1. What Electricity Consumers Need to Know About Environmental Regulation of the Utility Sector Daniel Chartier Director, Environmental Markets & Air Quality Programs BGE Fall Customer Meeting October 31, 2013

2. Edison Electric Institute  Trade Association of Investor-Owned Electric Companies  Membership includes  All US investor-owned electric companies  70 international affiliates  250 associate members  US members  Directly employ over 500,000 workers  Provide electricity for 220 million electric utility customers  Our mission focuses on advocating public policy; expanding market opportunities; and providing strategic business information 2

3. 3

4. Outline  Setting the Stage  The electric industry is responding to many challenges  Federal Environmental Programs  The 5 programs with the highest near-term impact  State-Specific Programs  Environmental programs specific to Maryland  Overall Industry Impact  Adding it all up – what does it mean? 4

5. Setting the Stage: Divergent Forces Markets/ Technology Tax Policy Sales/Economic Recovery Environmental Regulations Congress/States/FERC 5

6. Challenges  With the current economy, little or no growth in energy sales  Still need to invest in new generation, upgrade existing generation and spend on Transmission & Distribution (T&D) to meet future anticipated demand  Perhaps $2 trillion CAPEX over next two decades (Brattle Group, 2008)  Maintaining fuel diversity in the near and long term  Ensuring reliable electricity for our customers  Negotiating the political landscape  Comply with environmental standards 6

7. Utilities Have Substantially Reduced Air Emissions While Increasing Electricity Production

8. 2012 National Fuel Mix Electric Companies Use a Diverse Mix Of Fuels to Generate Electricity 8 *Includes generation by agricultural waste, landfill gas recovery, municipal solid waste, wood, geothermal, non-wood waste, wind, and solar. ** Includes generation by tires, batteries, chemicals, hydrogen, pitch, purchased steam, sulfur, and miscellaneous technologies. Source: U.S. Department of Energy, Energy Information Administration, Power Plant Operations Report (EIA-923); preliminary 2012 generation data.

9. *Includes generation by agricultural waste, landfill gas recovery, municipal solid waste, wood, geothermal, non-wood waste, wind, and solar. ** Includes generation by tires, batteries, chemicals, hydrogen, pitch, purchased steam, sulfur, and miscellaneous technologies. Sum of components may not add to 100% due to independent rounding. Source: U.S. Department of Energy, Energy Information Administration, Power Plant Operations Report (EIA- 923); 2011 final generation data. February 2013 © 2013 by the Edison Electric Institute. All rights reserved. Different Regions of the Country Use Different Fuel Mixes to Generate Electricity 9

10. Generation Fuel Mix Net Electricity Generation (January 2009 – June 2013) 10 Source: Energy Information Administration, Monthly Energy Review (Chapter 7), September 2013 Natural Gas Nuclear Renewables Other

11. U.S. Natural Gas Electric Power Price Dollars per Thousand Cubic Feet 11 Source: Energy Information Administration, http://www.eia.gov/dnav/ng/hist/n3045us3M.htm

12. Natural gas Production by Source, 1990-2040 (trillion cubic feet) 12 Source: Energy Information Administration, http://www.eia.gov/forecasts/aeo/MT_naturalgas.cfm

13. Non-Hydro Renewable Sources More than Double between 2010 and 2035 13

14. Renewable Portfolio Standard Policies www.dsireusa.orgwww.dsireusa.org / September 2012. 29 states, + Washington DC and 2 territories,have Renewable Portfolio Standards (8 states and 2 territories have renewable portfolio goals). 29 states, + Washington DC and 2 territories,have Renewable Portfolio Standards (8 states and 2 territories have renewable portfolio goals). 14

15. Age of Units* Generating Units Total Nameplate Capacity Total Net Generation Year 2008 Total CO 2 Emissions Year 2008 Total SO 2 Emissions Year 2008 Total NO X Emissions Year 2008 # Percent of Total GW Percent of Total GWH Percent of Total MTons Percent of Total Tons Percent of Total Tons Percent of Total 0-10 Years 161.4%5.31.6%19,7881.1%28.71.4%18,0830.2%13,7790.5% 11-20 Years 645.8%14.94.5%78,2614.2%78.13.8%137,8031.9%108,1153.8% 21-30 Years 18616.7%86.126.1%541,40829.0%615.029.6%1,336,03318.0%763,20726.9% 31-40 Years 23821.4%122.537.1%724,20638.8%780.737.6%2,750,02537.1%1,053,25937.1% 41-50 Years 27024.3%60.818.4%316,02916.9%352.216.9%1,879,15225.4%533,03818.8% 51-60 Years 30427.3%39.311.9%187,47310.0%220.710.6%1,265,38817.1%356,90212.6% 61-70 Years 302.7%0.90.3%1,1660.1%2.50.1%19,2230.3%6,5540.2% > 70 Years 40.4%0.00.01%50.0003%0.10.004%870.001%4840.02% Coal Unit Totals 1,112100.0%329.95100.0%1,868,336100.0%2077.9100.0%7,405,794100.0%2,835,339100.0% Source: Ventyx, Inc.—EV Suite MTon = million tons * Does not include units that came online in 2009 Coal Units by Age, Capacity and Emissions U.S. Generating Units, 10 Year Increments 15

16. Industry Capital Expenditures Source: EEI Finance Department, company reports, SNL Financial (October 2013) Actuals Projections (July 2012) Projections (Oct. 2013) Notes: Total company spending of U.S. Shareholder-Owned Electric Utilities Projections based on publicly available information and extrapolated for companies reporting fewer than three projected years (6% in 2014 and 2015). 16

17. Projected Investment by Category 2012P2013P $94.4 B as of August 2012as of October 2013 $95.2 B Generation Distribution Transmission Gas-Related Environment Other  Industry committed to reliability, making needed investments in generation, transmission, smart grid/distribution and environmental controls  How will climate regulations affect capex decisions? 17 Source: EEI Finance Department, company reports (October 2013) Notes: Total company functional spending of U.S. Shareholder-Owned Electric Utilities Projections based on publicly available information and extrapolated for companies not reporting functional detail (1.6%).

18. Federal Environmental Regulatory Challenges: 2012 and Beyond 18 Air Climate Water Land & Natural Resources Waste & Chemical Management Coal Ash PCBs in Electrical Equipment HazMat Transport Transmission Siting and Permitting Avian Protection Endangered Species Vegetation Management 316(b) Effluent Guidelines Limitations Waters of the United States NPDES Pesticide Permits NSPS- New & Modified Sources NSPS- Existing Sources BACT Permitting International Negotiations Utility MATS Interstate Transport (CAIR/CSAPR) Regional Haze/Visibility Multiple NAAQS New Source Review (NSR) Waterbody- Specific Standards

19. Utility Mercury & Air Toxics (MATS) Regulation  Rule finalized April 16, 2012  Significant Improvements – Filterable Particulate Matter (PM) instead of total PM as surrogate for non-mercury metals; monitoring/verification; startup-shutdown – now work practice standards; and limited use subcategory for oil-based units  Remaining key problems – compliance timeline; new source limits  EPA granted reconsideration of certain new source issues  30 total petitions for review consolidated under White Stallion Energy Center LLC v. EPA, D.C. Cir., No. 12-1100  Oral arguments likely in spring 2013  The court has granted expedited schedule for new source issues 19

20. Utility MATS Regulation (2)  Annualized compliance costs to power industry estimated at $9.6 billion (2007$) in 2015  Estimated annual monetized benefits of $27 - $80 billion (2007$) using a 3-percent discount rate  EPA projects ~5 GW of coal-based generation may retire by 2015, and the installation of:  103 GW of dry scrubbing controls: 51 GW dry flue gas desulfurization (FGD) and 52 GW dry sorbent injection(DSI)  148 GW of activated carbon injection (ACI)  191 GW of fabric filters (baghouses) 20

21. Years 1 -3 Year 4 Year 5+ April 2015 Utility MATS Compliance Time Companies have up to 3 years to bring units into compliance as specified by §112(i)(3)(A) State permitting authorities can grant 1 additional year for compliance as needed for technology installation as allowed by §112(i)(3)(B) EPA has indicated it will use §113(a) Administrative Orders for sources that “must operate in noncompliance” (e.g., past a 4 th year extension.) EPA intends to limit applicability only to cases with a “specific and documented reliability concern.” 21 April 2012

22. Cross-State Air Pollution Rule (CSAPR)  August 8, 2011 - final rule published in Federal Register  Affects power companies in 27 eastern states through budgets for NO X and/or SO 2 (both for most states)  On August 21, 2012, the D.C. Circuit vacated the rule  EPA petitioned for rehearing en banc on October 5, 2012  The decision leaves the Clean Air Interstate Rule (CAIR) in place for now, but directed EPA to move “expeditiously” to finalize a replacement for the Cross-State rule  EPA appealed vacatur to the Supreme Court; Oral arguments in the case are scheduled for December 9, 2013 22

23. Cross-State Air Pollution Rule (2) 23

24. President Obama’s Energy Agenda  “All-of-the-Above” Strategy  Invest in a Clean Energy Future  Promote Energy Efficiency  Reduce our Dependence on Oil  Tackle the issue of Climate Change 24

25. National Climate Action Plan  On June 25, President Obama outlined his climate action plan, which contains three “key pillars”  Cutting U.S. carbon emissions  Preparing U.S. for the impacts of climate change (adaptation)  Leading international efforts to address climate change  Near-term mitigation focus is on power sector emissions reductions  Presidential Memo set schedule for EPA action  New source reproposal: September 2013  Final new source standards: “in a timely fashion”  Existing source emission guidelines for states: June 2014  Final existing source guidelines: June 2015  State compliance plans: June 2016 25

26. National Climate Action Plan (2)  Presidential memo also calls on EPA to:  Engage with states, the power sector and other stakeholders  Take into account other “environmental regulations and polices that affect the power sector”  Ensure the continued provision of reliable and affordable electricity  What does the President’s plan mean?  Legacy issue – likely to push hard to complete NSPS rulemakings  Consistent with messages since State of the Union  New spending will be difficult to get through Congress  Ramped up U.S. presence in international climate talks 26

27. GHG Regulation – Introduction  EPA already is regulating GHG emissions under Clean Air Act’s (CAA) prevention of significant deterioration (PSD) Program  Pre-construction (BACT) permits addressing GHGs required for larger new and modified sources, such as power plants, since January 2011  Permits issued to date have largely focused on efficiency of technology being used in order to limit GHG emissions  Next wave of GHG regulations will be under CAA’s new source performance standards (NSPS) program  §111(b): covers new and modified sources; EPA will address modified and reconstructed sources under a separate standard  §111(d): covers existing sources 27

28. GHG NSPS – New Sources  EPA required to issue unit-specific regulations for new sources; no compliance flexibility  EPA issued original proposal in April 2012  As part of President’s climate plan, EPA issued a reproposed NSPS for new sources on September 20  Sets separate standards for coal and gas  Coal standard requires use of Carbon Capture & Sequestration (CCS); effectively prohibiting new coal plants because technology is not commercially available 28

29. GHG NSPS – Existing Sources  EPA develops guidelines; states submit compliance plans  Proposed GHG NSPS for existing sources due by June 2014  Undergo inter-agency review starting in March 2014  Proposal will be drafted during late fall and winter  Near-term windows of opportunity to impact the proposal  EPA is believed to be looking at variety of approaches  Energy efficiency improvements  Flexibility mechanisms (e.g., define existing state programs like RGGI as equivalent or credit for early action)  EPA and some legal scholars think that EPA and states have a lot of flexibility  But, no one really knows what this might mean because courts have never addressed it 25

30. Cooling Water Intake Structures – 316(b) Rule  Proposed rule signed March 28, 2011; EPA is required to finalize the rule by July 27, 2012  In general, the rule sets separate standards for impingement mortality and entrainment mortality for units with design intake rates above 2 million gallons per day (MGD)  The proposed rule leaves much to the discretion of the permit writer (and the EPA Region that reviews the permit)  EPA estimates the total annualized cost at $384.8 million; benefits = $18 million; cost-benefit ratio ~21:1 30

31. Cooling Water Intake Structures (2)  Implications  Every facility over 2 MGD withdrawal will be required to install new equipment  > 600 steam electric generating facilities affected (includes nuclear plants)  Fairly prescriptive rule; based largely on closed-cycle cooling with aspects of site-specific decision-making  Closed-cycle cooling may not meet all requirements  Other water regulations 31

32. Cooling Water Intake Structures (3) 32

33. Coal Combustion Residuals (CCR)  Co-proposal of two options in June 2010 (75 Fed. Reg. 35128):  Subtitle C, “Special” hazardous waste listing; Subtitle D regulations  Beneficial use exempt from regulation  Comments submitted Nov. 2010; Final Rule expected 2012  Subtitle C option would reverse 1993 & 2000 Regulatory Determinations  Majority of states, ash recyclers, industry groups, large number in Congress oppose hazardous waste regulations  Will significantly impact operations: closure of ash ponds, construction of additional disposal capacity, reductions in beneficial use 33

34. Effluent Limitation Guidelines (ELGs)  Will set new Best Available Technology (BAT) limits on 7 important waste streams (including fly ash and bottom ash already covered under the CCR rule)  Coal, oil, gas and nuclear facilities affected (~1,200 facilities)  Proposal issued April 2013  8 options; 4 preferred  “Zero discharge” fly ash limits a part of all but 2 options  No industry preference (yet)  Industry will conduct cost and feasibility analysis  Final rule required by May 2014 due to consent decree  Implementation: 2014-2019 (maybe longer) 34

35. Maryland Environmental Snapshot  State Utility Sector Emissions (2011 preliminary, EIA)  Carbon dioxide (CO 2 ): 23,031,013 tons  Nitrogen oxide (NO x ): 17,184 tons  Sulfur dioxide (SO 2 ): 30,541 tons  The Maryland Healthy Air Act, signed into law on April 6, 2006, establishes emission limitations and related requirements for NOx, SO2 and mercury  These emission limitations apply to 15 coal-fired electric generating units.  Reductions in two phases: 2009/2010 and 2012/2013  Total reductions: NOx, 75%; SO2, 85% and mercury, 90% 35

36. Maryland Environmental Snapshot (2)  Maryland Greenhouse Gas Reduction Act of 2009  Requires the State to achieve a 25% reduction in Statewide GHG emissions from 2006 levels by 2020.  Requires the State to demonstrate that the 25 percent reduction can be achieved in a way that has a positive impact on Maryland’s economy, protects existing manufacturing jobs and creates significant new “green” jobs in Maryland  Maryland participates in the Regional Greenhouse Gas Initiative (RGGI)  Mandatory, multistate market-based program to achieve an initial 10% reduction in CO2 emissions from the power sector; participants recently amended the program  Maryland’s cumulative share of proceeds from the allowance auctions is $300,026,815 (through Auction 21, Sept. 2013) 36

37. Maryland Environmental Snapshot (3)  Maryland's Renewable Portfolio Standard (RPS)  Requires that 20 percent of Maryland's electricity be generated from renewable energy resources by 2020, including 2 percent from solar energy  In 2012, renewable energy resources accounted for 7.9 percent of total net electricity generation  MD Solar Renewable Energy Credit (REC) types and prices 1  Tier 1 2013, $12.79 (wind, biomass, methane from landfills, geothermal, ocean, poultry litter incineration, certain fuel cells and small hydro)  Solar 2013, $142.50 37 1. REC pricing as of 10/18/2013, per SNL Financial

38. Overall Industry Impact  Retrofit, retire or repower virtually every coal plant  Estimates of retirements vary widely  Impacts on reserve margins; potential local reliability challenges  ~63 GW of coal-fired generation retirements have been announced; Brattle estimates a total of 59−77 GW 1, 2  Take place between 2010 and 2022; Most will be 50-60 years old upon retirement; Approx. 16% of 2010 fleet  Due to fuel and/or compliance costs, consent decrees, age, etc.  Will require significant amount of investment; potential impacts on power prices 38 1. Announced retirements based on publicly available data as compiled by EEI. 2. Projected retirements from Potential Plant Retirements: 2012 Update, The Brattle Group, October 2012.

39. What does this mean for electricity consumers?  The Energy Information Administration’s latest Annual Energy Outlook (AEO 2013) says that average electricity prices in 2035 are expected to average 2 percent above 2011 levels 1, 2  Predicated on low natural gas prices continuing  Doesn’t include  Impacts of ash, water, greenhouse gases (GHG) and other rules  Capital for T&D upgrades and modernization  Other projections 2  IHS Global Insight, average 20 percent increase 2011 to 2035  INFORUM, average 6 percent increase 2011 to 2035 39 1 Price increases are based on 2011 dollars and do not reflect the impact of inflation. 2. All price data from AEO 2013, table 11. Available online at http://www.eia.gov/forecasts/aeo/pdf/0383(2013).pdf

40. Contact Information 40