Energy Sustainability in a Carbon Constrained World George A. Williams Senior Vice President and Chief Operating Officer

2 A federal bill to reduce greenhouse gas emissions is unlikely to pass Congress this year (2010). There is no agreement on the details of a cap-and-trade system. If Congress doesn't move forward, emission reductions will be forced by federal regulators (EPA), ultimately driving up utility rates. Climate Change Legislation Since December, little has happened on Capitol Hill regarding climate change and energy policy.

3 Climate Change Legislation Cap and Trade is an administrative approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. A governmental body sets a limit or cap on the amount of a pollutant that can be emitted. Companies are issued emission permits and are required to hold an equivalent number of allowances (or credits) which represent the right to emit a specific amount. The total amount of allowances and credits cannot exceed the cap, limiting total emissions to that level.credits Companies that need to increase their emission allowance must buy credits from those who pollute less. The transfer of allowances is referred to as a trade.

4 Climate Change Legislation WORLDWIDE 10.4 billion metric tons annual CO 2 emissions UNITED STATES 2.5 billion metric tons annual CO 2 emissions; 0.62 tons per MWh CHINA 2.8 billion metric tons annual CO 2 Emissions; 0.86 tons per MWh THE REST India, Russia and Germany round out the top 5

5 Climate Change Legislation UNITED STATES 2.5 billion metric tons annual CO 2 emissions EE 2.2 million metric tons annual CO 2 Emissions

6 Climate Change Legislation Report No. DOE/EIA-0226 (2009/12); Released December 16, 2009 *Other is petroleum

7 Report No. DOE/EIA-0226 (2009/12); Released December 16, 2009 *Other is petroleum Climate Change Legislation

8 The U.S. can reduce its CO 2 emissions by approximately 500 million metric tons per year by moving to an approximate energy mix of: 30% coal(19% decrease from current) 30%nuclear(10% increase) 25%natural gas(4% increase) 10%renewable(7% increase) 5%hydro (no change) This reduction would effectively move the U.S. intensity from 0.62 to 0.45 metric tons per MWh generated (20% reduction).

9 EE’s Carbon Footprint EE0.31 APS0.48 SPS0.92 PNM0.94 National average0.67 Austin Energy0.49 tons of CO 2 per MWh generated (short-tons) tons of CO 2 per MWh generated (short-tons) 2008 data, Source – Carbon Monitoring for Action - CARMA

10 Nuclear 4,693 GWh 42% Natural Gas 2,682 24% Coal 6716% Renewable 1 <1% Purchases 3,15228% TOTAL 11,175 GWh 100% 2008 data EE’s Energy Sales

11 COST OF ENERGY BY RESOURCE TYPE

12 Climate Change Legislation Climate change legislation may require building of more Renewable Energy Projects This will increase cost of electricity for El Paso Electric’s customers since renewable energy is more expensive than traditional sources of power