1. Electricity Production and Usage Opportunities & Challenges UNL Faculty Retreat Presentation May 15, 2007 General Counsel & VP of Governmental Affairs John C. McClure (402) 563-5773 jcmcclu@nppd.com

2. 2 Who is NPPD? 2006 Annual Overview Revenue - $752 Million 18.4 billion kWh sold 2,128 employees 3,134 MW of generation accredited capability Primarily a wholesale power supplier to municipalities, other public power districts and cooperatives Average Retail - 6.03¢ Average Firm Wholesale - 3.74¢ Generates 50% of electricity consumed in Nebraska Nebraska has consistently been among the 10 lowest cost states for electricity

3. 3 Electric Industry Fundamentals Electricity revolutionized the modern economy. Almost every activity and transaction ultimately relies on electricity. Electricity is unique – generally must be produced at the same time it is consumed. Electric industry has evolved for 100 years but has not experienced revolutionary changes that have affected other industries. Electric industry moves in cycles and has a herd mentality.

4. 4 Electricity Timeline 20% 40% 60% 80% 100% 1950 1960 1970 1990 2000 2010 2020 2025 Petroleum Admiral Lewis L. Strauss “It is not too much to expect that our children will enjoy electrical energy in their homes too cheap to meter.” EPA is formed and Clean Air Act is Passed Jimmy Carter “Resolving the Energy Crisis is ‘The Moral Equivalent of War.’” Renewables/Hydro Natural Gas Nuclear Coal Atomic Energy Act Arab Oil Embargo Utility Deregulation (PURPA) Natural Gas Deregulation Fuel Use Act 1974-78 1980 National Energy Policy Act Climate Change Convention Kyoto Protocol signed by 154 nations in Rio September 11 Enron Bankruptcy Alan Greenspan “Congress should look at ways to increase energy supplies from nuclear and coal. The two sources together account for about 70 percent of U.S. supply.” Three-Mile Island MWH % by Fuel Type Source: Energy Information Administration Chernobyl NuStart FutureGen NuStart FutureGen Source: R. W. Beck, Inc.

5. 5 Fuel Mix for Electricity National 2005 NPPD 2006

6. 6 Electric Industry Resource Challenges Long-Term Planning Horizon –20-30 years Capital Intensive Market & Fuel Price Volatility Regulatory Uncertainty –Utility Policy Monopolies Competition –Environmental Policy Air Water Technology Uncertainty Economic Uncertainty –How will local economy fare?

7. 7 Key Energy Issues in Nebraska Inter-Relationship of Agriculture, Energy & Water –Substantial irrigation development Energy costs Electric load management –Rapid expansion of ethanol industry Managing energy usage and impacts

8. 8 2007 Projections NPPD Ethanol and Irrigation Load, MWh at Bus A 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 198519871989199119931995199719992001200320052007200920112013 MWh at Bus A Ethanol Load Irrigation Load Percent of Total Annual Energy 2006 MWh 2013 MWh Irrigation 7.1% 8.1% Ethanol 6.8% 19.8%

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10. 10 2007 Projections

11. 11 2007 Preliminary Rate Track NPPD Historical Summer Billable Peak Forecasts NPPD “Fan” Summer Peak Forecast

12. 12 Challenges for the Future Water – How long will the regional drought last? –Adverse impact on thermal plant cooling –Adverse impact on hydro generation –Increased pumping demand – especially for agriculture What level of irrigation is sustainable for Nebraska?

13. 13 Challenges for the Future (Cont’d) Renewable Energy –How do we assure sustainability of grain- based ethanol industry? Energy infrastructure costs Demand for corn –How much renewable electricity should be added? Demand for wind machines exceeds supply Intermittency of wind Lack of transmission Solar is expensive

14. 14 Challenges for the Future (Cont’d) Why are surrounding states adding more wind than Nebraska? –Federal Product Tax Credit ($19.00 MWH) available to private entities and not public power or cooperatives –Private entities allowed to earn a return on renewable investments – “green” is profitable –Renewable Portfolio Standards Minnesota Law, the most aggressive in nation Colorado is increasing its requirement –Transmission Availability

15. 15 TOTAL INSTALLED U.S. WIND ENERGY CAPACITY: 11,603 MW as of Dec. 31, 2006 © 2006 by the American Wind Energy Association Installed Wind Capacity - 2006

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17. 17 Significant Transmission Necessary to meet National 20% RPS

18. 18 Challenges for the Future (Cont’d) Carbon Policy –Not if, but how soon and how fast Major domestic issue on the Congressional agenda in 2007 –Global impacts, global issue China will outpace U.S. on CO 2 emissions by end of year One new coal plant commissioned every week –Economy-wide impacts (see pie chart on next slide)

19. 19 2004 U.S. Greenhouse Gas Emissions Millions Metric Tons of CO 2 Equivalent Total 7,012 Source: U.S. Environmental Protection Agency, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2004, EPA 430- R-06-002 (Washington, DC), p. ES-13

20. 20 World Carbon Dioxide Emissions by Region, 2001-2025 (Million Metric Tons of Carbon Equivalent)

21. 21 Challenges for the Future (Cont’d) Long-term challenge – slow, stop, reduce emissions Lack of technology to capture and sequestor CO 2 Developing CO 2 sequestration may require new national pipeline network for transportation to suitable storage areas –Limited experience injecting CO 2 to enhance oil recovery Capture and sequestration expected to add significant costs to coal based generation

22. 22 NPPD Generation CO 2 Projections

23. 23 Challenges for the Future (Cont’d) Nation, Region and State will need new baseload generating technologies but no clear cut option –Coal dominates today but future has uncertainty –U.S. hasn’t ordered a new nuclear plant for several decades –Hydro potential is small and controversial –Natural gas is expensive

24. 24 Technology Critical to COE Cents per kWhr Cost of Electricity (20 Year Levelized) (Non-PTC for Renewables) Basis: $8.00/MMBtu NG O&M Fuel Capital Costs Gas Coal Nuclear Wind Biomass Solar 40 30 20 10 0

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27. 27 Various Energy Prices Indices, Jan. 1991 = 1.00 Mar-07

28. 28 Challenges / Opportunities for the Future Technology –Energy Efficiency –Power Generation How do you get more energy output with equal or less energy input? –Clean coal technologies are generally less efficient How can you reduce energy demand? –Improving transmission / delivery efficiencies smart grids

29. 29 Challenges / Opportunities for the Future (Cont’d) Technology (Cont’d) –Energy Efficiency Improve efficiency of end use consumption –Lighting opportunities Compact fluorescent lights –Motor efficiencies –HVAC –Changing consumer behavior

30. 30 Conclusions In a carbon constrained world, we need significant technology advances: –Fundamental breakthroughs would be great, but many incremental improvements are essential –R&D collaborations such as UNL and NPPD through Nebraska Center for Energy Sciences Research –U.S. needs commitment on the scale of “Manhattan Project” to address energy needs through supply and demand side options –More efficient electricity generation and delivery –New generating technologies

31. 31 Conclusions (Cont’d) In a carbon constrained world, we need significant technology advances to: –More efficient consumer equipment: Motors HVAC Lighting Appliances Electronics –Reduce energy intensiveness of agriculture Less energy input / higher yield –Other fundamental changes may occur Plug-in hybrid vehicles Potential emergence of hydrogen economy –We are competing globally for talent, energy equipment and fuel

32. 32 Conclusions (Cont’d) Electric industry has aging workforce and needs influx of new workers Increase number of engineering and technology graduates -- essential to develop new solutions and support existing operations Cost of energy will likely be escalating for many years There is no silver bullet