Electricity Production and UsageOpportunities & Challenges

UNL Faculty Retreat PresentationMay 15, 2007

General Counsel &VP of Governmental Affairs

John C. McClure

(402) 563-5773jcmcclu@nppd.com

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

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

Electricity Timeline

20%20%

40%40%

60%60%

80%80%

100%100%

19501950 19601960 19701970 19901990 20002000 20102010 20202020 20252025

PetroleumPetroleum

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/HydroRenewables/Hydro

Natural GasNatural Gas NuclearNuclear

CoalCoal

Atomic Energy ActAtomic Energy Act

Arab Oil EmbargoArab Oil Embargo

Utility Deregulation (PURPA)

Utility Deregulation (PURPA)

Natural Gas DeregulationNatural Gas Deregulation

Fuel Use Act 1974-78

19801980

National Energy Policy ActNational Energy Policy Act

Climate Change Convention Kyoto Protocol signed by 154 nations in Rio

September 11September 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 IslandThree-Mile Island

MW

H %

by F

uel Type

MW

H %

by F

uel Type

Source: Energy Information Administration

ChernobylChernobyl

NuStartFutureGenNuStartFutureGen

Source: R. W. Beck, Inc.

5

Fuel Mix for Electricity

3%

17%

20%

7%2%

51%

Nuclear

Natural Gas

Oil

Coal

Wind/Solar GeoThermal

Hydro

National 2005

NPPD 2006

9%6%

23%

2%

59%

1%

Nuclear

Gas & Oil

Coal

Wind/Solar GeoThermal

Hydro

Purchases

NPPD 2006

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

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

2007 ProjectionsNPPD 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

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

MW

h a

t B

us

A

Ethanol Load Irrigation Load

Percent of Total Annual Energy

2006 MWh 2013 MWh

Irrigation 7.1% 8.1%

Ethanol 6.8% 19.8%

9

2007 ProjectionsNPPD Ethanol and Irrigation Demand, kW at Bus A

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

kW a

t B

us

A

Ethanol Load Irrigation Load

Percent of Total Summer Billable Peak

2006 kW 2013 kW

Irrigation 19% 22%

Ethanol 4% 14%

10

2007 Preliminary Rate TrackEthanol Load Growth in NPPD Service Territory

0

50

100

150

200

250

300

350

400

450

2006 2007 2008 2009 2010 2011 2012 2013

MW

MW

Hs

Number of Plants

- 3,500,000

- 3,000,000

- 2,500,000

- 2,000,000

- 1,500,000

- 500,000

- 0

- 1,000,000

10 19 23 24 24 26 26 29

2007 Projections

11

2007 Preliminary Rate TrackNPPD Historical Summer Billable Peak Forecasts

NPPD “Fan” Summer Peak Forecast

2,000

2,200

2,400

2,600

2,800

3,000

3,20019

95

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

MW 2004

2000

2002

2006

2007 Base

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

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

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

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

16

17

Significant Transmission Necessary to meet National 20% RPS

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 CO2 emissions by end of year

• One new coal plant commissioned every week

– Economy-wide impacts

(see pie chart on next slide)

19

2,338

33.3%

1,955

27.9%

1,377

19.6%

491

7.0%

460

6.6%

391

5.6%

Electric PowerIndustry

Transportation

Industry

Agriculture

Commercial

Residential

2004 U.S. Greenhouse Gas EmissionsMillions Metric Tons of CO2 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

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

21

Challenges for the Future (Cont’d)

• Long-term challenge – slow, stop, reduce emissions

• Lack of technology to capture and sequestor CO2

• Developing CO2 sequestration may require new national pipeline network for transportation to suitable storage areas

– Limited experience injecting CO2 to enhance oil recovery

• Capture and sequestration expected to add significant costs to coal based generation

22

NPPD Generation CO2 Projections(excluding LES)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2005 2010 2015 2020 2025 2030

Th

ou

sa

nd

s

Met

ric

To

ns

Projections Est 1990 2000 2005

NPPD Generation CO2 Projections

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

Technology Critical to COEC

en

ts p

er

kWh

r

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

25

NPPD 2006 Load Duration Curve

-

500

1,000

1,500

2,000

2,500

3,000

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Percent of Time

MW

26

NPPD System Busbar MW

1,500

1,600

1,700

1,800

1,900

2,000

2,100

2,200

2,300

2,400

2,500

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Hour Ending

MW

at

Bu

sbar

Billable Peak7/31/06 He 1700

27

Various Energy Prices Indices, Jan. 1991 = 1.00

Mar

-07

Various Energy Price Indices, Jan. 1991 = 1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

Date

Pri

ce

Ind

ex (

Ja

n 1

99

1 =

1.0

0)

U3O8 Oil (wti) PRB Coal Nat Gas CPI

Source: Bloomberg, Proprietary and ConfidentialFor Internal NPPD use only

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

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

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

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

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