1. CLEAN ENERGY TO PROMOTE CLEAN AIR & IMPROVE ELECTRICITY PRICE STABILITY Alden Hathaway, ERT Debra Jacobson, GWU Law School April 6, 2006

2. Overview Renewable Energy as a Resource to Improve Electricity Price Stability Promoting Renewable Energy & Efficiency with the VA Clean Air Interstate Rule (CAIR) SCC Rulemaking on Time-of-Day Metering

3. Renewable Energy as a Resource to Improve Electricity Price Stability

4. RE Electricity Generation in Virginia

5. Renewable Generation in VA by Fuel Type Source: US EIA

6. Future RE Potential in VA Virginia Study Identifies Capability to Develop 930 MW of Renewable Energy: Roughly 300 MW (of Biomass) could be developed in the near term; Wind development in Virginia is probably limited to 400 MW over the next five to 10 years; 16% and 19% of Virginia’s annual electric demand could be generated by Solar Energy, assuming all available commercial and residential roof space was converted to solar Source: Study Commissioned by Virginia Commission on Electric Utility Restructuring and presented on Jan. 6, 2006

7. What is the Value of Fixed Price? Hedge against electricity supply price increases Key element of portfolio risk management Has positive long-term financials (e.g. Net Present Value) Enables multi-year energy budgeting Provides Renewable Energy Credits (REC) Renewable Energy as a Fixed Price Energy Resource

8. Historical Electric Rate Increases 1985 – 2000: Average Electric Costs increased at an average annual rate of 3.2 %* 2000 – 2004: Average Electric Costs increased at an average annual rate of 16.2%* Projecting Backward to 1986 = 5.96% Increase per Year!! * Extrapolated from 2004 Annual Energy Review - EIA Historical Energy Statistics

9. Causes for Electric Rate Increases Fuel Cost Increases Natural Gas Prices Up (Rising Demand/Falling Supplies) Coal Prices Rise as Utilities switch back from Nat Gas Oil Prices Rise (World Approaches Hubbert Peak)

10. Causes for Electric Rate Increases Fuel Transportation Costs Increase Coal Transport by Rail near Capacity Natural Gas Pipelines Approaching Peak Capacity

11. Causes for Electric Rate Increases Air Compliance Costs Increasing Sulfur Dioxide Credits (quadruple their price in 2 years) CAIR driving Nitrogen Oxide Credits to all time high Mercury? Particulates? Carbon Dioxide???

12. Fixed Price Contracts Crossover Point

13. Fixed Price PPA Contracts Crossover Point When the Crossover Point occurs less than half-way into a fixed price renewable contract, there will generally be a net energy cost savings over the contract term.

17. Rate Caps Coming Off in Several States Delaware - Conectiv seeking Rate Hike of 59% Maryland – Caps coming off July, 2006 Rate Hikes of 40 - 80% Virginia - Caps on until 2011, but VEPCO allowed correction for rising fuel costs in 2007 Rate Hike of 20 - 25% in 2007?

19. Promoting Renewable Energy & Energy Efficiency with the VA Clean Air Interstate Rule

20. Source: VA DEQ VA Nonattainment Areas

21. Source: U.S. EPA EPA Clean Air Interstate Rule

22. Regulator – EPA or State: –Sets an emission cap (in tons) for particular pollutant (e.g., SO2, NOx) for a specific sector (e.g. electric generation) –Distributes allowances that permit emissions of a specified amount of a pollutant in a particular year/season Fossil Fuel Generators meet requirements by: –Reducing emissions; –Buying or selling allowances. Emissions Trading Basics

23. VA Clean Air Interstate Rule (CAIR) State can select its own allowance allocation system Allocation of allowances in a set-aside to spur energy efficiency and renewable energy (EERE) is necessary for local governments to receive credit in their regional air quality plans for NOx reductions from EERE measures Advisory group recommended EERE set- aside

24. VA CAIR VA General Assembly adopted legislation (HB 1055) in March 2006 that provides a new source set-aside to support new EERE projects as well as new fossil fuel projects 5% new source set-aside from 2009- 2013 2% new source set-aside from 2014 forward

25. Comment Period for VA CAIR VA Air Pollution Control Board will release draft VA CAIR for public comment Municipal support of EERE set-aside is essential Urge refinements in draft rule

26. SCC Rulemaking On Time-Of-Use Rates and Smart Metering

27. Rulemaking Required by Energy Policy Act of 2005 SCC required to initiate proceeding but does not have to issue final rule SCC initiated proceeding on February 6, 2006 (Case PUE-2006-00003) Public comments due by May 12, 2006 as to whether SCC should require electric utilities to: (1)issue time-based rate schedules; and (2)offer time-based metering systems.

28. Peak Wholesale Prices Occur During the Mid Afternoon Hours $50 - $60 peak prices vs. $15 average off peak rate adds 3.5 – 4.5 cents per kWH to the cost of electricity Currently this cost is added to overall consumption cost for all load. Thus, all electric consumers subsidize the peak wholesale price hikes

29. Which Load is Lower Cost to Serve? or

30. Importance of Time-Based Metering Crucial is recognizing value of solar technologies in reducing peak loads Solar Energy Savings More Attractive with Time of Day Based Rates

31. Contact Information Alden Hathaway Director of EcoPower Programs Environmental Resources Trust ahathaway@ert.net 202-785-8577 x 13 Debra Jacobson Professorial Lecturer in Energy Law GWU Law School djacobson@law.gwu.edu 703-356-7448