use of Our Coal Resource Ensures the Well-Being of the American People

32. 32 Energy = More Clean Coal

33. 33 I thank you for your interest, and appreciate the opportunity to talk with you this morning.I thank you for your interest, and appreciate the opportunity to talk with you this morning.