1. Factors and Issues Re Fuel Switching and Building New Gas Plants Jeffrey J. Norton, Esq. Energy Law & Policy Institute University of Pittsburgh School of Law August 1-2, 2013

2. Agenda  Overview of Factors that Lead Toward Fuel Switching  SWOT Analysis of Fuels and Switching  Gas Utilization Opportunities  Legal Issues with Increased Gas Utilization in Baseload Generation 2

3. 3 Gas Shale Plays in the U.S.

5. Outlook for U.S. Energy Use Source: U.S. Energy Information Administration, Annual Energy Outlook 2011, April 26, 2011. Annual Energy Outlook 2011

6. Total Energy Use By Fuels  Oil34%  Natural Gas 26%  Coal19%  Renewables11%  Nuclear 10% (Source: EIA and JohnHanger.com Blog) 6

7. U.S. Power Generation Trends Source: EIA Black & Veatch predicts in next 25 years*: Gas-fired generation will increase to 54% Coal-fired generation will decrease to 21% *assumes that electricity demand will double with economic recovery 7 CoalGasNuclearWindSolar 200052%16%20%00 201142%26%20%3%0.2% 201236%29%20%4%0.4%

8. Top Energy Trends  Energy Boom Time in U.S.  Oil & Natural Gas are Growing  Coal is Declining  World and U.S. Trends are Different  Fuel Prices Have Dramatic Impact  Shale Gas Continues to Evolve  Rise of the Decentralized Electric Grid  Demand Side – Consumer Stakeholders  Push for National Energy Policy 8

9. Coal v. Gas SWOT Analysis

10. Coal  Strengths and Opportunities Vast supplies A major player in generation Clean coal technologies Carbon capture and storage Global exports are strong 10

11. Coal  Weaknesses and Threats 100,000 MW of U.S. Coal-Fired Power Plants are 40 yrs. old or older Coal retirements in next 10 yrs. Low nat. gas prices - loss of market share New environmental regulations  NSPS standards for new plants, GHG limits for plants to be issued by EPA (in Sept. 2013?) Climate change issue, especially in long-term 11

12. Obama’s Climate Action Plan of 2013  President’s plan to cut carbon pollution  Directs EPA to establish carbon pollution standards for both new and existing power plants  Likely result: Stringent CO2 standards; new control equipment too expensive for coal 12

13. Critics of Climate Action Plan  Electricity prices will rise resulting in higher energy bills  Lost coal jobs  Natural gas prices will rise halting manufacturing renaissance  No impact on real global climate change  Unilateral exec. order bypasses Congress  No realistic backup plan 13

14. Recent News re Climate Change  First Energy will close 2 coal-fired plants in PA, scrapping gas conversion (380 jobs, 2,080 MWs)  AEP will close coal-fired OH plant instead of converting  Alpha Natural Resources will lay off 100 employees in WV coal mines  United Church of Christ to divest pension funds and investments in fossil fuel companies  US Supreme Court to review case re EPA’s Cross-State Air Pollution Rule  3 rd Cir. Court approved EPA rule that forced PA plant to reduce sulfur emissions into NJ 14

15. Gas Development 15

16. Natural Gas  Strengths and Opportunities U.S. Gas Production in 2011 Set Record U.S. is the World’s #1 Gas Producer Shale Gas is about 37% of Total U.S. Gas Supply U.S. Oil to Gas Ratio at Record Levels: 35:1 30% of U.S. electricity gas fired in March 2012 Uses: Transportation, Generation and Export Cracker Plants and Move to NGL 16

17. Natural Gas  Weaknesses and Threats Increased Regulation/Potential Litigation Emotional Response – Gasland/Truthland Impact Studies – water, emissions Low Prices Affect on Drilling Over Supply – Gas Storage Nears Capacity Drill rigs count in PA is down 29% Number of wells drilled in PA in 1 st Q declined 18% from last year (per DEP) Need for infrastructure 17

18. Protecting the Environment Primary Environmental Issues For Shale Gas  Methane Leakage  Gas Migration  Air Emissions  Injection of Wastewater in Deep Caverns  Water 18

19. Gas Utilization and Energy Efficiency

20. Example: Combined Heat & Power (“CHP”)  CHP – co-generation on-site generation of electricity/use natural gas create thermal energy – can be used in direct process applications or indirectly  CHP has many benefits: lowers demand on the electricity delivery system frequently reduces reliance on traditional energy supplies makes businesses more competitive by lowering their costs reduces greenhouse gas and criteria pollutant emissions refocuses infrastructure investments towards a next-generation energy system 20

21. CHP - Overall Efficiencies 21

22. CHP - Continued  Incentives are potentially available for a CHP Project: Accelerated depreciation Section 48 - Investment Tax Credits (“ITC”) Net Metering (up to 5MW) for excess electricity Act 129 Funds: FE, PECO, PPL and DLC Possible rebates or financing from EDCs Gas Energy Efficiency Program PA loan programs/Alternative and Clean Energy Program  AEPS: Renewable energy credits (“RECs”) or other potential credits may be generated by the CHP Project 22

23. Legal Issues and Challenges

24. Legal Issues  Increased Environmental Regulation  Level Playing Field for Energy Incentives  Term of Fuel Contract  Reps and Warranties  Liabilities  Risk of Loss/Insurance 24

25. Long-Term Purchase Contracts and Hedging Arrangements  Natural gas suppliers, power generators and consumers can share risk of future price changes agree to a fixed price for portion with balance priced at market rate buyers and sellers can have contract terms of different lengths regulators can adopt framework to approve prudent long-term purchases pipeline owners and regulators can agree on appropriate tariffs 25

26. Thank you. For Further Information: Jeffrey J. Norton, Esq. jnorton@eckertseamans.com 26 Two Liberty Place 50 South 16 th Street 22 nd Floor Philadelphia, PA 19102 (215) 523-7810 213 Market Street 8 th Floor Harrisburg, PA 17101 (717) 237-7192