1. 1 The Quiet But Important Role of Natural Gas in the New Energy Economy By: John Harpole Presentation to: Grand Junction Chamber of Commerce August 26, 2009

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4. 4 Nancy Pelosi appeared on Meet the Press* BROKAW: …If we work our way off carbon-based fuels, in the meantime, this is not going to happen overnight. PELOSI: No, it isn’t, but you could – again, you could reduce the price at the pump immediately with (inaudible). You can have a transition with natural gas. That is cheap, abundant and clean compared to fossil fuels. *** PELOSI: I’m – I’m investing in something I believe in. I believe in natural gas as a clean, cheap alternative to fossil fuels. *** PELOSI: Well, that’s not – that is the marketplace. The fact is, the supply of natural gas is so big, and you do need a transition if you’re going to go from fossil fuels, as you say, you can’t do it overnight, but you must transition. Is Natural Gas Misunderstood? *From the transcript of her appearance during the Democratic National Convention, 2008

5. 5 Electric Generation by Energy Source* Source: EIA, Existing Net Summer Capacity A 225% increase in eleven years for natural gas.

6. 6 NYMEX Henry Hub Natural Gas Historical Price 1996*- 2008 Actual/Forecast 2009** (year on year 10% decrease in demand for natural gas) Source: *Average of last three days of trading as published in the Platts Gas Daily Report ** Future forecasts based on Henry Hub indices in Clearport Software as of 8/17/09

7. 7 Capacity Utilization of U.S. Natural Gas Turbines Total Capacity MW (Utility & IPP) 2007 Generation MW2007 Capacity Factor 396,921701,503,67620.18% Source: 1. Electric Power Annual, EIA, 2007 (Washington DC, January2009) 2. EIA 860, Existing Nameplate Capacity by Energy Source, Producer Type and State 3. EIA 906, Net Generation by State by Type of Producer by Energy Source

8. 8 Utilization of Coal-Fired Generation Utilities and IPP’s in 2007 Total Capacity MW2007 Generation MW2007 Capacity Factor 315,4011,905,427,29668.96% Source: 1. Electric Power Annual, EIA, 2007 (Washington DC, January2009) 2. EIA 860, Existing Nameplate Capacity by Energy Source, Producer Type and State 3. EIA 906, Net Generation by State by Type of Producer by Energy Source

9. 9 Source: Energy International Agency, World Proved Natural Gas Reserves, Jan. 2008 Tcf/year Year Trillion Cubic Feet Annual Growth 2000167.42.1% 2001177.46.0% 2002183.53.4% 2003186.93.4% 2004189.03.4% 2005192.51.8% 2006204.46.2% 2007211.13.3% Proved Natural Gas Reserves Bigger reserves now = more production later

10. 10 Technology Break- through on Shale Gas

11. 11 World Class Natural Gas Reserves Now Emerging 8 TCF 26 TCF 44 TCF 251 TCF 262 TCF Nearly 600 Tcf of potential natural gas reserves in just five key U.S. shale plays, which is equivalent to 100 billion barrels of oil, or ~3x U.S. proved oil reserves Source: Chesapeake internal estimates

12. 12 U.S. Natural Gas Shale Basins Align with Pipeline Grid American Clean Skies Foundation Sources: EIA, US Natural Gas Pipeline Nework ©2008 Navigant Consulting, Inc North American Natural Gas Supply Assessment, prepared for American Clean Skies Foundation, July 4, 2008.

13. 13 US Population Distribution 2000

14. 14 Renewables and Natural Gas State of Colorado Policy Federal Policy

15. 15 Mandates for Renewables in Colorado/Does Colorado presage the national debate? Colorado’s Amendment #37 – 1 st state to adopt a renewable energy standard by ballot –Passed November 2, 2004 For: 1,066,023 (53%) Against: 922,577 (47%) –Required 3% of electricity sales to be derived from renewable sources by 2007, 10% by 2015

16. 16 Mandates for Renewables in Colorado (cont’d) Legislative response to Amendment #37 –Renewable energy standard is adopted –Retail rate impact increased to 1% of retail sales as compared to conventional resources

17. 17 Mandates for Renewables in Colorado (cont’d) 2007 Renewable Energy Standard is amended –Investor Owned Utilities ie: PSCo & Black Hills 3% for 2007 5% for 2008 – 2010 10% for 2011 – 2014 15% for 2015 – 2019 20% for 2020 – thereafter –Increased the retail rate impact to 2% Source: Judy Matlock of Davis, Graham and Stubbs

18. 18 Mandates for Renewables in Colorado (cont’d) Does PUC Section 123 order effectively exclude costs related to wind and solar from 2% retail rate impact? Least cost planning by utilities is effectively eliminated by renewable mandates An issue that deserves an informed and vigorous critique: What is the real cost to each Colorado household/ratepayer for renewable mandates?

19. 19 Renewables at the Colorado State Level – It’s about scale. 2005 electric generation broken out as follows: –72% coal-fired generation –24% natural gas fired generation – 4% hydro, wind and solar generation To meet the 2020 goal, up to 2,700 MW of existing coal generation, out of about 4,900 MW operating may need to be retired. Source: Reducing Colorado’s Electric Sector Greenhouse Gas Emissions: The Difficulty of “Running Down and Up Escalator” A White Paper, Holy Cross Energy, February 2009

20. 20 Cost to Meet the Governor’s Climate Action Plan: 2050 Goal? “Today every 1,000 kilowatt-hours sold in Colorado comes bundled with nearly 2,000 pounds of carbon dioxide. A tenfold decrease in that ratio would be needed to achieve 80% reductions by 2050. In that year, almost all of the state’s electricity would have to be produced from non- emitting sources. Source: Reducing Colorado’s Electric Sector Greenhouse Gas Emissions: The Difficulty of “Running Down and Up Escalator” A White Paper, Holy Cross Energy, February 2009

21. 21 Cost to Meet 2020 Reduction Target? For Holy Cross Energy: “This would raise wholesale electric rates 19-45% above normal cost escalation, depending on which scenario was implemented.” Source: Reducing Colorado’s Electric Sector Greenhouse Gas Emissions: The Difficulty of “Running Down and Up Escalator” A White Paper, Holy Cross Energy, February 2009

22. 22 Remember: Gas Turbine Utilization in Colorado Utility Nameplate Capacity, MW IPP Nameplate Capacity, MW Total Capacity MW 2007 Generation MWh 2007 Capacity Factor, % 1,9733,2245,19713,425,77929.49% Source: 1. Electric Power Annual, EIA, 2007 (Washington DC, January2009) 2. EIA 860, Existing Nameplate Capacity by Energy Source, Producer Type and State 3. EIA 906, Net Generation by State by Type of Producer by Energy Source

23. 23 Renewables at the Federal Level – It’s about scale Total MW generated in one year in U.S. Total MW generated by wind & solar % of total for wind & solar renewables 4,118,198,000 MW/hrs 45,493,000 MW/hrs 1.1% Source: EIA Data, December 1, 2007 – November 30, 2008

24. 24 Federal View - Will “Cap & Trade” Become a Reality? President Obama’s 2010 budget estimates $79 billion in “cap & trade” income in 2012 an amount that would hit $646 billion in 2019. The President furthermore states that a “cap & trade” proviso would reduce CO2 emissions by 14% by 2020 and by 83% by 2050 all based on 2005 levels. That’s one Gigaton of CO2 reduction in emissions which is equal to: –132 nuclear plants or –127,000 wind turbines

25. 25 Federal View - Will “Cap & Trade” Become a Reality? (cont’d) Duke Energy’s Chief Executive, Jim Rogers (who supported Obama and who backs “cap & trade”) fears that if credits are auctioned off, it could cause electricity rates to jump 40% in some regions. Estimate of “cap & trade” cost to the average American family is $3,100 per year. Source: Congressman Doc Hastings, WA

26. 26 The Goal “A reduction in the levels of carbon dioxide being emitted into the global atmosphere is the most important environmental benefit from wind power generation.” - Global Wind Energy Council Global Wind Energy Council, “Global Wind Energy Outlook 2008,” 46. Available: http://www.gwec.net/index.php?id=92http://www.gwec.net/index.php?id=92

27. 27 The Reality “…wind power will cut global annual carbon dioxide emissions by 731 million tons by 2030.” Global Wind Energy Council, “Global Wind Energy Outlook 2008,” 46. Available: http://www.gwec.net/index.php?id=92http://www.gwec.net/index.php?id=92

28. 28 However… “Under this scenario, carbon dioxide savings under wind would be negligible, compared with the 18,708 millions tons of carbon dioxide that the IEA (International Energy Agency) expects the global power sector will emit every year by 2030.” Global Wind Energy Council, “Global Wind Energy Outlook 2008,” 46. Available: http://www.gwec.net/index.php?id=92http://www.gwec.net/index.php?id=92

29. 29 Put Another Way… “...while wind energy promoters claim that the CO2 emission reductions are a key benefit of adding new wind power, the industry’s own projections are showing that all of the wind turbines on the planet will only reduce electricity-related carbon dioxide emissions by about 4% by 2030. That’s nowhere near the 80% reductions that have been put forward in the US and elsewhere as being necessary to avert catastrophic climate change.” Global Wind Energy Council, “Global Wind Energy Outlook 2008,” 46. Available: http://www.gwec.net/index.php?id=92http://www.gwec.net/index.php?id=92

30. 30 Can renewables supplant fossil fuels? Large amounts of electricity cannot be stored Electricity production in U.S. is predicated on reliability, affordability and security Wind is an energy resource not a capacity resource

31. 31 Wind Turbine Farm

32. 32 The Colorado Wind Model 12.5% load factor (capacity credit) at peak hours* (A nameplate 600MW facility is = to 75 MW at peak hours) Requires natural gas back-up, nearly 1MW of gas peaking generation for each MW of wind *Source: Colorado PUC In the matter of the application of Public Service Company of Colorado for approval of its 2007 Colorado Resource Plan, Direct Testimony and exhibits of James F. Hill - The effective load carrying capability (“ELCC”)

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35. 35 The Colorado Wind Model (cont’d) Colorado Interstate Gas Co (CIG)/Public Service Company of Colorado (PSCo) are building the $200 million High Plains Gas Pipeline Project and a $150 million natural gas storage field (Totem) to back-up wind generation “Ten-minute” instant on natural gas fired simple cycle (exhausts directly to atmosphere) combustion turbines are the only effective way to integrate wind resources *Source: Colorado PUC In the matter of the application of Public Service Company of Colorado for approval of its 2007 Colorado Resource Plan, Direct Testimony and exhibits of James F. Hill - The effective load carrying capability (“ELCC”)

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37. 37 Coal Plant

38. 38 Nuclear Plant

39. 39 Solar

40. 40 Hydro-Electric Facility

41. 41 Simple Cycle (CT) vs. Combined Cycle (CT) CO 2 emissions are an unavoidable by-product of any power generation that utilizes a fossil fuel. A newer combined cycle combustion turbine (CT) power plant will produce approx. 0.7lb CO 2 per kW output. (That is 35% less than a simple cycle combustion turbine (CT)* and 60% less than a coal-fired plant.) A simple cycle combustion turbine (CT) plant (exhausts directly to the atmosphere) will produce approx. 1.035lb CO2 per kW output.** *Source: Colorado PUC In the matter of the application of Public Service Company of Colorado for approval of its 2007 Colorado Resource Plan, Direct Testimony and exhibits of James F. Hill - The effective load carrying capability (“ELCC”) **Source: Black Hills Colorado 2008 Resource Plan, page 62, Table 10-1

42. 42 Simple Cycle Combustion Turbine

43. 43 Simple Cycle Combustion Turbine (CT) Pros/Cons Pros  Quick start-up (10 to 20 minutes)  Clean  Well-proven technology  Highly reliable  Fast construction  Good peaking resource  Low O&M costs  Can use small site 1 to 10 acres  Lower $/kW than combined cycle Cons  Lower efficiencies  Gas prices

44. 44 Combined Cycle Combustion Turbine

45. 45 Cons  Can take 1 to 5 hours to start up  Normally only base loaded  Needs larger site - up to 40 acres  Gas prices  Higher $/k than simple cycle Pros  Highly efficient  Clean  Good baseload resource Combined Cycle Combustion Turbine (CT) Pros/Cons

46. 46 Independent Power Producer Demand Profile* (Instant-On Gas) at Fountain Valley Midway Simple Cycle Combustion Turbine (CT) Plant *CIG Electronic Bulletin Board – For Fountain Valley Midway – 6 combustion turbines

47. 47 Colorado’s Simple Cycle Combustion Turbines FACILITY NAMEMAXIMUM CAPACITY Fountain Valley Power Plant6 simple cycle combustion turbines 38.8 MW Blue Spruce Energy Center2 natural gas fired simple cycle combustion turbines 151.9 MW each Manchief Generating Station2 natural gas fired simple cycle combustion turbines 142 MW each Valmont Combustion Turbine Facility – The Black Hills Colorado facility 2 simple cycle combustion turbines 38.153 MW 40.746 MW Brush 31 simple cycle combustion turbine 28.5 MW Ft. Lupton Combustion Turbines 2 simple cycle combustion turbines 100 MW gross Limon Generating Station2 natural gas fired simple cycle combustion turbines

48. 48 Colorado’s Simple Cycle/Combine Cycle Combustion Turbines FACILITY NAMEMAXIMUM CAPACITY Arapahoe Combustion Turbine Facility – The Black Hills Colorado facility 2 combustion turbines configured to operate in simple cycle mode or combined cycle mode Simple cycle mode: 38 MW each Combined cycle mode: 130 MW each Brush 11 combustion turbine - either simple or combined cycle 28.5 MW Brush 21 combined cycle combustion turbine 32 MW Rocky Mountain Energy Center2 combined cycle combustion turbines 152 MW each

49. 49 Colorado’s Simple Cycle/Combine Cycle Combustion Turbines FACILITY NAMEMAXIMUM CAPACITY Thermo Power & Electric LLC2 combustion turbines42.5 MW each Ft. St. Vrain Station3 natural gas fired combustion turbines 411.7 MW total Ft. Lupton Cogeneration Facility5 combustion turbines57.412 MW each

50. 50 Irony #1 “The integration of wind resources in Colorado has resulted in a higher CO 2 footprint than there would be if the same amount of natural gas (currently utilized by simple cycle combustion turbines) was instead utilized by more efficient baseload combined-cycle power plants. That “externality” and the higher costs of “peaking” natural gas should be considered and accounted for when calculating the “life-cycle” cost of wind energy.” -John Harpole

51. 51 Irony #2 – What is the benefit? There are no measurable net benefits or any reduction to CO2 emissions in Colorado as a result of integrating wind energy into our generation and transmission grid. Globally, in 2003 humankind emitted 25,780 million metric tons of carbon dioxide of which emissions from Colorado accounted for 89.7 million metric tons or only 0.35%. Less than 4/100ths of 1%. That’s 1.26 inches on a football field. Source: EIA, 2007b

52. 52 Conclusions  A sound, secure and reliable energy policy can only be realized when politicians and public utility commissions consider the full-life cycle cost and benefit of each electric utility generation resource.  The “peak gas” argument has been obliterated. As long as the domestic natural gas industry is allowed to maintain a healthy rig count, the United States has plentiful reserves (for the next 50 years) to make natural gas the focus of our energy economy.

53. 53 Conclusions (cont’d)  The United States should immediately increase the demand for natural gas to help preserve a domestic industry that is critical to the nation’s energy security. Natural gas peaking plants should be utilized at a higher capacity rating.  To maintain our energy security, we need an energy policy:  That does not increase taxes.  That recognizes the costs to back-up the renewable energy “future”.  That does not continually reduce or eliminate access to federal lands, onshore and offshore.

54. 54 Conclusions (cont’d)  Natural gas should be THE key to a lower carbon emitting society and the key to energy independence.  All Btu’s are needed – all supply sources are intertwined in resource solutions.

55. 55 John A. Harpole President Mercator Energy LLC www.mercatorenergy.com (303) 825-1100 (work) (303) 478-3233 (cell) Contact Information