Energy and Environmental Policy. Frank Prager Vice President, Environmental Policy & Services Xcel Energy April 9, 2012

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1 Energy and Environmental Policy Frank Prager Vice President, Environmental Policy & Services Xcel Energy April 9, 2012

2 Xcel Energy Inc. Public Service Company of Colorado Northern States Power Company Minnesota Northern States Power Company Wisconsin No. 1 wind energy provider No. 5 in solar additions Largest green pricing program 4 TH largest DSM program Industry-leading voluntary emission reductions Leader in pursuit of new technologies Southwestern Public Service Company Gas Customers Electric Customers 1.9 M 3.4 M

3 How Electricity is Made

4 U.S. Utility System National Transmission Grids

5 Investor Owned Utility Finance Most utilities are subject to cost of service regulation Earn on prudent capital investments ROE set by PUCs Rate cases establish rates and bills Need a reasonable return to raise capital Stock / debt Risk issues

6 Xcel Energy and Energy / Environmental Policy Energy portfolio closely tracks nation s energy mix Difference: Renewable energy Impact of policy on Xcel Energy indication of effect on nation Nuclear 20% Coal 45% Hydro 7% Renewables 4% Natural Gas 24% Nuclear 12% Coal 50% Hydro 5% Renewables 9% Natural Gas 24% U.S. Xcel Energy

7 Electric Generating Resources COAL NATURAL GAS RENEWABLES NUCLEAR Low price Relies on existing capital Environmental challenges CO 2 Other Pollutants Permitting new plants difficult Lower capital than coal Operational benefits Lower emissions Historic price volatility New shale gas resources Fracking 100 year low cost supply? No emissions Political acceptance Large capital, but with declining costs Relies on subsidies Usually intermittent integration challenges Zero emissions Excellent baseload resource Extremely high capital Post-Fukashima regulatory and safety concerns Public and political concerns OUR GOAL BALANCE AND DIVERSITY

8 EPA s Regulatory Agenda EPA is implementing an unprecedented series of major rulemakings affecting coal-fired electric utilities Timing Most are focused on air quality Billions of dollars in emission controls Widespread power plant retirements Usually requires compliance within three to five years Need several years for planning, engineering, procurement and installation Concern about infrastructure capabilities, uncertainty, stranded investments Xcel Energy s leadership strategy reduces cost and risk

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10 Climate Change Concentrations of CO 2 in atmosphere are rising Pre-industrial level: 280 ppm Current level: 380 ppm Projected BAU level in 2100: ppm Goal of climate change policy: Stabilize atmospheric levels Reduce emissions Climate change debate has shifted Science no longer settled in public discourse

11 U.S. Greenhouse Gas Emission by Sector (2005) Residential 5% Commercial 6% Agriculture 8% U.S. Territories 1% Power Sector 33% Industrial 19% Source: U.S. Environmental Protection Agency Transportation 28%

12 The Challenge of Climate Change Climate Change policy will require: Significant emission reductions Huge capital investments Long-term technological transformation A diverse portfolio of resources Utilities will bear the lion s share of the reductions Key issue: maintaining reliability and reasonable price Clean technology will lead the way Or Will there be any national climate policy?

13 Federal Legislation: What is Cap and Trade? CAP : National limit on CO 2 / greenhouse gas emissions One allowance = right to emit one ton of CO 2 Cap decreases over time TRADE : Allowances may be bought or sold Goal: Use allowance market to find the most cost-effective emission reductions Details of policy have a great effect on cost Key Design Issues: Allocation/Auction; Credit for early action Political perspective: Cap and Tax But EPA already moving forward to regulate CO 2 Likely to be Inflexible/Expensive March 27: EPA bans new coal plants

14 A Coal Plant Owner s Dilemma Retire and Replace with NGCC Higher Operating Costs? Invest in Environmental Retrofits More Retrofits in the Future? Future Carbon Costs?

15 The Election and the Environment

16 Xcel Energy s Environmental Leadership Strategy Goal: Clean Energy That Works for You Maintain traditional role reasonably priced, reliable energy Meet interests of communities Assess and employ new technologies Create value for customers, shareholders and employees Address long-term regulatory risk through balanced, diverse energy portfolio Components Renewable Energy Energy Efficiency Emission Reductions

17 Our Renewable Energy Advantage MW Nation s #1 wind provider Great wind resources Most aggressive state renewable standards Leader in solar technology advancement Solar Technology Acceleration Center (SolarTAC) Xcel Energy Wind and Solar Capacity Solar Wind

18 Energy Efficiency (DSM): Nation s Fourth Largest Program System-wide DSM Achievements (GWh) System-wide DSM Spending ($ Million) $71.5 $146

19 Emissions Reduction: Overview of Major Activities & Rationale Retrofit Anchor Coal Units Retire Heritage Coal Units Colorado Comanche 3 (2004) Retrofit Two Units (700 MW) Construct New Supercritical Coal Unit (750 MW) Colorado Clean Air-Clean Jobs Act (2010) Retrofit Three Units (951 MW) Retire Four Units (551 MW) Repower One Unit to Natural Gas (352 MW) New Cherokee NGCC Unit (569 MW) Reduce Environmental Risk Maintain Reasonable Long-Term Cost Make New Plant and Retrofit Investments on Favorable Terms

20 Xcel s Declining CO 2 Emissions: 2003 to Million Tons % Reduction

21 Sound Energy, Environment and Climate Policy Should Set emission targets and timetables that: Are achievable Protect reliability Promote a balanced, diverse energy portfolio Minimize costs Be flexible and use market-based approaches Allow a broad range of compliance options Retrofit, repowering and efficiency improvements Avoid inefficient mandates to retrofit retiring units Provide credit for early action

22 Sound Energy, Environment and Climate Policy Should Assure recovery of costs Coordinate federal environmental goals with state regulatory processes Create a climate of certainty to promote investment of capital Promote the use of clean technology

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