Utilities and Climate Change Regulation Frank Prager Xcel

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Utilities and Climate Change Regulation Frank Prager Xcel Energy Inc. Vice President, Environmental Policy

Utilities and Climate Change Regulation Frank Prager Xcel Energy Inc. Vice President, Environmental Policy June 19, 2008

Xcel Energy Overview Northern States Power Company Minnesota 44% Public Service Company of Colorado

Xcel Energy Overview Northern States Power Company Minnesota 44% Public Service Company of Colorado 39% Southwestern Public Service 12% Northern States Power Company Wisconsin 5% Gas Customers Electric Customers 1. 8 M 3. 3 M 5 th Largest Combination Electric and Gas Utility (based on customers)

Xcel Energy’s Environmental Leadership l #1 retail wind energy provider l Windsource – Largest

Xcel Energy’s Environmental Leadership l #1 retail wind energy provider l Windsource – Largest green pricing program in US l Industry-leading voluntary emission reductions l Innovative clean technology development l Comprehensive CSR reporting

Challenge of Climate Change l Climate change policy will require: — Significant emission reductions

Challenge of Climate Change l Climate change policy will require: — Significant emission reductions — Huge capital investments — Long-term technological transformation l Utilities will bear the lion’s share of the initial reductions

Federal Climate Policy l Climate legislation dead this session — Lieberman Warner failed on

Federal Climate Policy l Climate legislation dead this session — Lieberman Warner failed on cloture June 6 l Some form of regulation appears inevitable l Policy design has huge impact on cost — Targets and timing — Availability of offsets — Safety valve/cost containment — Auction vs. allocation

Meeting the Challenge l l Emission reductions require mix of diverse resources Existing coal

Meeting the Challenge l l Emission reductions require mix of diverse resources Existing coal fleet must be addressed Natural gas is a “bridge fuel” Nuclear, coal with carbon capture will be critical future baseload technologies

EPRI: Value of Clean Technologies* 3500 U. S. Electric Sector CO 2 Emissions (million

EPRI: Value of Clean Technologies* 3500 U. S. Electric Sector CO 2 Emissions (million metric tons) * Achieving all targets is very aggressive, but potentially feasible 3000 2500 EIA Base Case 2007 2000 Technology Efficiency Renewables Nuclear Generation Advanced Coal Generation Carbon Capture & Sequestration Plug-in Hybrid Vehicles Distributed Generation 1500 1000 500 0 1995 2000 2005 2010 2015 2020 2025 2030

Xcel Energy’s Response: 2007 Colorado Resource Plan l Goal: meet customer energy needs cost

Xcel Energy’s Response: 2007 Colorado Resource Plan l Goal: meet customer energy needs cost effectively while reducing emissions l November 15 proposed plan: — Renewable energy (including wind and solar) — Energy efficiency and conservation — New gas fired generation — Coal plant retirement l Projected 10% reduction by 2017 l 2009 filing: evaluate 20% by 2020 scenarios Ponnequin l Smart Grid City

Xcel Energy’s Response: 2007 Minnesota Resource Plan l “Compliance” based plan — Renewable energy

Xcel Energy’s Response: 2007 Minnesota Resource Plan l “Compliance” based plan — Renewable energy (to meet 30% standard) — Energy efficiency and conservation — Emission reduction program — Sherco and Nuclear upgrades l Result: 22% reduction in CO 2 by 2020 Sherco

Strategies to Reduce Carbon Dioxide Today l Natural gas l Renewable energy l Customer

Strategies to Reduce Carbon Dioxide Today l Natural gas l Renewable energy l Customer energy efficiency l l l Tomorrow New nuclear Advanced renewable energy with storage Smart Grid PHEVs and DG Clean coal

Coal l Coal must remain part of energy mix — Low customer costs —

Coal l Coal must remain part of energy mix — Low customer costs — Environmental challenge l Comanche 3 — 750 MW supercritical plant in Pueblo, CO — Comprehensive environmental settlement § NOx/SO 2 emission reductions from existing units — Under construction § Avoided commodity price increases (Price today nearly doubled) § Labor challenges — On-line by 2010 l Future: clean coal

Clean Coal l Coal with carbon dioxide capture and sequestration — Pulverized coal —

Clean Coal l Coal with carbon dioxide capture and sequestration — Pulverized coal — IGCC l Maintains coal as viable resource option l Political interest and support on state/federal level l Significant cost challenges — 10 -30% energy penalty — Trend toward cancelation of projects in 2007 l Xcel Energy experience: IGCC and geologic sequestration is viable — Obstacles: Cost, resource need and liability

IGCC Process (Simplified) Waste Heat Boiler Coal Gasifier Turbine CO 2 Sequestration Enhanced Oil

IGCC Process (Simplified) Waste Heat Boiler Coal Gasifier Turbine CO 2 Sequestration Enhanced Oil Recovery

Climate Policy, the Economy and Jobs l Climate change regulation is not free —

Climate Policy, the Economy and Jobs l Climate change regulation is not free — Technology is key l Climate regulation has implications for energy security — Increased reliance on natural gas for electricity generation — Coal must remain in energy mix l Utility industry must be transformed l Increased costs could destroy demand l Good policy design is critical to control costs