Andrew Paterson 619-807-3267

Environmental Business International

www.ebiusa.com

adpaterson@gmail.com

EBI: 619-295-7685

Policy & Political Outlook for 2012 “Era of Uncertainty” in Energy & Environmental Policy

and difficult Budget Landscape

14 March 2012

San Diego, CA

EBJ: What’s IN, What’s OUT for 2012

2

Navy Seal Teams

Occupy Moscow Vladimir Putin

(Stanford Colts)

EBJ: What’s IN, What’s OUT for 2012

3

Opening Observations & Uncertainties

Unfortunately, policy uncertainties will continue to increase going into 2012 election.

The 2010 election had deep results (like 1994) at federal and state level, not a typical election.

Obama still a better than even odds for re-election (50/50 60/40), unless the economy slumps further.

But the Democrats could narrowly lose the Senate in 2012 (down 3-5 seats of 23 to about 49 vs 51).

Republicans would still lack the size of the majorities Democrats enjoyed from 2007 to 2010. Gridlock.

• Hence, the 2012 election, could intensify Divided Government rather than resolve the partisan split.

Federal deficit will not be easily resolved; Super-Committee failed. Budget sequestration looms

Entitlement reform holds the key to breaking the Deadlock; GOP willing to lose election rather than raise taxes

DOD budget is already seeing some cutbacks with early troop draw down (Army). Look at base conversion.

Budget pressures may force DOD to arrange more third party financings on construction, energy infrastructure.

But, no cushion is built up for a Major Disruption (MidEast chaos, US quake, storms, epidemic, recession…)

Carbon cap is dead; Energy Security continues to be a priority, but Recovery Act is over.

The Kyoto Protocol (cap and trade) approach is derailed now, likely through 2020, and would not be enforceable

anyway. Federal rule-makings would have mired it for years (Several agencies; 30+ rule-makings).

Climate change is still occurring, but policy options will shift to domestic security and adaptation, if anything.

Leverage to deal with GHG emissions has swung to Asia and North America, away from a stagnant EU.

Hence, agency goals (e.g., DOD, DOI, EPA), and budget priorities are MORE important. [Exec Order 13514]

Utilize Policies already in place: EPAct 2005, EISA 2007, ARRA, Tax deal 2010, State Measures… (!!)

Replace “global warming” with “Energy Security” and “Resource Management” (fuels, water, land, etc.).

Lenders and bond funds will drive more financing of energy infrastructure worldwide than carbon trading.

Hence, the health of credit markets will be more important than legislation.

4

Environmental Consulting by Media, 2010

5

REVIEW: Environmental Consulting Drivers

After 2008 After 2010

election election

New Environmental Legislation HOPE NOPE!

New Infrastructure, permitting actions YES Delayed

(Water, power, transport, wiring…) Recovery Credit

Act (ARRA) squeeze

Energy Development Some, RE Yes: Oil, Gas

(despite Deepwater Horizon)

Economic Growth Recession Fragile

(severe strain remains in credit markets) recovery

Commercial real estate turnover Depressed Lagging

Hazardous waste / Remediation Declining Weak

EPA Regulations (CAA; Water, etc.) YES! YES, but

(lawsuits)

6

After 2010

election

NOPE!

Delayed

Credit

squeeze

Yes: Oil, Gas

Fragile

recovery

Lagging

Weak

YES, but

(lawsuits)

Economic Recovery… “Where are We?”

Economic Cycle Research

Institute (ECRI)

The Weekly Leading Index

(WLI) growth indicator of the

Economic Cycle Research

Institute (ECRI) came in at -2.6

in today's public release of the

data through March 9th. This is

the eighth consecutive week of

improvement (less negative)

data for the Growth Index and

the highest level (i.e., least

negative) since August 19th of

last year. The underlying WLI

also improved, increasing from

an adjusted 124.1 to 124.3.

A significant decline in the WLI has

been a leading indicator for six of

the seven recessions since the

1960s. It lagged one recession

(1981-1982) by nine weeks. The

WLI did turned negative 17 times

when no recession followed, but 14

of those declines were only slightly

negative (-0.1 to -2.4) and most of

them reversed after relatively brief

periods.

7

http://dshort.com/articles/ECRI-Weekly-Leading-Index.html#ixzz1PqWIXGp0

NOW

9 Mar. 2012

QE 1

QE 2

9/11 Credit

Crisis

QE 2.5?

Engineering Firms recovering slowly (S&P 500)

8

Not quite

caught up

with S&P 500

View from the White House: Recovery !

9

10

Agency Recap: EPA, DOE, DOD

?

11

EPA Budget for FY2013 proposed; no growth

Source: EPA

Budget in Brief

Cutbacks focused in infrastructure finance, state water revolving funds.

EPA Regulatory Timeline, with Impact in Energy

12

2012

Source: EEI

EEI, NAM, Chamber: “EPA Job-killing machine”

DOD FY2012 Proposal: Draw down

13

Troops coming out of Iraq in Dec. for draw down; but could DOD cuts be bigger if Congress fails ?

DOD Environmental Budget, 2010 – 2012

14

Flat outlook, but vulnerable to cuts going forward.

Two new BRAC rounds proposed for 2013, 2015.

Between FY 2011 and FY 2012, the Department’s Defense Environmental Restoration Program decreases by $72.1 million, reflecting

price growth of $23.1 million and programmatic decrease of $95.2 million (-6.2 percent). The FY 2012 program decrease of

$95.2 million primarily reflects a decrease in the Army program (-$105.2 million) because the Military Munitions Response Program

requirements were reduced from previous estimates. There also were minor decreases in the Navy (-$0.8 million), FUDS

(-$4.2 million), and Defense-Wide (-$0.3 million) offset by an increase in the Air Force (+$15.3 million).

Cleanup budget is higher (within $1,467.3M), while investigations are lower as more sites move into later stages.

http://comptroller.defense.gov/defbudget/fy2012/fy2012_OM_Overview.pdf

DOD Operational Energy Strategy (June 2011)

15

DOD’s Operational Energy

Strategy outlines three principal

ways to a stronger force:

1. More fight, less fuel: Reduce the demand for energy

in military operations.

2. More options, less risk: Expand and secure the supply of

energy to military operations.

3. More capability, less cost: Build energy security into the

future force.

Drivers for combat mirror needs in Civil Affairs: Efficiency, lower cost, options or

diversification, adaptability for logistics, less pollution and lower carbon footprint.

Also: http://greenfleet.dodlive.mil/energy/task-force-energy/

DOD Energy Use (2010): Air Mobility

The measure calls for projects to start

in more than a dozen areas over the

next year. It includes the creation of a

Defense Operational Energy Board,

made up of senior civilian and

uniformed military officials, that will

oversee the new strategy. It will also

create an alternative-fuels investment

portfolio to help develop new sources

of fuel

The U.S. military has been aware for

years of the dangers of extended

supply lines and energy-hungry

troops and equipment, but leaders

have focused on other priorities.

"People are dying today. Where is the

sense of urgency?" said Steve

Anderson, a retired U.S. Army

general who ran logistics in Iraq

during the 2007 surge of U.S. troops.

16

Fueling aircraft is the leading use of energy. Navy runs nuclear powered ships.

U.S. Fuel Consumption & Sources, 2000 – 2011

Declining crude imports since 2006

(from 60% to 50% of total)

Rising U.S. crude

oil production

Ethanol increasing

Exports rising (shown as negative, outflow)

Bio-fuel standards in EPAct, EISA

US crude oil import deficit peaked in 2006, and is declining with recession, domestic production and use of biofuels.

17

U.S. Fuel Consumption & Sources, 2000 – 2011

|------Recession ----|

Declining crude imports since 2006

(from 60% to 50% of total)

Rising U.S. crude

oil production

Ethanol increasing

Chinese stockpiling (for diesel generators) plummeted in July 2008 just prior to the Olympics, followed by recession.

Exports rising (shown as negative, outflow)

EPAct 2005 EISA 2007 |--Slowdown --|

N.Gas turmoil.

Bio-fuel standards in EPAct, EISA

Arab Spring,

Libya, Iraq

Gasoline for motorists runs about 50% of total oil consumption -- other uses: aviation, heating oil, industry, maritime.

Strategic factors to

monitor:

• Air emission trends

and regulations

• Hydro-fracking for

shale gas

• Permits for drilling

• More EOR, some

CCS with MMV

• Water use; Ground

water management

• Terminals for gas

transfer (LNG)

• Pipelines

• Oil price volatility

impacting finance

• Oil and gas supply

disruptions

• Storm damage

• Bio-refinery siting

• Vehicle engine

changes

Retail gasoline price

(U.S. average)

[ Price doubled,

Imports down 25% ]

18

EIA: Liquid Fuel Supply, 1970 to 2035 (AEO 2012)

Since 2007, Economic recession

and financial turmoil dampened

overall demand, globally.

More domestic production with

more EOR, Gulf production.

Some sales of hybrid vehicles

since 2005, but sales slumped in

2008. Now about 1m a year.

230m vehicles in U.S. fleet.

REF standards in EPAct 2005

and EISA 2007: More biofuels:

EIA: U.S. renewable fuel standard now set at 20.5

billion gallons by 2015 (~15% of consumption),

3 billion from cellulosic feedstocks (non-food).

For 2022, 36 billion gallons (about one-fourth of

projected consumption), 16 billion in cellulosic

fuels by 2022. EISA is the Energy Independence

and Security Act of 2007 (P.L. 110-140).

19

Mexico… Peak oil crisis (Baker Institute)

Domestic

demand

Exports

declining

20

Peak Oil hit Mexico in 2005. Ripple effects are unfolding now.

Domestic

demand

DOE FY2013 Budget Request: $27.1B

EE/RE remains the favored child with a $2.2B request. FE the loser.

EM flat at $5.7B, with a few big sites garnering two-thirds of funds.

FY 2012

Enacted

11,000

9,252

1,808

139

564

858

5,710

169

4,874

275

0

$26,300

$27,155 Request FY2013:

DOE Energy Loan Programs: >$60B in credit

22

Nearly 40 conditional commitments have been offered (~$34B in loan value).

ARRA portion (Sec. 1705) expired 9/30/11, but Sec. 1703 (self pay) continues.

House Investigations on Bankruptcies are plaguing the program now.

But, only one-third of loan values have actually been disbursed to date.

Loans offered:

Auto sector: $8.4B

Renewable

sources: $14.96B

Efficiency: $0.32B

Nuclear: $10.3B

TOTAL $34.0B

“We don’t want Gov’t picking winners, losers”… (?!)

23

“Too Big to Fail” ?!

Treasury Grants: $9.2 billion (ARRA Sec. 1603 program)

As of Sept. 2011:

• Total projects funded = ~20,000

[19,200 of them small solar projects]

Solar in CA, TX

Wind in TX, IL, WA, OR

• Total installed capacity: 13.6 GW

[but about 4 GW, adjusted for usage]

• Total Grant Funding = $9.15 Billion

[$7.26B for wind of 12.1 GW ]

- about $7,780 per KW (adjusted for

capacity factor of 30%) on 13.6 GW

• Total private and federal investment

= $31.1 Billion

• Total estimated electricity generation

from projects = 35.0 TWh [since 2009]

About 0.3% of U.S. total (4 min a day)

Treasury 1603 Grant Status:

www.treasury.gov/initiatives/recovery/Documents/2011-04-06%20-%20S1603%20Overview.pdf

24

Converts ITCs or PTCs to a cash grant from Treasury

Treasury Grants: $7 billion (ARRA Sec. 1603 program)

Treasury 1603 Grant Status (updated monthly) :

www.treasury.gov/initiatives/recovery/Documents/2011-04-06%20-%20S1603%20Overview.pdf

Total Awards by State (by April 2011)

25

Expired 12/31/11

EIA: Outlook for U.S. Power Sector Build

26

http://www.eia.gov/electricity/

[Wind]

[Wind]

N.Gas over-build

More N.Gas build…

EIA U.S. Electricity Fuel Mix, 2010 (AEO 2011)

27

Non-hydro renewables up to 4% from 2.4% in 2000.

U.S. Electricity: Generation vs Capacity, 2000 & 2010

Coal

N.Gas

Nuclear

Oil

Hydro

Wind Biomass

Geogeysers

SolarPV

GWs

Ge

ne

rati

on

: M

illio

n M

Wh

s at 2010

at 2000

28

Investment in renewable capacity needs to be placed in perspective relative to the entire landscape of electricity…

US Dry Gas Projection

29

Shale gas is a game changer on the energy landscape; low prices pressure other

options out of the market. Will EPA water regulations curb some development?

Fracking Future ? Groundwater regs ?

30

EBJ: Remediation Market Niche Outlook, 2011

31

Annual survey of >300 executives

EIA U.S. Electricity Fuel Mix, 1990-2020 (AEO 2012)

32

Utilities Closing 1,000s MW of Coal Units

Utility AEP to close some coal plants, upgrade others Washington Post -- June 9, 2011

AEP, the nation’s biggest coal-based utility, said it would shut down five aging

coal plants, convert at least two others to natural gas and retrofit a dozen more as

part of a $6 billion to $8 billion plan it said would help it comply with proposed

Environmental Protection Agency regulations.

AEP joins other utilities — including the Tennessee Valley Authority, Dominion

Resources and TransAlta — that have decided to close coal plants and upgrade

others for economic reasons or in conjunction with EPA negotiations.

Coal-fired plants account for nearly 25,000 megawatts, or 65 percent, of AEP’s

total generation capacity. AEP’s plan would close down 6,000 megawatts of

coal-fired units. The five plants that will close include units dating back to 1944;

the newest of those units is 51 years old.

AEP chief executive Michael G. Morris complained in a statement of “unrealistic

compliance timelines in the EPA proposals” that he said would force AEP “to

prematurely shut down nearly 25 percent of our current coal-fueled generating

capacity.” He predicted higher electricity rates.

Rep. Shelley Moore Capito (R-W.Va.) and Sen. Joe Manchin (D-W.Va.)

immediately pounced on AEP's announcement. “This is a perfect example of the

EPA implementing rules and regulations without considering the devastating

impact they may have on local economies and jobs,” Capito said.

But environmental groups said that the plants to be closed were too old to be

economically viable and that AEP needed to comply with a court order to curtail

toxic emissions. “EPA regulations do not require any power plants to shut

down,” said Vickie Patton, a lawyer at the Environmental Defense Fund.

“Companies like AEP make the decision — either invest in common retrofits like

scrubbers to clean up pollution, or close down old and poorly controlled plants

and replace them with cleaner, more efficient generation.” Mary Anne Hitt, a

Sierra Club official, said those emissions contribute to thousands of premature

deaths from asthma and heart attacks and added $62 billion a year to health costs.

33

TVA to Spend as Much as $5 Billion to Resolve

Carbon Violations in U.S., close 18 coal plants Bloomberg -- Apr 14, 2011 The Tennessee Valley Authority agreed to close 18

coal-fired generators and install as much as $5 billion in pollution controls to

resolve alleged Clean Air Act violations in Alabama, Kentucky and Tennessee.

The settlement with the Environmental Protection Agency and the states requires

TVA to install equipment targeting nitrogen oxides and sulfur dioxide, which

create acid rain, the TVA said today in a statement. TVA, created in 1933 by

President Franklin D. Roosevelt, will invest $350 million in clean-energy projects

and pay $10 million in civil penalties.

The TVA, which owns 59 coal-burning units, said it will replace the units with

low- or zero-emitting sources, including renewable energy, natural gas and

nuclear. The government-owned company, faulted by environmental groups for

operating old and polluting plants, said it aims to become a top U.S. provider of

cleaner energy by 2020.

“These units are among the first built by TVA and have served us well over the

years,” Chief Executive Officer Tom Kilgore said in a statement. “But as times

change, TVA must adapt to meet future challenges.” Bruce Nilles, head of

energy programs at the San Francisco- based Sierra Club, said the agreement is

“by far the largest coal-retirement settlement in the nation’s history.”

“Tennessee and the surrounding region have been getting hammered by the

pollution from TVA’s coal plants for more than half a century,” Nilles said in an

interview. The generators are, on average, 47 years old, exceeding their intended

life span of 30 years to 40 years, he said.

‘Drive Up Utility Bills’

Representative John Duncan, a Tennessee Republican, said the agreement will

increase energy costs for consumers. “The EPA has gone power mad,” he said in

a statement. “I’m disappointed that TVA caved in to these demands. This

settlement will drive up utility bills for people in Tennessee and the surrounding

states and hurt poor and lower income people the most.”

Representative Ed Whitfield, a Kentucky Republican and chairman of the House

Energy and Commerce Committee’s energy and power panel, said the agreement

reflects the efforts of environmental groups to dictate policy.

EIA: Renewable Electric Sources to 2035

34

NEX Global Index of Clean Energy (95 Co.s)

http://www.nexindex.com/pdf/2011_09_30_nex%20factsheet.pdf

The NEX is a global index of 95 firms

listed on 27 exchanges in 22 countries

(excluding Hong Kong and Taiwan)

whose innovative technologies and

services focus on the generation and use

of cleaner energy, conservation,

efficiency and the advancement of

renewable energy in general.

The NEX Universe

Companies worldwide active in wind,

solar, biofuels, hydro, wave and tidal,

geothermal and other renewable energy

businesses, as well as energy

conversion, storage, conservation,

efficiency, materials, pollution control,

emerging hydrogen and fuel cells.

NEX is a rule-based index and uses equal-

weighting methodology modified by sector and

market capitalization bands to provide

diversification across the clean energy industry.

The index is rebalanced quarterly on the last

business day of March, June, September and

December, when the components and the initial

weights are determined. At rebalancing no single

component can exceed 5% weight.

35

Meanwhile, Clean Energy still lagging…

Solar firms dim since summer (vs. NASDAQ)

36

Lower stock values hinder raising capital in clean energy; No IPOs.

EIA: US Electricity Fuel Mix, 1990-2020 (AEO 2012)

37

Observations: Trends in U.S. Electricity - Summary

• Overall electricity consumption is still rising, but the recession has cut growth

forecasts, with some efficiencies also. [But, very little electrification of transport.]

• With closures of older coal plants (perhaps 10%-20% of capacity by 2020), coal’s

share of electricity is expected to decline from roughly 50% in 2000 to about 40% of

national supply by 2020. [Much of it old, seldom run plants.]

• MORE GAS: With a sharp rise in shale gas availability since 2007, natural gas is

replacing coal as it is retired. Gas turbines were over-built in the late 1990s, and

some of that capacity is being turned on now as natural gas prices dropped from

>$12/Mbtu in 2008 to less than $4/Mbtu with the onset of the recession, gas glut.

• Relicensing of reactors and construction of four reactors (GA, SC) will keep nuclear

at 20% of supply through 2020. This contrasts with a decline in Europe and Japan,

and a reactor building boom in China, Korea and Asia, despite Fukushima.

• Hydropower remains stagnant; no new dams since the 1960s.

• Renewable sources are rising, particularly given state RES policies: Wind comprises

most of the growth, none of it in Southeast. Few new biomass or geothermal units

were built since 1990; Solar stays below 0.5% by 2020 if it triples from 2010.

Energy Policy needed; but Union divided …

38

State RES Map

39

http://www.ucsusa.org/clean_energy/

States not waiting for federal

consensus on energy policy.

AWEA: Wind Power now at 47,000 MWs

40

No wind for

whistling

Dixie

AWEA 4th Qtr report 2011

RFA: 209 U.S. Bio-refineries, 14B gallons

41

Two-thirds of capacity is in just 5 upper Midwest states: IA, NE, IL, MN, IN (“Big TEN”).

EIA estimates that the RFS of 36B by 2022 will not be met as construction has slowed.

EIA International Energy Outlook 2010 (base case)

The world remains dependent on Fossil Fuels through 2050 (liquids, coal, gas)

Coal remains an expanding portion of energy supply through 2030 (Asia, OECD).

Coal

(Asian growth)

We cannot conserve our way to lower GHG emissions. Energy use is rising, demanding investment.

Rising renewables, but

just to feed new demand,

rather than replace fossil.

Nuclear will struggle to

hold current share (with

new plants).

42

Global CO2 Emissions, 1990 – 2030

“Major Emitters” (Top 10) matter most. U.S.+China = 50% in 2030

Kyoto signers were 55% in 2002;

but will only be 35% in 2030.

1990 2010 2030

43

Long Recession = Emissions down to 2025

Enhanced Energy Security

Reduce oil imports

Better engines

Plug-in hybrids

Bio-fuels

Tele-commuting

Better electricity use

More energy efficiency

More (shale) gas, less coal

CHP in Urban areas

Energy Water cycles

More renewable sources

Waste to Energy

Build reactors

Carbon Capture + Utilization

… Reduced GHG emissions

[mutual objectives]

+ Technology job growth

EIA: U.S. energy-related CO2 emissions will not reach 2005 levels until after 2025.

And if policies are extended, then emissions will rise even more slowly to 2050.

U.S. emissions revised downward

Credit crisis

Recession

44

Climate Change Legislation Frozen

45

Climate-change legislation buried under record snowfall in capital By Alexander Bolton - 02/09/10 09:30 PM ET

Record snowfall has buried Washington — and along with it, buried the chances of passing

global warming legislation this year. Cars are stranded in banks of snow along the streets of the

federal capital, and in the corridors of Congress, climate legislation also has been put on ice.

Democratic senators say a bill that was once a top priority for the party and for President Barack

Obama cannot be dug up again during 2010. Voters are mostly concerned with jobs and the

economy. Global warming is at the bottom of their list. And now, the paralyzing snowfalls

have made the prospect of winning support for a climate bill this year even less likely.

Sen. Jim DeMint (R-S.C.) on Tuesday used the D.C. snowstorm to make a political jab, saying

that it provides evidence for global warming skeptics. “It's going to keep snowing in DC until Al

Gore cries “uncle,” the conservative Senator tweeted on Twitter.

Sen. Jeff Bingaman (D-N.M.) said the blizzards that have shut down Congress have made it

more difficult to argue that global warming is an imminent danger.

“It makes it more challenging for folks not taking time to review the scientific arguments,”

said Bingaman, who as the chairman of the Energy and Natural Resources Committee has

jurisdiction over energy and climate change issues.

“People see the world around them and they extrapolate,” Bingaman said. “I think that it’s hard to

see an economy-wide cap-and-trade [proposal] of the type that passed the House could prevail,”

he added, though he suggested a more limited alternative could have a better chance. The

seasonal snowfall total for Washington reached 45 inches after nearly two feet of snow dumped

on the region over the weekend. Forecasts predicted another six to 20 inches to fall on Tuesday

and Wednesday, putting the city on course to break a 111-year-old record for its snowiest winter.

The record snowfall has forced the House to cancel all votes this week. The Senate met

Tuesday, but may not meet the rest of the week.

For critics, it was an opportunity to poke fun at the issue’s most prominent advocate.

“Where’s Al Gore when we need him?” quipped Senate Republican leader Mitch McConnell

(Ky.), who burst out laughing when asked about the prospect of passing cap-and-trade legislation

Tuesday while the city was still digging out. Some Senate Democrats dismiss the role snow has

played in the debate, but they acknowledge there is growing consensus that global warming

legislation will not pass in the 111th Congress. “I don’t think that the climate change with cap-

and-trade is going to pass this year,” said Sen. Kent Conrad (D-N.D.), who as Budget chairman is

putting together Congress’s annual estimate of how much revenue the government will collect

next year and in future years.

Feb 2010

Democrat Gov. Joe

Manchin of WV guns

down Cap and Trade

to win a Senate seat.

Promote the Upside, rather than Consensus

46

Do we need a GHG Bill? EPAct, EISA, ARRA

TRANSPORTATION

Renewable Fuels Std at 36b gallons by 2022, with cellulosic

Upgraded CAFÉ on engines in the EISA bill… but automakers digging out

Transportation package possible in 2012, with energy title

ENERGY INVESTMENT

DOE Loan Guarantee Program from EPAct ‘05, expanded in ARRA

DOE LGs now bigger than DOE… >$60B, all fuel sources

ARRA spending on Energy + “Smart Grid” at 2x-3x previous budgets

ARRA tax credits through 2016, plus Treasury grants to 2012

30 states have RES which is a steadier driver than cap and trade + RGGI

Rate base still available in the Southeast, Midwest for big projects [debt]

RESIDENTIAL / COMMERCIAL

Expanded building and appliance standards, but huge base

National EE Action Plan with states… but N.gas is cheap again

Will the commodities (oil, gas, metals) roller coaster continue ?

Wild card: is fuel supply secure, or more volatility, higher prices ahead ?

47

NARUC Perspective: compounding rate pressures

State Utility Commissions face several pressures going into 2012:

1. Expansion and mandatory gas pipeline safety measures (after San Bruno)

2. Smart grid and transmission upgrades, other electricity investment

3. Water utility rates and financing either urban upgrades, or rural extensions

4. Telecommunications rate recovery for expanding broadband

48

Marcellus Shale drilling

(permitting, planning)

San Bruno gas pipeline explosion (Sep 2010)

Broadband

wiring

Urban

water

upgrades

U.S. States & Infrastructure… bigger drivers after Recovery Act subsides

NERC: EPA Air Rules to Impact Reliability

49

NERC Long-term Reliability

Assessment (Oct. 2010)

Several regulations are being

promolgated by the EPA. Depending

on the outcome of any or all of these

regulations, the results may

accelerate the retirement of some

fossil fuel‐fired power plants. The

EPA is currently developing rules

under their existing regulatory

authority that would mandate existing

power suppliers to invest in retrofitted

environmental controls at existing

generating plants or retire them.

In particular, four active EPA rule-

making proceedings could have

significant effects on grid reliability as

early as 2015. These rules under

development include:

1. Clean Water Act – Section 316(b),

Cooling Water Intake

2. Coal Combustion Residuals

(CCR) Disposal Regulations

3. Clear Air Transport Rule (CATR)

4. Title III of the Clean Air Act –

National Emission Standards for

Hazardous Air Pollutants (NESHAP)

for the electric power industry

[MACT Standard]

As a result of these accelerated retirements, capacity reductions may diminish reserve

margins and could impact bulk power system reliability in the near future. Potential

impacts of EPA regulations on bulk power system reliability include not only retrofitting

existing generation but also constructing or acquiring replacement generation or other

resources. Bulk power system planning and operation approaches, processes, and tools

will require sufficient time for changes to be made, otherwise either reliability will suffer or

aggressive environmental goals may not be attainable. Therefore, the risk to reliability is a

function of the compliance timeline associated with the potential EPA regulations.

NERC: Reliability Assessment 2010

50

In summary (p.40), the ranking of the

2010 Emerging issues suggest the

industry is being asked to solve many

multifaceted, interconnected issues,

while at the same time providing

reliable service to its customers.

The industry is in transformation,

where many interrelated issues

present complex risks to bulk power

system reliability across the planning,

design, and operational spectrum.

Overall, the risk assessment

suggests more than the relative

importance of individual issues, but

the confluence of the interrelated

issues emerging simultaneously.

While during the short‐term,

solutions, approaches, and best

practices are being developed,

significant challenges exist in the

long‐term that must be overcome.

Facing more RE sources and uncertainties…

FERC hearing focus on Nov. 29-30, 2011

(State RESs)

…Political Outlook to 2012

Political Mood…

52

53

40

45

50

55

60

65

1976 78 80 82 84 86 88 90 92 94 96 98 2000 02 04 06 08 10 12

Senate Control, 1976-2010

Democrat Republican

Carter Reagan Bush, Sr Clinton GW Bush, Jr Obama

Control of SENATE by Party, 1976 - 2010

In 1994 Republicans recaptured what they

had under Reagan in the Senate.

The 2000 election split the Senate 50-50.

Dems +6 in 2006

and +8 in 2008

In 2012, Dems will have 23 seats to defend, while only 10 GOP senators are up.

?

2010 Results for the SENATE: 6 seats shift

54

Old Senate in

Senate: 2011

59 Ds 53 Ds

- 6

41Rs 47 Rs

9 votes 3 votes

Either party can

easily block major

legislation via

filibuster.

Republicans gained most in the Industrial Heartland, Plains.

Murkowski caucuses

with GOP

Senate 2012 Rack-up: -3 to -5 Ds = 51Rs – 49 Ds

55

Toss-up “Leans R” Safe R “Leans D” Safe D

FL- Bill.Nelson

MI- Stabenow

MN-Klobuchar

NJ-Menendez

OH- Brown

WV-Mancin

NE-B.Nelson

CT- [Lieberman]

IN-Lugar

MS- Wicker

TN-Corker

WY-Barrasso

UT-Hatch*

TX- [Hutchison]

[ OPEN; Retiring ]

CA-Feinstein

DE-Carper

MD-Cardin

NY-Gillibrand

RI-Whitehouse

VT-Sanders

PA-Casey

WA- Cantwell

Democrats

HI- [Akaka]

NM- [Bingaman]

VA- [Webb]

WI- [Kohl]

MO-McCaskill

Republicans

MA- S.Brown

NV- Heller

ME- [Snowe]

ND- [Conrad]

MT-Tester

* Potential retirement http://cookpolitical.com/charts/senate/raceratings.php

http://www.electionprojection.com/2012elections/senate12.php

AZ- [ Kyl ]

D = 9 of 23 No losses

D = -1 D = -2 to -4

R = -1 to -2

D = -1 or -2 R = 7 of 10

Peaking ahead to 2014… 20Ds, 13Rs

Could lead to Democrats losing 2-4 more seats.

Current split: 53Ds – 47Rs

GOP Gains Leverage for 2012 via State Houses

Overall, Republicans have exclusive

control of redistricting in 202 districts,

Democrats hold authority in 47

districts, bipartisan or citizen

commissions will draw 92 districts,

control is divided in 87 districts, and

seven districts are in At Large states

that do not require redistricting.

About 200 more districts will be

created via participation by both

parties or by non-partisan panels.

California voters approved a ballot

measure Tuesday that transferred the

design of districts from the

Democratic-controlled Legislature to a

non-partisan commission.

Republicans won control of 19

legislative chambers across the USA.

Democrats won zero.

Republicans flipped both legislative

chambers in Alabama, Maine,

Minnesota, New Hampshire, North

Carolina and Wisconsin. The party

won control of houses of

representatives in Colorado, Indiana,

Iowa, Michigan, Montana, Ohio and

Pennsylvania.

56

SOURCE: NCSL

www.ncsl.org/tabid/21253/default.aspx

GOP governor

Independent Commission

GOP turnout triggered DEEP gains in states, not just broad wins in the Congress.

Source: NCSL.org

Comparison: State Houses before 2010 election

Republicans Make Historic Gains in 2010

Republicans have added over 675 seats to their ranks in this election, dramatically surpassing 1994 gains. This number could go even

higher as the tallies in the undecided races are determined. The chamber switches thus far are all Democratic to Republican except for

Montana House which was tied and is now Republican, and the Oregon House which was Democratic and is now tied. This is the first

time in Alabama that Republicans have controlled the legislature since reconstruction. The North Carolina Senate has not been

Republican since 1870. And Republicans have reportedly taken over 100 seats in the New Hampshire House.

The Minnesota Senate will be controlled by the GOP for the first time since Minnesota switched back to partisan elections in 1974.

57

GOP turnout triggered DEEP gains in states, not just broad wins in the Congress.

GOP gains

Alabama - House and Senate

Colorado - House

Indiana - House

Iowa - House

Louisiana - House

Maine – House and Senate

Michigan - House

Minnesota - House and Senate

Montana - House

New Hampshire - House and Senate

New York - Senate

North Carolina - House and Senate

Ohio - House

Pennsylvania - House

Wisconsin - Assembly and Senate

Tied : Oregon House; Alaska Senate

One chamber still has undecided seats:

New York House.

Source: NCSL.org

58

Control of HOUSE by Party, 1976 - 2010

100

150

200

250

300

350

1976 78 80 82 84 86 88 90 92 94 96 98 2000 02 04 06 08 10 12

House Control, 1976-2010

Democrat Republican

Carter Reagan Bush, Sr Clinton GWBush, Jr Obama

A realignment occurred in 1994 with

new district lines and the loss of

conservative Southern Democrats.

Democrats recapture House in

2006 as Iraq War festers.

Weak GOP seats were culled in 2006; no Dems lost in 2006 or 2008.

40 years of House rule by Democrats

Post-Watergate high water

mark for Democrats.

House flips to GOP,

without new lines

?

2010 Results for HOUSE: 63 seat swing

59

Old House in

House: 2011

256 Ds 193 Ds

-63

179 Rs 242 Rs

38 votes 24 votes

(Margin needed for

218 votes.)

Despite big swing,

GOP margin is less

than the margin

Democrats had.

The Vote on Waxman-Markey (July 2009):

Of 49 Democrats elected in 2006 or 08:

― 21 voted for HR 2454 and lost

― 12 voted for HR 2454 and survived

― 16 abstained and only 3 survived

Gains by Republicans were distributed widely in suburbs.

Less 1 Republican (NY-26)

Chris Lee

(R-26)

And minus

one Weiner

(NY-9)

U.S. Political Party Process

60

Foreplay

yields

A huge stubborn beast that is difficult to move.

US Congress

2011

ADPaterson

2006

Democrats take Congress

2008

GOP kicked out

of White House

2010

Contest for President 2012

61

2012 Election Factors

62

Factors Favoring Obama

IF Economy recovers with broad based

job growth (unemployment <8.5%)

Fundraising as incumbent

Troops come home early (from Iraq)

Ground game (GOTV) mobilizes urban

vote in swing states… fewer races for

governor than in 2010

Independents see GOP House blocking

budget deal (Govt shutdown)

Stable or lower fuel prices (<$100/bbl;

and <$4 / gallon gasoline)

Stumbles by GOP candidate

Factors Favoring GOP

IF Recovery falters, or if interest rates

rise, housing prices slump further

Fundraising against incumbent

Turmoil rises in MidEast as Troops exit

Lower city turnout in swing states, with

higher Tea Party turnout in suburbs.

GOP governors push in swing states.

Independents see Democrats refusing

to curb spending for budget deal

Any calamity in Middle East or storm

damage that stresses oil prices

Any scandals tied to White House

Summer Politics… Fuel Prices

63

64

Election 2012: Scenarios?

Obama

Re-elected

GOP loses House seats / Senate 50/50 GOP keeps House & takes Senate

Scenarios?

50% 10%

40% 0% GOP

wins

Pres.

Obama at even odds. GOP positioned to take Congress.

EBI Summit

65

Election 2012: Scenarios?

Obama

Re-

elected

GOP

wins

Pres.

If Obama is re-elected, Government will be intensely divided.

RIGHT-SIZING GOVERNMENT DOWN

Federal land sales, projects

More oil and gas pumping

New nuclear and some coal plants

More energy R&D, incentives

EPA withers with wave of retirees

More conservative judges; Tax cuts

“WHITE HOUSE LEVERAGE”

Cutbacks at Pentagon; troops home

Urban renewal, city water projects

Tax cuts for wealthy expire

Clean Air Act revisions put forward

New nuclear still moves ahead

with lower emissions

“SENATE CLOTURE BATTLES ”

Renewable energy standards stay

Push for energy independence with

domestic drilling, usage, pipelines

More energy R&D, incentives

Lots of acrimony on spending cuts

Moderate Supreme justices

“GRIDLOCKED GRISTMILL”

Troops come home on timeframe

Tax deal showdown in 2013

Tug of war on agency priorities

EPA constrained on regulations

Lots of veto threats, some vetoes

Moderate Supreme justices

GOP keeps House & takes Senate GOP slim hold on House / Senate 50/50

Intrade.com: Political Futures (as of 14 Mar. 2011)

66

SANTORUM <5%

R.PAUL 2%

OBAMA WINS: 50% 60%

GOP HOLDS HOUSE 70%

M.ROMNEY >85%

Sen. RUBIO as Veep 25%

As nominee… General election…

After GOP debates and after primaries in South

GOP TAKES SENATE 75% 55%

Snowe retires

Third Party Run… ? [not likely]

67

Palin – Perot See, here’s the Deal; She’s in charge

Nunn – Norris Vote for us; no one gets hurt

Gore – RFK, Jr Save the Earth… Again !

Schwarzenegger – Cheney Shock und Awesome !

Iran,

Y’all are

Toast !

68

2008 Result: 365 / 173 No states flipped for GOP

GOP has few places it can go to regain states: OH, VA, FL, IN, NC, CO (+95)

http://www.electoral-vote.com/

Strong Dem (265)

Weak Dem (26)

Barely Dem (74)

Exactly tied (0)

Barely GOP (14)

Weak GOP (39)

Strong GOP (120) 270 Electoral votes needed to win

Map algorithm explained

Dem Pickups: CO FL IN IA NV NM NC OH VA

GOP Pickups: NONE

REVIEW:

69

2012: How many of 9 States that flipped stay Blue?

http://www.270towin.com/

2012 election is first

one with results of

2010 census.

FL now has same

electoral count as NY

Red states: +5 net

So, GOP needs + 92.

States that flipped

Blue from 2004.

Outlook

70

2012: CORE States for Each Party (1992-2008)

http://www.270towin.com/

BLUE CORE EDGE:

19 States have voted

Democrat in each of

the last five elections,

with 242 Electoral

Votes for 2012.

(270 to win).

Only a dozen states

with just 101 EVs have

voted every time since

1990 for Republicans.

GOP needs to flip a

Blue State to create

any cushion for losses

in 2012.

Outlook

71

2012: Very few States Decide the Outcome

2012 election is first

one with results of

2010 census.

Red states: +5 net since

2008. So, GOP needs

+ 92 to reach 270.

Outlook -- possibly just MO, NV and NH determine winner

If Team Obama keep

the core of 242 (19

states), then winning FL

is enough for victory.

Likely GOP Pickups:

OH IN VA NC … FL

Battleground in Midlands:

MO, IA, MI, WI ? NV, NH !

http://www.270towin.com/

72

2012: Possible Deadlock given Tendencies

http://www.270towin.com/

Could the 2012

election end in a

deadlock like 2000 ?

GOP Pickups:

FL OH IN

VA NC NH

Dems hold:

CO NM NV +

Omaha, NE

Possibility ? 269 to 269… Constitutional Crisis ?

President selected

in NEW House… Each state, one vote.

[GOP holds 5 of 7

single seat states,

30 of 50 delegations.]

EBI Summit 2007 73

States: “Red” (Bush) vs. “Blue” (Gore/Kerry)

Red States (Bush)

Chemical plants & NASCAR!

Film: “Talladega Nights”

Producer states: Opportunities for expansion of energy infrastructure (pipelines, LNG)

Roads and suburbs; SUVs rule!

Transportation and siting projects

More energy exploration

State PUCs approve “clean coal” plants (with scrubbers) + gas

Water + drought management

Real estate development and more access to federal lands

Blue States (Gore/Kerry)

High-tech & Hockey

Film: “An Inconvenient Truth”

User states: Need upgrades of energy infrastructure: pipelines and transmission, urban load

Mass transit, congestion tolling

Hybrids and “clean fleets”

More “green energy” policies

More lawsuits on coal power plants (feud over NSR, CAA)

Water infrastructure makeovers

“Restoration Economy” and land use conservation

Different priorities will alter market opportunities for environmental firms.

Dealing with Gridlock… Do Something !

74

END / Q&A

75

2008 2012?

Political Scenarios: 2012 Election Outcomes

76

Mapping Scenarios to manage Uncertainty in Energy / Environmental Policy

SCENARIO (I) Divided Gov't (II) GOP Takeover (III) Obama Gains

Likelihood==> 50% 40% 10%

Presidency Obama Re-elected GOP wins WH Obama Re-elected

House [New lines for 2012] GOP keeps House GOP keeps House GOP loses House

Senate [23 Ds / 10 Rs] GOP takes Senate GOP wins Senate Senate split NET

Tax cuts to stimulate economy Possible Likely Not likely Coin toss

Transport Bill Renewal (SAFETEA-LU) Might pass in 2012 Likely YES Likely

Environmental legislation Not likely No chance Not likely NO

EPA regulatory rollbacks Obama veto Virtual certainty No chance 60% NO

EPA budget cuts Obama veto Dems can filibuster Not likely Some

Climate bill by 2016 Zero chance No way Still lack 60 votes NO

Electricity Reliability measures Likely Probably Likely Likely

Farm Bill (with an energy title) Likely In some form Likely Likely

Political Scenarios: 2012 Election Outcomes

77

Mapping Scenarios to manage Uncertainty in Energy / Environmental Policy

SCENARIO (I) Divided Gov't (II) GOP Takeover (III) Obama Gains

Likelihood==> 50% 40% 10%

Presidency Obama Re-elected GOP wins WH Obama Re-elected

House [New lines for 2012] GOP keeps House GOP keeps House GOP loses House

Senate [23 Ds / 10 Rs] GOP takes Senate GOP wins Senate Senate split NET

Potential Energy bill

Clean Energy Standard Not likely Not likely Complicated Not likely

Repeal of oil tax subsidies Not likely No way Complicated Not likely

Offshore exploration Likely Virtual certainty Complicated Likely

More use of federal lands Likely Likely Likely (lawsuits?) Likely

Extended RE subsidies (>2012) Possible Not likely Likely Possible

Reliability standards Likely Probably Likely Likely

National Infrastructure Bank Complicated Not likely Likely Coin toss

Defense spending Weapons cutbacks Some cuts Troops back sooner No growth

DOD uses 3rd-party financing Possible Possible Likely Possible

Defense cleanup budget ($5) Steady Some cuts New BRAC Steady

DOD clean energy inititiatives Expanding Might survive Likely Likely

EPA Budget & Priorities More pressure for cuts Regulatory relief No increase Cuts

EBI Summit Wrap-up: Some Discussion Themes

78

Opportunities E&E well-managed thru recession;

now “lean and mean”

Following US Corps overseas… and

global MNCs with int’l standards

Asia still expanding at rapid rate:

energy, minerals, food

ENERGY – WATER – FOOD nexus;

internal “resource accounting”

State RES remain: >70,000 MWs

Grid reliability, integration, storage,

driven by results, not just regs

Data, IT needs for new relations

More emphasis on partnerships

Challenges

Natural gas price horizon looks

low for a decade; N.gas <$4

“Stimulus cliff” (Recovery Act

over); Treasury grants expired.

Deeper austerity in EU

Equity capital in retrenchment;

Credit crisis remains for lenders

Struggle for siting, grid, pipeline

integration continues

Political gridlock, lack of leaders

(leadership shifts to states) –

global problem at national level