2. CCS Legal Issues Presentation to CWAG August 5, 2009 Karl Moor VP & Associate General Counsel Southern Company Services

3. Prism Showing Potential for CO 2 Reductions AEO2008* (Early release) AEO2008*(Ref) Impact of efficiency measures in Energy Independence and Security Act of 2007 (EISA2007) Advanced Coal Generation DER PHEV CCS Nuclear Generation Renewables Efficiency EPRI used AEO 2007 as first reference, and then looked at what might be technically feasible by 2030. CCS is a crucial slice of action needed. AEO2007*(Ref)

4. Why Does the U.S. Need CCS? Some states have carbon dioxide emission restrictions now; federal restrictions are on the horizon Electricity production is roughly 40% of U.S. CO 2 emissions Coal provides 50% of U.S. electricity production; 80% of CO 2 emissions from electricity production CCS is the only technology for fossil fuels with the promise of substantially reducing carbon emissions Fuel switching carries other problems –Natural gas – cost, price volatility –Nuclear – public acceptance, spent fuel disposal –Renewables – reliability, cost, availability 84,000 U.S. coal jobs (Source: National Mining Assn.)

5. 2008 Stimulus Package –10% tax credit for sequestering CO 2 for enhanced oil recovery (EOR) –20% tax credit for sequestering CO 2 for permanent storage (non-EOR) 2009 Stimulus Package –$3.4 billion for clean coal, including $1 billion for fossil R&D $800 million for CCPI Round III $1.52 billion for industrial scale CCS projects and energy efficiency projects $50 million for site characterization of geologic formations –Advanced Energy Investment Tax Credit – 30% credit for manufacture of clean energy equipment, including CCS equipment Congress is Promoting CCS

6. CCS Basics CO 2 Capture CO 2 Capture Underground Injection & Storage PipelineTransport Compression Compression CO 2 cap rock Power Plant Saline Reservoir

7. Storage Capacity and Geology Target storage formations –Deep saline aquifers –Basalts –Depleted oil and gas reservoirs –Ultramafic formations (volcanic rock) –Shales –Deep sea deposition Key features for successful storage –Containment layer or layers –Porosity and permeability –Chemical composition may speed mineralization

8. Fossil Fuel Power Plants Near Favorable Sequestration Geology Fossil fuel power plant Favorable sequestration geology Unfavorable sequestration geology Emissions data from EPA. Geology data from DOE, USGS, and internal Southern Co. research. Formations considered were primarily saline, and oil and gas reservoirs.

9. Federal Statutes and CCS Safe Drinking Water Act Underground Injection Control Program (UIC) Potentially Applicable Resource Conservation and Recovery Act Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) Clean Air Act and Potential GHG Regulation

10. State & Local Legal Issues Property rights in geologic formations –Clarifying rights for CCS –Unitization Pore space ownership –Mineral and surface interests –American rule and English rule –Water ownership issues and deep saline formations Five regimes: Absolute Dominion, Reasonable Use, Correlative Rights, Prior Appropriation, Regulated Reasonable Use Torts –Trespass –Ownership of migrated CO 2 –Nuisance suits –Negligence and strict liability –Breach of contract –Statutes of limitation and repose

11. CCS Pipeline Legal Issues Interstate CO 2 pipeline s –Surface Transportation Board rate regulation –Pipeline and Hazardous Materials Safety Administration safety regulation –No federal siting authority Intrastate CO 2 pipelines Eminent domain - Does State eminent domain authority apply? CCS Pipelines on Federal Lands Who is applying to build the pipeline? –Will it serve customers in the State? –What facilities are being constructed? –Will the facilities be for public use? –Result: In many States it will be easier for a regulated entity to build a pipeline than a non-regulated entity General environmental, cultural, historical siting issues

12. Concerns About CCS Potential for effects on the environment, property, and human health, including: Groundwater contamination Subsurface resource damage Surface leakage Trespass History with enhanced oil recovery (EOR) in U.S., and experience with CCS internationally, suggests risks should be minimal with proper siting

13. Multi-Stakeholder Discussions Participants American Petroleum Institute American Public Power Association American Water Works Association Carbon Sequestration Council CCS Alliance Clean Air Task Force Clean Water Action Edison Electric Institute Environmental Defense Fund Ground Water Protection Council Interstate Oil and Gas Compact Commission National Mining Association National Ground Water Association Natural Resources Defense Council North American Carbon Capture and Storage Association The Sierra Club Texas Carbon Capture and Storage Association Anadarko Petroleum Corporation Blue Source LLC BP Alternative Energy North America Inc. BP America Inc. Denbury Resources Inc. Hydrogen Energy International LLC Occidental Petroleum Corporation Salt River Project Southern Company Source: Bob Van Voorhees, Counsel to the Carbon Sequestration Council

14. Specific Areas of Agreement Definitions for transmissive faults and fractures, carbon dioxide stream, confining zone, and area of review; Bases for injection pressure limitations; GS in basalts, coal seams, salt caverns, and shales; Coverage for area of review and corrective action requirements; How to address potential for interference between GS projects; Well construction requirements; Annulus pressure; Shut-off valves; Emergency response requirements; Closure standards; and Need for adequate implementation resources. Source: Bob Van Voorhees, Counsel to the Carbon Sequestration Council

15. Theoretical Risk Profile for CO 2 Storage

16. Key Issue: Long-Term Site Responsibility Risks endure longer and may be larger than the market currently can address Government risk management role is needed –Beyond market coverage amount –Beyond a reasonable closure period –Potential roles for States and federal government Examples of government liability limitations to promote public benefits: Price-Anderson, Terrorism Risk Insurance Act, National Flood Insurance Program, many others Goal: Adequately and cost effectively cover potential risk and encourage growing private sector risk management role

17. Legislative Solutions: S. 1013 (Bingaman) Provides indemnification through DOE for up to 10 commercial deployment sized carbon dioxide storage projects Indemnity covers liability for personal, property, and environmental damages in excess of their insurance coverage or other financial protection Indemnification only provided after meeting specified closure requirements States are considering similar or broader indemnity

18. Legislative Solutions: Casey/Enzi Bill Carbon Storage Stewardship Trust Fund Act (S. 1502) States that DOE is responsible for long-term stewardship of CCS facilities after issuance of closure certificate Civil claims may not be brought against operators, generators of CO 2, or CO 2 pipeline owners after facility closure Stewardship may be transferred to states Establishes trust fund through fees on storage facility operators per ton of CO 2 injected for payments of civil claims against storage facility after closure Requires operators to maintain liability assurance during active project period

19. Legislative Solutions: Waxman-Markey No provision addressing long-term liability Section 112 – Rulemakings under UIC program and Clean Air Act (atmospheric emissions) Section 113 – Study of CCS Legal Framework: EPA to establish a task force of experts to study: Federal and state law applicable to geologic storage sites Remedies for damages at closed EOR sites Liability and financial responsibility models for closed sites Private sector risk management for closed sites Property rights

20. Addressing the State and Federal Legal Issues: Legislation Needed Key elements : Government liability backstop will be required beyond a defined time and perhaps a defined amount Clarify property rights ownership –Eminent domain for CCS injection and infrastructure Provide for a clear and streamlined regulatory and liability structure