1. To Output or Not to Output Is It Really A Question?

2. Why Allowances Anyway? Started in Acid Rain Program –Reduces Litigation Which Delays Emission Reductions –Overall Cap on Emissions is Set. Allows Companies to Determine Optimal and Least Cost Compliance Plans –Not all Plants Have to Install Identical Controls –Allowances Provided Based on Historical Heat INPUT, Minus the Overall Cap for Each Phase. Utilities can then Determine how to Most Effectively Control Plants –Remaining Allowances Help to Smooth out Capital Investments and Plant Requirements

3. How Does It Really Work? Plant A = 1600 Allowances: Input Must Cut Emissions by 50% = 800 Allowances Needed to Continue Operations Instead Plant A Cuts Emissions by 80% 480 Allowances Remain to Use at More Expensive Plants or to Sell in the Market, Reducing the Total Cost of Compliance for Everyone

4. Input Vs. Output Example Plant APlant B Spends $200 + millionSpends No $ Receives Allowances toWants Allowance Continue Running PlantStranded Cost Recovery Costs ReducedPlant Runs Competitively by Sale of Excess Allowances

5. All Power Sources: Have Some Negative Environmental Aspect Nukes: – Waste Problem Government Subsidizes Final Nuke Waste Resting Ground; States w/o Nukes face Increased Liability due to Waste Transport. Government Subsidizes Final Nuke Waste Resting Ground; States w/o Nukes face Increased Liability due to Waste Transport.

6. All Power Sources Have Some Negative Environmental Aspect Nukes: Part Duex –Accident Problem Government Subsidizes Potential Accidents by Limiting Nuke Liability to the Tune of several hundred Million Per Year

7. All Power Sources Have Some Negative Environmental Aspect Wind Power – “Cussinart in the Sky” Kills Endangered Species; Cute Little Bats; Ruins Views of Nantucket Sound

8. All Power Sources Have Some Negative Environmental Aspect Hydro –Fish Boulebaisse Gets in the Way of Barge Traffic; Ruins Salmon Sex Drive; Makes Mincemeat of Fish – Really Ticking off the Bear Population

9. Output Based Standards Truth And Consequences Truth: –Output Based Standards: Giant Wealth Transfer –Takes Allowances from Coal Plants and Gives them to Nukes, Gas and Renewables –Then Nukes, Gas and Renewables Turn Around and Sell them to Coal Facilities –Does NOT Improve the Environment –Incentive to Move to Natural Gas –What’s the point?

10. Output Based Standards Truth And Consequences Consequences –States with Large Coal Generation Fleet: BIG LOSERS –Significantly Increases Cost of Environmental Compliance: Hurts Consumers –Turns Acid Rain Program on its Head –Rewards Outmoded and Outdated Technologies Such as 30 year Old Nukes; Outdated Renewables; Inefficient Natural Gas Units –Provides Primarily Nuke or Gas States With Ability to Sell to Coal States or Even to Increase Emissions

11. Let’s Look at One Example NOx Results: Carper Bill Output Approach Input Approach Output (T) – Input (T) Annual Output Value Difference at ($/T) Ph I AllocationPh I Alloc. vs. 2001 (%) Ph I AllocationPh I Alloc. vs. 2001 (%) Tons Difference$4,000 State CT10,040916,287573,753$15,012,000 DEL4,710434,20139509$2,036,000 MA24,6568014,6024710,054$40,216,000 ME3,7611802,798134963$3,852,000 NJ19,295726,7702512,525$50,100,000 NH3,484513,90558-421($1,684,000) NY58,1437738,3475119,796$79,184,000 RI4,6971,4451,0903353,607$14,428,000 OH92,33228107,01032-14,678($58,712,000) IN87,37529107,72835-20,353($81,412,000) KY64,2652883,46836-19,203($76,812,000) TN43,1462849,68132-6,535($26,140,000)

12. How About Another Example? Handouts: –For Mercury: Big Winners: (Get more allowances then they need) –California; Maine; Utah; New Hampshire; Hawaii; Colorado –For NOx Big Winners: (Get to increase NOx emissions) –Rhode Island; California; Maine; Idaho; New York (don’t they always sue us???)

13. Final Example The Big Losers –For Mercury Vermont; Rhode Island; Idaho; PA; IL; NM; AL; MD; IO; WA; DE; OH; WVA; OK; LA; MI; MO; NY etc, etc, –For NOx Ohio; KY; SD; TN; NB; KS; FL; etc.; etc.

14. What Else Is Wrong with the Ouput Based Approach? Acid Rain Program and all State SIPs Based on Input Change Would Result in Hybrid Output & Input Based System – Confusing, Cost Ineffective Some Supporters Just Want Multi-Emissions to Die –Output Based Approach has Little Political Support Some Supporters Simply want Cash – Without Bearing the Significant Cost of Making Reductions Some Companies Support Output Based Approach, but Refuse to Support Economic Dispatch on a Fuel Neutral basis Because it Would Impact Their Old, Inefficient Natural Gas Plants

15. Can’t We All Just Get Along? New Units Could be Awarded Allowances on an Output Basis – Puts all New Plants on Even Playing Field Regardless of Fuel Choice

16. Final Slide: I Really Mean It! Going Forward –Prioritize Issues: Output Based Standards simply conquers and divides – does not solve emission problem –Multi-Emissions Legislation is Important, Every Moment of Delay = Delay in Air Quality Improvements and Increases Costs –Please Don’t Feed the Lawyers By Throwing These Issues Back to Court