1. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Copyright (c) 2006 Standard & Poor’s, a subsidiary of The McGraw-Hill Companies, Inc. All rights reserved. Credit Impact of Climate Change on the Power Sector Swami Venkataraman, CFA Director Standard & Poor’s July 16, 2007

2. 2. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Climate Change – The Major Credit Drivers The “Cap-and-Trade” Mechanism Sectoral sensitivity and the emissions reduction burden – Autos vs Power Long-term Efficacy and Contingent Liability Excess profits from credit allocations Price Certainty benefits of a carbon tax Economic Cost of Compliance A study based on a dispatch of US power markets under two model legislations Portfolio Characteristics Fuel on the margin and the change thereof

3. 3. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. The Cost of Compliance Ratio Of 2026 To 2007 EBITDA (%)BaseGHG1GHG2 Fossil-Heavy Portfolios Company 12089779 Company 220110291 Company 329311780 Company 417310394 Diversified Portfolios Company 5255184181 Company 6166115 Company 7259199200 Carbon-light portfolios Company 8190206238 Company 9173171184 Company 10402259249

4. 4. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. The Cost of Compliance Fuel Share Of EBITDA Under GHG2 – Diversified Portfolios Company 5Company 6Company 7 (%)200720262007202620072026 Coal592052204621 Nuclear365034363850 Gas121134206 Other48221624

5. 5. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Emissions and Carbon Prices

6. 6. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. The Cost of Compliance Fuel Mix Changes 2007 2026 (%) BaseGHG1GHG2 Coal51463730 Gas162825 Nuclear19151718 Water8666 Wind1166 IGCC0003 Geothermal1000 Other (mostly biomass, landfill gas, wood, fuel cells)2333 Residual oil3000 Energy efficiency0058

7. 7. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Hours on the Margin in 2026: Boxer/Sanders minus Base Case (%) ZoneCoalGas CCGas CTGas STHydroNuclearOilOther ERCOT-North15.6(13.7)0.4(2.2)0.0 FRCC7.61.60.6(0.9)0.0 (8.8)0.0 ISO-NE-Boston0.217.2(2.6)0.10.0(1.0)(10.2)(3.6) ISO-NE-North Ex-Boston0.97.5(2.0)(0.6)0.04.1(12.5)2.7 ISO-NE-Norwalk+SW CT(0.6)30.10.20.0 (24.7)(5.1) NYISO East(0.8)14.2(1.9)0.0 (5.1)(6.5) NYISO Zone J (NYC)0.0(13.9)4.91.70.0 7.4(0.0) RFC-AEP33.7(32.0)(0.6)0.50.0 (0.4)(1.2) RFC-Cinergy14.3(13.2)(0.7)(0.2)0.0 (0.1) PJM-East28.9(22.9)0.10.20.00.4(3.3)(3.0) PJM-West29.1(28.2)(0.7)0.10.0 (0.3)(0.0) SERC-Entergy2.56.11.0(6.0)0.0 (0.7)(3.3) SERC-South16.1(12.8)(1.7)(0.9)0.0 (0.7)(0.1) SERC-TVA19.0(17.0)(2.2)0.0 0.4(0.3) NP-150.8(8.8)(1.3)(8.3)0.0 (0.1)14.7 SP-159.3(4.3)(0.7)(8.1)0.0 3.7 WECC-Wyoming46.1(50.9)6.30.0 (0.1)(1.4) Average13.1(8.3)(0.1)(1.4)0.00.2(3.5)(0.2)

8. 8. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. State of the Markets Well established need for baseload capacity starting in the next decade Past capacity additions displayed clear trends – Preponderance of Coal, Nuclear or Gas in different times Today, several forces are pulling in different directions Volatility in gas prices => nuclear and coal Concerns over global warming => natural gas, nuclear and renewables Rising utility Bills => energy efficiency National Security => coal, ethanol Sharply Rising Construction Costs Equipment costs are rising due to global demand Labor availability is scarce EPC Contract terms are less favorable

9. 9. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Technology Cost Comparison CO 2 transportation ($/ton)6 CO 2 storage ($/ton)4 Market price of gas ($/MMBtu)7 Market price of Eastern coal ($/MMBtu)1.8 Market price of PRB coal ($/MMBtu)1.0 Capital Recovery Period30 years Average Cost of capital10% (12% for nuclear) Global Assumptions

10. 10. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Technology Cost Comparison PCIGCC-EIGCC-PNuclearNGCCWindSolarBiomass Total Plant Cost ($/KW)2438179519254000700170040002500 Capacity factor85%80% 85%65%33%43%85% Heat Rate (MMBtu/Mwh)8.78.29.47.0 Variable O&M ($/Mwh)233720307+27 Fixed O&M ($/Kw-yr)4560 100202533160 Carbon Capture Assumptions Capital Cost ($/KW)940450 0470 Operating Cost ($/Mwh)83303 Energy penalty to capture CO225%15% 013% Ton/MWh CO2 emitted rate (before)0.870.820.9400.37 Ton/MWh CO2 emitted rate (after)0.09 00.04 Technology Cost Assumptions

11. 11. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Technology Cost Comparison $/MWH PCIGCC-EIGCC-PNGCCNuclearWindSolarBiomass Plant Capital Cost 35424413696211336 Plant Fuel Cost 1514950727 Plant O&M 812 61393928 Production Costs 58686568897115191 Carbon Capture Assumptions CO 2 capture capital cost 13779 CO 2 Energy penalty 3015 12 CO 2 other costs 1912147 CO 2 Related Costs 61343628 Cost of Power with CCS 12010210196897115191 Cost of CCS/ton of CO2 80464186 Cost of power given ability to buy credits CO2 at $10/ton 67767472897115191 CO2 at $30/ton 8493 79897115191

12. 12. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Climate Change – The Major Credit Drivers Other Credit Issues Energy Efficiency – Decoupling mechanisms Permitting and LT Liability Issues of Carbon Sequestration

13. 13. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Questions?

14. 14. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Climate Change – The Big Picture Scientific CO2 target of 450 – 550 ppm 50-yr timeframe is appropriate Developing countries modeled to grow by 60-80%

15. 15. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Climate Change – The Big Picture What does one wedge mean? Efficient baseload coal plantsProduce twice today’s coal power output at 60% instead of 40% efficiency (compared with 32% today) Fuel Switching to Gas from coalReplace 1400 GW coal plants with gas plants (four times the current production of gas-based power) Capture CO2 at baseload power plantIntroduce CCS at 800 GW coal or 1600 GW natural gas (compared with 1060 GW coal in 1999) Capture CO2 at coal-to-synfuels plantIntroduce CCS at synfuels plants producing 30 million barrels a day from coal (200 times Sasol), if half of feedstock carbon is available for Capture Geological storageCreate 70 Sleipners (0.3 mill tons of CO2) a year for 50 years Nuclear power for coal powerAdd 700 GW (twice the current capacity) Wind power for coal powerAdd 2 million 1-MW-peak windmills (50 times the current capacity) “occupying” 30 mill ha, on land or offshore (size of Wyoming) Biomass fuel for fossil fuelAdd 50 times the combined Brazil and U.S. ethanol production, with the use of 250 mill ha (one-sixth of world cropland)

16. 16. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Portfolio Components – Credit Factors Energy Efficiency Efficiency will be a key component Expectations for up to 2 wedges California’s per capita usage is about 50% of national average Decoupling tariff essential to protect credit – present only in California Compensation for lost opportunities? Renewable Energy RPS Targets will likely be fully met in a carbon-constrained world Wind will be largest beneficiary, subject to transmission and integration costs Biomass is expected to be economic – permitting; fuel availability Solar not likely economic – Govt and state support essential

17. 17. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Portfolio Components – Energy Efficiency CA saves 40,000 Gwh of electricity per year Or about 40 million tonnes of CO2 emissions

18. 18. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Aggregate Heating Degree Days

19. 19. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Aggregate Cooling Degree Days

20. 20. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Portfolio Components – Solar Power

21. 21. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Portfolio Components – Solar Power

22. 22. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Portfolio Components – Carbon Capture and Sequestration Three capture methods – pre-, post- and oxyfuel combustion Only pre-combustion is commercially proven Cheaper in other industries – Gas E&P, Ammonia, Ethylene Storage OptionRelative Capacity Relative CostStorage Integrity Technical Feasibility Active oil wells (EOR)SmallVery LowGoodHigh Coal bedsUnknownLowUnknown Depleted oil/gas wellsModerateLowGoodHigh Deep aquifersLargeUnknown Mined caverns/ salt domesLargeVery HighGoodHigh Source: MIT white paper of carbon capture and sequestration, January 1997 Key Credit risks arise from regulatory and legal issues Federal vs state regulation; Is CO2 hazardous waste? Transparent regulatory process with public support is key Who will bear the long-term liability? Pipeline Infrastructure?

23. 23. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Hours on the Margin in 2007: All Cases (%) ZoneCoalGas CCGas CTGas STHydroNuclearOilOther ERCOT-North0.067.60.431.80.0 0.20.0 FRCC9.359.51.25.80.0 24.30.0 ISO-NE-Boston27.036.31.00.0 1.929.74.1 ISO-NE-North Ex-Boston15.942.10.0 0.331.89.9 ISO-NE-Norwalk+SW CT19.824.00.0 51.54.7 NYISO East34.614.70.11.10.00.718.030.7 NYISO Zone J (NYC)0.047.96.320.90.0 17.77.3 RFC-AEP82.916.20.10.0 0.70.0 RFC-Cinergy70.323.50.50.0 5.70.0 PJM-East43.927.90.46.10.0 21.60.1 PJM-West65.223.20.3 0.0 11.00.0 SERC-Entergy46.833.60.018.50.0 1.1 SERC-South47.134.10.011.50.0 0.96.4 SERC-TVA92.95.01.40.0 0.60.0 NP-151.562.60.731.90.0 0.23.1 SP-151.242.90.453.60.0 0.11.8 WECC-Wyoming17.780.20.10.0 1.40.6 Average33.937.70.810.70.00.212.74.1

24. 24. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Hours on the Margin in 2026 under Boxer/Sanders Scenario (%) ZoneCoalGas CCGas CTGas STHydroNuclearOilOther ERCOT-North15.666.41.117.00.0 FRCC8.869.46.54.50.0 10.80.0 ISO-NE-Boston27.364.43.70.10.0 3.11.4 ISO-NE-North Ex-Boston7.467.03.10.70.04.34.413.1 ISO-NE-Norwalk+SW CT4.387.10.80.0 5.82.0 NYISO East14.464.61.90.90.0 2.116.2 NYISO Zone J (NYC)0.014.832.822.20.0 30.10.0 RFC-AEP80.315.23.20.90.0 0.3 RFC-Cinergy74.420.54.10.30.0 0.60.1 PJM-East64.329.92.71.10.00.41.80.1 PJM-West74.021.22.90.70.0 0.90.3 SERC-Entergy14.278.23.63.30.0 0.10.0 SERC-South51.143.24.51.10.0 0.20.0 SERC-TVA74.620.63.90.0 0.70.2 NP-157.462.31.16.20.0 23.1 SP-1510.960.50.37.90.0 20.3 WECC-Wyoming51.339.78.90.0 0.10.0 Average34.148.55.03.90.00.33.64.5

25. 25. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Hours on the Margin in 2026 under Base Case Scenario (%) ZoneCoalGas CCGas CTGas STHydroNuclearOilOther ERCOT-North0.080.10.719.20.0 FRCC1.267.85.95.50.0 19.60.0 ISO-NE-Boston27.147.36.20.0 1.013.35.1 ISO-NE-North Ex-Boston6.559.55.11.20.00.216.910.5 ISO-NE-Norwalk+SW CT5.057.00.50.0 30.57.0 NYISO East15.250.33.70.80.0 7.222.7 NYISO Zone J (NYC)0.028.727.920.60.0 22.80.0 RFC-AEP46.747.13.80.40.0 0.41.6 RFC-Cinergy60.133.74.80.60.0 0.70.1 PJM-East35.452.82.70.90.0 5.13.1 PJM-West44.949.43.60.60.0 1.10.3 SERC-Entergy11.772.22.69.40.0 0.83.3 SERC-South35.055.96.21.90.0 0.90.1 SERC-TVA55.637.66.10.0 0.20.5 NP-156.671.02.414.50.0 0.18.4 SP-151.664.80.916.00.0 16.6 WECC-Wyoming5.290.62.60.0 0.21.4 Average21.156.85.05.40.00.17.14.7

26. 26. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Analytic services and products provided by Standard & Poor’s are the result of separate activities designed to preserve the independence and objectivity of each analytic process. Standard & Poor’s has established policies and procedures to maintain the confidentiality of non-public information received during each analytic process.