67th Annual EAP Consumer Services Conference Terrance J. Fitzpatrick President and CEO Energy Association of Pennsylvania

OUTLINE OF PRESENTATION Understanding how a bill becomes a law Pennsylvania energy outlook – natural gas & electricity prices Current trends influencing energy policy State legislative outlook – Clean Power Plan, Act 129, Renewable Energy, others?

HOW A BILL BECOMES A LAW

Bill is assigned to committee HOW A BILL BECOMES A LAW Idea is developed Bill is drafted Bill is introduced Bill is assigned to committee Ideas come from the legislator, a suggestion from a constituent, interest groups, other public officials (such as the Governor) Other legislators are asked to "sign on" to the bill as "co-sponsors" -- both parties The bill is introduced by the legislator in his or her own chamber (House or Senate) and assigned to a committee based on subject matter. EAP-impacted bills typically go through House Consumer Affairs or Senate Consumer Protection

HOW A BILL BECOMES A LAW Bill may be scheduled for a public hearing Bill is scheduled for a vote in committee Bill receives first consideration in full chamber Bill is re-assigned to another committee If contentious or needs discussion, the bill might be scheduled for public hearing (inviting comments for and against from general public, as well as committee members) before a vote With or without a hearing, when it is ready to vote, a Standing Committee can: Table, or set aside, the bill to make it inactive. Change, or amend, the bill. Defeat the bill. Accept the bill. Bill may take a detour en route to the full House or Senate in caucus

HOW A BILL BECOMES A LAW Bill can die along this process if: Bill is returned to full chamber for 2nd reading Bill scheduled for 2nd reading Amendments proposed; simple majority & amendments pass Full chamber votes on the bill. Simple majority votes in favor Bill advances to 3rd reading Bill can die along this process if: Chamber decides not to schedule 2nd reading Full (majority) chamber votes no on the bill before 3rd reading

HOW A BILL BECOMES A LAW Bill advances to 3rd reading Bill scheduled for 3rd reading Further amendments can be proposed. 2/3 majority required to amend Full body votes on the bill; majority votes in favor Bill is sent to opposite legislative chamber If successful, bill proceeds through identical process in the opposite chamber Similar hurdles to overcome and can “die” along the way

HOW A BILL BECOMES A LAW If the bill passes the 2nd chamber with no amendments, it goes to the Governor If the 2nd chamber does amend the bill, it returns to house of origin If they vote “yea” on the amendments, then it can go to the Governor. If they vote “no,” and both chambers still want to see the bill pass, it is assigned to conference committee to work out the differences

HOW A BILL BECOMES A LAW Bill reaches Governor’s Desk Governor does nothing. After 30 days with inaction, bill becomes law without his signature Governor signs the bill. Bill becomes law! Governor vetoes the bill Legislators can override a veto with a two-thirds majority in each chamber

PA ENERGY SNAPSHOT GAS & ELECTRICITY PRICES 2007 2015 Gas Produced 182,277 MMcf 4,812,983 MMcf State Rank – Gas Production 15th 2nd Wholesale Gas Price $9.35 per Mcf $4.38 per Mcf* Wholesale Electricity Price** $83.70/MWh*** $43/MWh^ MMcf = volumetric measure of natural gas, per 1 million cubic feet; Mcf = per 1 thousand cubic feet * Data as of July 2015 ** PJM annual average day ahead on-peak price *** Data from 2008 Sources: EIA, http://www.eia.gov/dnav/ng/ng_prod_sum_a_EPG0_FGW_mmcf_a.htm FERC, http://www.ferc.gov/market-oversight/mkt-electric/pjm.asp#prices

CURRENT TRENDS INFLUENCING ENERGY POLICY “Going green” – environmental / climate change concerns Preference for “local” products, jobs, etc. Distrust of big institutions – government, corporations Political polarization & gridlock – fuels uncertainty about the future Continuing technological innovations

PENNSYLVANIA POLITICAL ENVIRONMENT Similar to Federal political environment – tension between Democratic executive and Republican legislators Budget process much smoother in 2016 than 2015. Structural deficits remain for 2017. Better cooperation and incremental progress – liquor reform, some other issues 2017 issues – budget (structural deficit); state pensions In Harrisburg & Washington, can the political process solve big problems anymore?

LEGISLATIVE OUTLOOK CLEAN POWER PLAN COMPLIANCE CPP adopted by EPA in 2015; requires PA to reduce carbon dioxide emissions 33% by 2030. Options for compliance – improve efficiency of power plants; establish cap & trade program; increase renewable generation; increase energy efficiency. U.S. Supreme Court stayed rule pending decision on appeal – before D.C. Circuit now. USSC may decide in 2017-2018 Act 57 of 2016 amended previous law to extend timeframe for legislative review of state CPP compliance plan in light of stay

LEGISLATIVE OUTLOOK AMENDMENTS TO ACT 129 Act 129 of 2008 required EDCs to reduce customers’ consumption 3% and peak demand by 4.5% by May 2013, and allowed PUC to set additional targets for later years. Industrial customers (IECPA) want to amend law to allow opt out – Senate Bill 805 (Boscola) EDCs want to amend law re: penalties, allow recovery of lost revenue, and update baseline year upon which budget is based. Others – environmental groups, vendors, PUC – want to remove $250 million per year budget cap Outlook for legislation clouded by uncertainty over CPP

LEGISLATIVE OUTLOOK RENEWABLE ENERGY Alternative Energy Portfolio Standards Act (AEPS) of 2004 required electric utilities and suppliers to purchase 18% of portfolios from alternative energy sources by 2021, including 0.5% set aside for solar. Act also mandates subsidies for alternative energy customer-generators by crediting them at full retail rate for generation. Customer-generators avoid paying grid costs, which are shifted to other customers. Soundness of net metering policy is being debated in many states. Likely to be an issue in PA. Legislation has been introduced to “close the border” to require solar credits be purchased from in-state producers. (HB 2040; SB 1343) Increasing renewable energy is also a potential compliance strategy under the CPP. House Bill 129 (Vitale) would increase mandated purchases to 25% by 2030 and triple current solar mandate.

MAJOR POLICY QUESTION FUTURE SOURCES OF ENERGY Who will decide and how? Government policymakers – picking “winners” & “losers”? Markets? The energy industry? In past, government, markets, and industry all played a role, but trend is toward greater government control The absence of a technology-neutral policy to address climate change is key Excessive government support for some renewable sources – especially rooftop solar.

Keep it in the ground?

Terrance J. Fitzpatrick THANK YOU! Terrance J. Fitzpatrick President and CEO Energy Association of Pennsylvania 800 N. 3rd Street, Suite 205 Harrisburg, PA 17102 Tel: (717) 901-0600 www.energypa.org