1. Clean Power Plan TENNESSEE MINING CONFERENCE AGENDA November 3, 2015 John Myers Director, Environmental Policy and Regulatory Affairs

2. Key Climate Rules released August 3 rd Administration is going to Paris Climate Talks in December. US Climate Action Plan including initiatives across several sectors in the economy. 1.Final 111(b) Rule setting New Source Performance Standards (NSPS) for CO2 emissions for New Units far below common operating levels for coal 2.Final Clean Power Plan 111(d) Rule setting New Source Performance Standards (NSPS) for CO2 emissions from Existing Units coal and combined-cycle gas. 3.Proposed Federal Plan to implement in states that fail to submit an approvable State Plan 2 For US utilities, EPA released:

3. Changes from Proposed Rule Forget what you know about the Proposal. The Final Rule is vastly different. Timing Compliance starts in 2022 Reductions phased in more slowly 2022-2029 Final levels in 2030 Form of the standard Sets emission rates for Coal and Natural Gas Combined Cycle Units (NGCC) Coal = 1305 lbs/MWh and NGCC = 771 lbs/MWh More legally defensible Sets standards on units not states Stringency Less stringent initially Final levels more stringent nationwide Less stringent for gas-heavy regions Less stringent for areas with new nuclear More stringent for coal-heavy regions 3 Final Clean Power Plan By: EPA

4. Clean Power Plan - A lot to talk about! Legal issues How EPA set the standard How EPA modeled the impacts How the Rule works State decisions and future actions Observations on how it impacts the Region Relationship to the carbon content in our delivered energy

5. How does the Clean Power Plan work? 5 NGCC COAL (Fossil steam) 2022 Target Interim Avg. Final Target 1305 lbs/MWh

6. State Compliance Plan Decisions Form of Goals −Rate-based or mass-based compliance Emissions Limits −States choose what limits to impose on units −Can tailor limits to address unit-specific concerns −States can take on some of the units’ burden Trading/Averaging −States can allow intrastate and interstate trading −States can allow intrastate averaging −States can redistribute allocations Timing −States can move emission reductions within interim periods (allowing some units to delay reductions) Clean Energy Incentives −Enhance state interim credit pool by incentivizing RE and EE 6 State Plan

7. State Plan Decision Tree 7

8. Can be made Trading Ready Model Rule: Trading Ready Trading Ready Model Rule: Trading Ready Trading Ready w/Multistate Plan NOT Trading Ready State Primary w/ Federal Backstop Existing Affected EGUs (leakage) Existing and new Affected EGUs Fossil Steam Rate & NGCC Rate Blended State Rate Approach State-defined Rates StandardApproachComplianceTrading State Compliance Plan Decisions

9. States will choose Mass or Rate 9 CPP (Tons) States can add solar, wind, EE, new nuclear, etc. to displace fossil generation to lower tonnage or “MASS” MASS Emissions (tons) from Affected Units States issue Emission Reduction Credits (ERCs) ERC sources: Incremental Renewables, Energy Efficiency, new nuclear, gas shift These ERCs add MWh and reduce the rate RATE CO2 emissions from Affected Units CPP (lbs/MWh) Generation from Affected Units Emission Reduction Credits CANNOT ADD NEW NGCC TO DISPLACE FOSSIL GENERATION (LEAKAGE)

10. RATE (lbs/MWh) Fewer big assumptions in TVA analysis Incremental nuclear provides large volumes of ERCs EE and Renewables have big impact on compliance Rate-based state plans could be complex Can accommodate growth more easily Observations MASS (tons) Allocation Assumption Critical New NGCC does not supply large compliance margin States comfortable with cap and trade rules based on tons of pollutants Incremental nuclear not as big of compliance tool Federal Plan likely to be mass 10 System impacts: Mild in the interim period; final levels have some risk Compared to the proposal, impacts are further out in time Long range impacts are hard to accurately quantify

11. TVA’s Primary Concerns with the CPP State Plans enable tailoring compliance to our state/system realities We are not advocating nor pursuing legal challenges “Just say no” prevents states from using powers under the Clean Air Act Fair allocation of compliance burden or compliance credit Plant retirements and acquisitions could confound assumptions Trading enabled at our discretion Preserve our ratepayers investments for their benefit Maintain low rates and reliable electric service  Real impacts to bulk electric system reliability unknown until state plans are formulated  Longer term could be more challenging, but we have time to adapt as risks become better defined

12. August 3rd EPA releases “ Clean Power Plan” and other GHG regulations and the proposed Federal Plan October 2015 Publication in the FR (10-23-15): Litigation has begun Sept 2016 States file Initial State Plans setting “Standards of Performance” for affected units (rate or mass) Sept 2018 States file Final plans Clean Energy Incentive Program Eligibility Starts 2020 – 2021 Clean energy incentives earned 2022- 2030 Compliance begins with interim requirements in 2022 timeframe Full compliance 2030 Clean Power Plan Timeline WE ARE HERE 12

13. TVA’s Carbon Future The 2015 IRP verifies our path forward under the CPP to continue to reduce CO2 emissions. TVA’s asset decisions continue to reduce CO 2 emissions. TVA has reduced CO 2 emissions 30% below 2005 levels (stated goal of the Clean Power Plan). TVA is projected to reduce CO 2 emissions 40% below 2005 levels by 2020. TVA delivers electric power containing ~1100 lbs/ MWh and is on track improve that to ~700lbs/MWh by 2020. TVA provides an attractive combination of price (¢/kWh) and carbon content (lbs/MWh). TONS RATE 13

14. IRP Strategies = Lower CO2 Emissions 14 2015 IRP verifies TVA’s path forward to continue to reduce CO2 emissions CPP and IRP both recommend: Reduced Coal-Fired Generation Increased Natural Gas Dispatch Additional Nuclear Increased Renewables Increased Energy Efficiency TVA asset decisions continue to reduce CO 2 emissions Currently 30% below 2005 levels  Clean Power Plan goal 32% comparison inappropriate IRP direction and recommendations consistent with the direction of the CPP but TVA needs to determine if magnitude and timing are sufficient.

15. Carbon Rates Meeting Customer & Regulator Needs 15 TVA system delivers electricity at ~1100 lbs/ MWh On track for ~700lbs/MWh by 2018 Attractive combination of price (¢/kWh) and carbon content (lbs/MWh) TVA system delivers electricity at ~1100 lbs/ MWh On track for ~700lbs/MWh by 2018 Attractive combination of price (¢/kWh) and carbon content (lbs/MWh) What the customer sees: Existing Hydro Existing Nuclear Current Wind Some new Gas CPP excludes ~ 45% of our fleet: What the regulator sees: Coal Gas NGCC New Nuclear New Hydro New RE New EE CPP includes ~55% of our fleet:

16. Questions? 16