Division of Energy Resources Massachusetts Division of Energy Resources Energy Roundtable April 12, 2002 4/12/02 Confidential Draft

PG&E NEG Generation Mix Coal/Oil (10 facilities) 2,997 MW Hydro (3 facilities) 1,166 MW Natural Gas (10 facilities) 2,277 MW Windpower (2 facilities) 78 MW *As of 12/31/2001, PG&E NEG had ownership or leasehold interests in 25 operating generating facilities with a net generating capacity of 6,518 megawatts. Source: PG&E National Energy Group Form 10K published on 3/5/2002.

PG&E National Energy Group Breakdown of New England Generating Unit Output 4,386 Megawatts Total* Hydro 1,167 MW Coal/Oil 2,336 MW Natural Gas 2,052 MW *Includes 1,152 MWs under construction

Preserving Diversity Does Not Mean Sacrificing Environmental Protection PG&E National Energy Group plans to invest hundreds of millions of dollars in environmental improvements at Brayton Point Station and Salem Harbor Station over the next several years. Brayton Point Station: Air - $150 - $170 M Reductions in NOX by 80% from 1990 levels Reductions in SO2 by 70% from 1990 levels Water - $58 M - ? 33% reduction in heat and flow of water discharge Mercury Controls - ? Greenhouse Gas Controls - ? Confidential Draft

The Benefits of Preserving Diversity Maintaining a reliable electricity supply Stabilizing costs Gross margin not materially different from RI’s Synapse data Synapse appears to have excluded emission allowance costs Synapse incorrectly looked at gross margin and not the actual cash BP generates. Capital requirements are the significant drivers in the near term These costs were not envisioned at the time the assets were purchased by PG&E, purchase price would have been lower reducing the benefits to consumers that they are enjoying now. Our view now is that the station is not profitable near term and we are looking long them only if future exposure to further costs are minimized. Confidential Draft

Impact of Removing Coal from the New England Portfolio We call this a load duration curve, illustrates the type of technology needed to meet various loads (customers needs) in the market and the cost of such generation. Cite typical on and off-peak loads and which technologies set market prices Coal based units play a critical role in keeping power prices low on and off peak. If these units are removed form the generation mix then the price paid by all customers will be higher in all hours but particularly the off-peak or low load hours when coal sets the clearing price. Estimated cost to the New England economy is more than $500 million Confidential Draft

Reliability Concerns “…major changes are underway in New England’s energy situation and the region is headed toward sharply increased dependence on natural gas, particularly for electric generation. These changes …will have potential risks for the reliability of energy supplies and the cost of energy that will be born by the people of New England.” Glenn Schleede, Energy Market and Policy Analysis, Inc.

Public Policy Considerations Past efforts at maintaining diversity Brayton Point and Salem Harbor were required by the federal government to switch to coal in the late 1970’s and early 1980’s because of concerns about excess dependency on oil For the future: Who is looking at the cumulative impacts of policies and regulations on fuel diversity?