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Addressing New Environmental Regulations John N. Voyles, Jr. Vice President, Transmission & Generation Services KIUC Annual Energy Conference, March 2014.

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Presentation on theme: "Addressing New Environmental Regulations John N. Voyles, Jr. Vice President, Transmission & Generation Services KIUC Annual Energy Conference, March 2014."— Presentation transcript:

1 Addressing New Environmental Regulations John N. Voyles, Jr. Vice President, Transmission & Generation Services KIUC Annual Energy Conference, March 2014

2 Drivers from Recent EPA Regulations Mercury & Air Toxics Standards (MATS) Cross State Air Pollution Rule (CSAPR ) National Ambient Air Quality Standards (NAAQS) Page 2

3 LG&E and KU Least-Cost Compliance Plans Page 3 Trimble County Mill Creek Ghent E.W. Brown Install additional clean coal technology at 4 largest stations

4 LG&E and KU Least-Cost Compliance Plans Page 4 Trimble County Mill Creek Ghent E.W. Brown Additional control technology construction progressing

5 LG&E and KU Least-Cost Compliance Plans Page 5 Retire 800 MW at 3 coal-fired stations Cane Run Green River Tyrone

6 Cane Run 7 Natural Gas Combined Cycle Construction Progressing Page 6

7 EPA Regulations Still to Come with Significant Ramifications Coal Combustion Residuals (CCR) Greenhouse Gas — New & Existing Source Performance Standards National Ambient Air Quality Standards (Ozone and PM 2.5 ) Effluent Guidelines & 316 (b) Page 7

8 Coal Combustion Residual (CCR) Treatment Facilities & Dry Landfills Page 8 Dewatering systems Beneficial reuse transfer systems Conveying systems Transport systems Lined landfill Leachate collection Groundwater monitoring

9 More Carbon Regulations? EPA has re-proposed regulations for new coal plants EPA must propose in June 2014 regulations for existing plants Impacts??? — Efficiency improvements? — Renewable standards? — Cost implications? Page 9

10 29 States and D.C. Have RPS Mandates Page 10 Source: FERC

11 NAAQS — Revised Ozone Standard? EPA re-evaluates standards every 5 years 2012 — The President delayed the release of the 2008 proposed ozone revision EPA expected to issue ozone proposal this year Ozone Transport Region (OTR) states petition to expand original participants Page 11

12 Effluent Limitation Guidelines (Plant Waste Water Streams) Page 12 Bottom Ash Transport Boiler Blowdown Fly Ash Transport Water & Ash Pond Effluent WFGD & WESP Blowdown Misc. Water Usage Coal Pile Runoff Cooling Tower Blowdown Metal Cleaning Wastes

13 Meeting Future Capacity Needs in a World of Uncertainty

14 Generation Supply is Changing Due to Retirements Recent press clipping… — “MISO will fall below [reserve margin] targets during the 2015 summer season. If resources do not come on-line, an increased likelihood of firm load shedding is possible.” (2013 Long-term Reliability Assessment; NERC). 37 GWs of announced retirements by 2015 in Eastern Interconnect — PJM and MISO reserve margin forecasted to decline precipitously (PJM – from 31% today to 21% in 2018; MISO – from 18% today to 12% in 2015). Problems were widespread during January cold temps — TVA declared energy emergency alerts on 3 occasions in January — PJM experienced non-firm natural gas curtailments and 20% EFOR. — SCE&G had rolling blackouts from high load and outages. Page 14

15 Announced Coal Retirements Higher Than 2013 Page 15

16 Weather Impacts Can Result in Higher-Than-Expected Loads January 6-7, 2014 weather Temperatures up to 30° F below normal with low of -4 °F Winds of mph with gusts up to 33 mph Page 16

17 Renewables Contribute Intermittently... Limited potential for renewable generation at peak — No solar (new winter peak set after 8 p.m.) — Strong but variable winds diminished quickly — MISO wind gen. at peak hour dropped 86% from Jan. 6 to Jan. 7 Page 17 Load Diminishing Note: Wind speed does not correlate to load

18 System Planners Consider Key Uncertainties Key uncertainties for potential capacity additions — Range of natural gas prices — CO 2 regulations — Range of load forecast (peak and energy) Using a probability for each scenario, a plan with the expected lowest reasonable cost is identified Consider a range of outcomes in combination to minimize costs Page 18

19 A Range of Economic Forecasts are Considered… Page 19 Source: IHS Global Insight High Base Low

20 Also a Range of Natural Gas Prices… Page 20 Source: Energy Information Administration High Med Low

21 And Potential CO 2 Prices Page 21 Source: Synapse Energy Economics High Med Low

22 Comparative Levelized Costs of Electricity of Dispatchable Technologies — 2015 Page 22 Baseload technologies

23 Comparative Levelized Costs of Electricity of Non-Dispatchable Technologies* — 2015 Page 23 Without integration costs

24 Examine Alternatives Across a Range of Scenarios Prefer NGCC in low-gas and carbon scenarios. Need NGCC for base load in carbon scenarios. NGCC is not unfavorable in any scenario. Coal response only favorable in high gas, zero carbon scenarios. Simple Cycle CT not desirable in carbon scenarios. High capital cost and limited dispatch flexibility reduce value of wind and solar. Page 24

25 Green River Station Page 25

26 Green River 5 — Natural Gas Combined Cycle Unit Page 26 Similar to rendition of the Cane Run 7 NGCC

27 Photovoltaic (PV) Solar Resources Page 27 PV Array in Spain 48 MW 380 acres

28 Potential Solar Array Location E.W. Brown Station Page 28 LG&E and KU PV Array ~10 MW ~ 100 acres

29 Total Capital Required Trends (2009 versus 2012) Page

30 Levelized Cost of Electricity Trends 2009 versus 2012 Page

31 Portfolio in Transition: Combined Cycle Gas Will Be 15% of Capacity by 2019 Page 31

32 Portfolio in Transition: 25% of Energy From Two NGCC Units by 2019 Page 32 1% non-fossil

33 Non-Fossil Resources Increasing by 40% Since 2005 (Nameplate Capacity) Page 33 ~ 40% * Solar capacity addition only if approved by KPSC MW

34 Non-Fossil Energy Increasing 50% Since 2005 (Intermittent Output Based on Resource) Page 34 ~ 50% * Solar energy addition only if approved by KPSC GWh

35 2014–2018 Capital Investments Page 35 No investments included for GHG regulations

36 Electricity Generation by Fuel, (Trillion kWh by Year) Page 36 Source:

37 Regional Rate Comparison — Industrial Page ¢ 6.52¢ 6.02¢ 6.30¢ 6.38¢ 5.71¢ LG&E and KU — 5.64¢ 5.35¢ U.S. Industrial Average per kWh is 6.60 cents Source: Edison Electric Institute, Winter 2012, Typical Bills and Average Rates Report

38 Closing Thoughts Current and future EPA regulations continue to impact investments and energy costs. Supply side retirements during 2015 and 2016 will likely present transitions issues for the grid. Key uncertainties impact near-term and long-term alternative supply resource options. Renewable energy resources can be a part of a portfolio. LG&E and KU continue to pursue least reasonable cost options for these challenges. Page 38 of Electricity

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